Perquisite Structure and ESG Performance in Private Firms: Complementary Expenditures or Hidden Expropriation?

Using data on Chinese A-share private listed firms from 2017 to 2024, this study distinguishes between the “efficiency view” and the “agency view” of perquisites. We decompose total perquisites into a predicted normal component and a residual excessive component and examine how these two components jointly affect ESG performance, as well as the governance mechanisms through which these effects operate. Our findings are fourfold. First, normal perquisites exert a significantly positive effect on private firms’ ESG ratings, whereas excessive perquisites have a significantly negative effect. Second, internal control quality partially mediates the relationship between excessive perquisites and ESG ratings-excessive perquisites, which impair ESG performance by weakening internal control. Third, the disclosure of key audit matters mitigates the negative impact of excessive perquisites on ESG ratings, serving as an external governance device. Fourth, the positive effect of total perquisites on ESG ratings is more pronounced in firms with strong equity incentives or extensive analyst coverage. By adopting a perquisite structure perspective, this study offers fresh insights into the longstanding debate between the “efficiency view” and the “agency view.” It also extends the scope of internal and external governance mechanisms-including internal control and key audit matter disclosures into the corporate sustainability domain.