Understanding self-regulation for political control and policymaking: Effects of governance mechanisms on accountability

Abstract

Self-regulation has become a crucial governance mechanism for policymaking and political control. Although governments have increasingly implemented self-regulation, its effects are under-researched. International policymakers highlight the role of self-regulation in extending accountability and political control of state-owned enterprises (SOEs). A key accountability area—attracting widespread public interest—is the level of executive directors' pay. Drawing on agency theory, this study analyzes 2,112 pay disclosures of 700 executive directors employed in 289 German SOEs between 2014 and 2017. The results indicate that both self-regulation and its quality have significant effects on behavior control. Further, the complementary adoption of self-regulation and law has the strongest effects on principals' and agents' behavior and awareness. For the debate on board composition, it is important to note that a higher proportion of politicians as directors on SOE boards weakens the effects of self-regulation. Overall, this study enhances the theoretical understanding of self-regulation and provides important policy implications.