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Business & Economics

UNDERSTANDING THE IMPACT OF PAY GAP ON CORPORATE INNOVATION: EVIDENCE FROM CHINESE PRIVATE LISTED ENTERPRISES⁵
Chuyi Fang, Chaoyu Li, Lijun Jia

ABSTRACT. Using Chinese private listed firms (2012-2019) as the sample, we constructed regression models to investigate the impact of the within-firm pay gap on corporate innovation as well as the moderating effect of financing constraints. We addressed the potential endogenous problem via the 2SLS method combined with the instrumental variable. First, it is found that the pay gap can significantly promote both innovation input and output. Second, it is found that financing constraints exert a negative moderating impact on the relationship between the pay gap and corporate innovation. The main conclusions are robust after a series of tests.
Through further study, it is also found that the positive effect becomes stronger in firms with a higher proportion of males in management, in high-tech firms and in firms located in eastern China. The study has revealed the importance of setting a reasonable salary gap and reducing financing pressure for enterprises.

KEYWORDS:  within-firm pay gap, corporate innovation, financing constraints, China.

JEL classification:  J31, J53, M21.

⁵Acknowledgements:  This research is supported by the Shanghai Sailing Program (No 20YF1413200) and the National Natural Science Foundation of China (No 72072110)..