Public governance and executive perks under a weak corporate governance environment

Abstract

AbstractWe reveal state‐led anti‐corruption campaigns in China can mitigate excess executive perk consumption facilitated by firms' weak internal control environment. Our findings suggest that public governance can substitute for firm‐level governance mechanisms. Since these campaigns enhance the central government's disciplinary power over local state‐owned enterprises (SOEs), the above effects are heightened among SOEs controlled by provincial/municipal governments rather than the central government. Irrespective of political connections, non‐SOEs are also affected, indicating policy effect spillover to China's private sectors. We explore several underlining mechanisms for these effects, including Communist Party Committee governance, chief executive officer/chairperson dismissal, industry competition, and firm productivity.