Do Managers Perform for Perks?

56 Pages Posted: 2 Mar 2010

See all articles by Donghua Chen

Donghua Chen

Nanjing University

Oliver Zhen Li

National University of Singapore (NUS)

Shangkun Liang

Nanjing University - School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2010

Abstract

We examine how the managerial consumption of perquisites is determined and whether and how it impacts firm value. On the one hand, if the consumption of perks is a result of agency conflict, then it represents managerial excesses and is value-destroying. On the other hand, when the transaction cost of monetary compensation is high due to information asymmetry, government regulations and media scrutiny, perks can provide incentives for managers to work hard to create shareholder wealth. Using manually-collected data on direct monetary compensation and perks for firms in China, we find that perks are provided when the relative pay between top managers and average employees is low, in firms with high free cash flows, high economic rent and growth. Further, perks are positively associated with firm value, but to a much lesser extent than monetary compensation. Therefore, while perks appear to motivate managers to work hard to create shareholder wealth, they are not as effective as monetary compensation. In addition, the predicted or the “optimal” portion of perks motivates managers better than the unpredicted portion of perks. Finally, the effect of perks in enhancing firm value is more pronounced in firms with high economic rent, high growth and low relative pay between top managers and average employees.

Keywords: Perks, Compensation, Agency Conflict, China

JEL Classification: G18, G35

Suggested Citation

Chen, Donghua and Li, Oliver Zhen and Liang, Shangkun, Do Managers Perform for Perks? (March 1, 2010). Available at SSRN: https://ssrn.com/abstract=1562003 or http://dx.doi.org/10.2139/ssrn.1562003

Donghua Chen

Nanjing University ( email )

Nanjing, Jiangsu 210093
China

Oliver Zhen Li (Contact Author)

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

Shangkun Liang

Nanjing University - School of Business ( email )

22 Hankou Road
Nanjing, Jiangsu 210093 210093
China

Register to save articles to
your library

Register

Paper statistics

Downloads
256
Abstract Views
2,040
rank
64,847
PlumX Metrics