Influence of remuneration and risk appetite on budgetary slack: Evidence from Chinese manufacturing firms

The influence of executive remuneration and executive risk appetite on budgetary slack is examined in this paper via publicly available data from listed Chinese manufacturing firms from 2017--2021, and the moderating effect of firm size on this relationship is discussed. In this paper, we include the first-order lagged term of budgetary slack as a dependent variable in the regression analysis, construct dynamic panel data, and estimate it via a two-stage system GMM. The results show that executive remuneration and executive risk appetite significantly dampen budgetary slack, and the moderating effect reveals that this relationship varies on the basis of firm size, demonstrating the firm size sensitivity of budgetary slack. Robustness tests reinforce the consistency of these results, and the two-stage system GMM also confirms that the model constructed in this paper does not suffer from endogeneity problems. These insights emphasize the key synergistic effects of improving executive remuneration systems and establishing a system for evaluating executive risk appetite on the sustainability of listed firms and provide valuable guiding recommendations for policymakers and business leaders aiming to improve the quality of corporate governance through sustainable practices.