Political Promotion of SOE Executives: the Implicit Incentive versus Incentive Distortion
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| Title | Political Promotion of SOE Executives: the Implicit Incentive versus Incentive Distortion
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| Author | Zheng Zhigang,Kan Shuo and Huang Jicheng |
| Organization | School of Finance, Renmin University of China |
| Email | zhengzhigang@ruc.edu.cn |
| Key Words | Political Promotion; Charitable Donations; Chairman’s Sitting Time; Vanity Project; Incentive Distortion |
| Abstract | Several recent studies show that the political promotion of the state-owned enterprise (SOEs) executives could play the implicit incentive role under the background of compensation regulation in China. Based on the evidences from the charitable donations of Chinese listed SOEs, this paper demonstrates that the longer the board chairpersons are sitting in their positions, the more charitable donations the SOEs in their charge make. However, the charitable donations are unexpectedly used to make the vanity project in order to hold the position of the chairpersons and make the opportunity for their political promotion in the future at the expense of the performance improvement. It is more typical and serious for the state-owned listed firms whose chairpersons sit in position for long time and wish to be promoted immediately. While the charitable donations, which is supposed to be the realization of social responsibility, turn into the vanity project, the implicit incentive function of political promotion of SOEs’ executives are partly-distorted in practice, and show up as the Chinese institutional background-specific agency costs. We therefore show that there are self-serving motivations behind charitable donations and the possibility of political promotion of the SOE executives is one of determinants of charitable donations. |
| Serial Number | WP791 |
| Time | 2015-01-06 |
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