Is the moral hazard in the Chinese labour market serious? Empirical evidence from a semi-parametric analysis

In this study, we extend the principal-agent model of moral hazard by incorporating different percentage effort choices made by the manager. Applying the semi-parametric estimation method, we estimate an extended principal-agent model of moral hazard using longitudinal data on firms and managerial compensation collected from the China Center for Economic Research database. The estimated compensation contracts confirm the non-neglected conflicts between management and shareholders, especially for managers in non-CEO or lower positions and in medium or large firms. Moral hazard is serious in large firms in the natural resources and manufacturing, as well as commercial product industries. Most managers' compensation in these firms can not induce more than 60% effort.