Individualism and excess perk consumption: Evidence from China

Abstract

This paper investigates how executive individualism affects excess perk consumption. We exploit data from listed firms in China over the period 2008–2017. We adopt the rice index proposed by Talhelm et al. (2014) as the measure of executive individualism. Our empirical results show that higher executive individualism results in higher excess perk consumption, which is mainly from traveling, company car, and meeting expenses. We suggest that this effect occurs because executive individualism is positively correlated with both CEO overconfidence and earnings management, leading to a higher probability of misbehaving. This effect is more pronounced among male executives, older executives, and those with lower levels of religious piety. The implementation of eight-point regulation, which mainly targets luxury consumption in government units and state-owned enterprises (SOEs), significantly attenuates the effect of executive individualism on excess perk consumption in SOEs. Various robustness tests confirm our results.