Corruption and Compensation in China

We show that Chinese firms engaging in corrupt practices pay significantly higher salaries to their management team as well as to their directors, although important differences arise between the private and the state sector. Our evidence suggests that managers in private companies use corruption to add value to the company, making manager higher compensation justified. We find no evidence of excessive salaries among directors in private companies. By contrast, corruption in state companies does not add value to the firm, making corruption extractive. We find that both directors and managers of state firms that engage in corrupt practices display significantly higher salaries. We argue these salaries are extractive as these companies have worse performance