Parent-Subsidiary Dispersion and Executive Excess Perks Consumption

Li, B., Yao, Y., Shahab, Y., Li, H. and Ntim, C.G. (2020). Parent-subsidiary dispersion and executive excess perks consumption. International Review of Financial Analysis, Forthcoming.

43 Pages Posted: 18 Feb 2021

See all articles by Bin Li

Bin Li

University of International Business and Economics (UIBE) - School of International Trade and Economics

Yao Yao

Southwestern University of Finance and Economics (SWUFE); Research Institute of Economics and Management

Yasir Shahab

School of Accounting, Xijing University

Hai-Xia Li

Xijing University - School of Accounting

Collins G. Ntim

University of Southampton Business School, UK; University of Southampton

Date Written: April 27, 2020

Abstract

We investigate the impact of parent-subsidiary dispersion on the corporate executives’ excess perks consumption using comprehensive data of 1,784 Chinese listed firms over the 2003–2017 period (i.e., total firm-year observations of 24,976). We argue that firms with greater geographic and institutional environment dispersion are subject to an acute information asymmetry problem, which makes it difficult and costly for shareholders and the public to monitor managerial actions and hence, facilitates managers to consume perks excessively. Consistent with this assertion, we find a positive relationship between parent-subsidiary company dispersion and executives’ excess perks consumption. These patterns are not likely to be driven by the firms’ endogenous choice and remain robust to various proxies for parent-subsidiary dispersion and executives’ excess perks consumption. In addition, our results also show that firms with a greater dispersion between parent and subsidiary companies have higher investor recognition. However, investor recognition does not appear to negatively impact the rate of executives’ excess perks consumption, which may explain why executives’ excess perks consumption is not mitigated in firms with greater parent-subsidiary dispersion.

Keywords: Parent-subsidiary dispersion; corporate executives; excess perks; information asymmetry; investor recognition

JEL Classification: G12; G14; G30; G32

Suggested Citation

Li, Bin and Yao, Yao and Shahab, Yasir and Li, Hai-Xia and Ntim, Collins G., Parent-Subsidiary Dispersion and Executive Excess Perks Consumption (April 27, 2020). Li, B., Yao, Y., Shahab, Y., Li, H. and Ntim, C.G. (2020). Parent-subsidiary dispersion and executive excess perks consumption. International Review of Financial Analysis, Forthcoming. , Available at SSRN: https://ssrn.com/abstract=3768182

Bin Li

University of International Business and Economics (UIBE) - School of International Trade and Economics ( email )

10 East Huixin Street
Chaouang District
Beijing, 100029
China

Yao Yao

Southwestern University of Finance and Economics (SWUFE) ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

Research Institute of Economics and Management ( email )

55 Guanghuacun Street
Chengdu, Sichuan 610074
China

Yasir Shahab

School of Accounting, Xijing University ( email )

Xijing Road
Chang'An District
Xi'an, Shaanxi Province, Shaanxi Province 710123
China
+8613126584641 (Phone)

Hai-Xia Li

Xijing University - School of Accounting ( email )

China

Collins G. Ntim (Contact Author)

University of Southampton Business School, UK ( email )

Southampton Business School
Highfield
Southampton, England SO17 IBJ
United Kingdom
+44 (0) 238059 4285 (Phone)
+44 (0) 238059 3844 (Fax)

HOME PAGE: http://www.southampton.ac.uk/business-school/about/staff/cgn1n11.page

University of Southampton ( email )

Southampton, SO17 1BJ
United Kingdom

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