Valuation of sector‐switching and politicization in the governance of corporatized public services

Abstract

AbstractCorporatization has great potential for public service provision, but governments face severe challenges in recruiting executive directors (EDs) with relevant human capital. Debates arise about the roles of sector‐switching and politicization in public corporation governance, but a critical research gap exists. ED pay (EDP) is a crucial governance factor and signifies the valuation of ED human capital. This study links debates on sector‐switching and politicization with human capital theory discourses and analyzes a panel dataset of 1832 ED observations in 291 German public corporations. Political mandate holders and former private‐sector EDs receive significantly higher EDP, whereas political human capital is valued even higher. Operating in a profit context strengthens the pay effects for political mandate holders but, contrary to widespread assumptions, not for former private‐sector EDs. This study enhances the theoretical understanding of the valuation of human capital factors in public corporation governance and provides important research perspectives.