IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v50y2022ics1544612322004585.html
   My bibliography  Save this article

Government regulation on corporate compensation and innovation: Evidence from China's minimum wage policy

Author

Listed:
  • Liu, Guangqiang
  • Lv, Lingli

Abstract

This study examines how minimum wage policy shapes firm innovation in an emerging market. We find that minimum wage increases in regions where firms are located stimulate firm innovation significantly. This incentive effect, transmitted mainly through higher labor costs that lower firm profits and force the existing staff to upgrade their skillsets and improve the firm workforce structure, is pronounced in labor-intensive industries and non-state-owned enterprises. Our findings provide policy implications for governments concerned with labor protection and firm transformation and upgrading.

Suggested Citation

  • Liu, Guangqiang & Lv, Lingli, 2022. "Government regulation on corporate compensation and innovation: Evidence from China's minimum wage policy," Finance Research Letters, Elsevier, vol. 50(C).
    • Handle: RePEc:eee:finlet:v:50:y:2022:i:c:s1544612322004585
    DOI: 10.1016/j.frl.2022.103272
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612322004585
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2022.103272?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jonathan Meer & Jeremy West, 2016. "Effects of the Minimum Wage on Employment Dynamics," Journal of Human Resources, University of Wisconsin Press, vol. 51(2), pages 500-522.
    2. David Neumark & JM Salas & William Wascher, 2014. "More on recent evidence on the effects of minimum wages in the United States," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-26, December.
    3. Xu, Gang & Yano, Go, 2017. "How does anti-corruption affect corporate innovation? Evidence from recent anti-corruption efforts in China," Journal of Comparative Economics, Elsevier, vol. 45(3), pages 498-519.
    4. Balsmeier, Benjamin & Fleming, Lee & Manso, Gustavo, 2017. "Independent boards and innovation," Journal of Financial Economics, Elsevier, vol. 123(3), pages 536-557.
    5. David H. Autor & Alan Manning & Christopher L. Smith, 2016. "The Contribution of the Minimum Wage to US Wage Inequality over Three Decades: A Reassessment," American Economic Journal: Applied Economics, American Economic Association, vol. 8(1), pages 58-99, January.
    6. Holtemöller, Oliver & Pohle, Felix, 2020. "Employment effects of introducing a minimum wage: The case of Germany," Economic Modelling, Elsevier, vol. 89(C), pages 108-121.
    7. Howell, Anthony, 2020. "Minimum wage impacts on Han-minority Workers’ wage distribution and inequality in urban china," Journal of Urban Economics, Elsevier, vol. 115(C).
    8. Mirko Draca & Stephen Machin & John Van Reenen, 2011. "Minimum Wages and Firm Profitability," American Economic Journal: Applied Economics, American Economic Association, vol. 3(1), pages 129-151, January.
    9. Daron Acemoglu, 2010. "When Does Labor Scarcity Encourage Innovation?," Journal of Political Economy, University of Chicago Press, vol. 118(6), pages 1037-1078.
    10. Neumark, David & Wascher, William, 2001. "Minimum Wages and Training Revisited," Journal of Labor Economics, University of Chicago Press, vol. 19(3), pages 563-595, July.
    11. Beladi, Hamid & Deng, Jie & Hu, May, 2021. "Cross-border investment and corporate innovation: Evidence from the Chinese market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
    12. Qifeng Zhao & Yongzhong Wang, 2018. "Pay gap, inventor promotion and corporate technology innovation," China Finance Review International, Emerald Group Publishing Limited, vol. 9(2), pages 154-182, April.
    13. Chemmanur, Thomas J. & Kong, Lei & Krishnan, Karthik & Yu, Qianqian, 2019. "Top Management Human Capital, Inventor Mobility, and Corporate Innovation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 54(6), pages 2383-2422, December.
    14. He, Jie (Jack) & Tian, Xuan, 2013. "The dark side of analyst coverage: The case of innovation," Journal of Financial Economics, Elsevier, vol. 109(3), pages 856-878.
    15. Shoufu Xu & Xuehui He & Longbing Xu, 2018. "Market or government: who plays a decisive role in R&D resource allocation?," China Finance Review International, Emerald Group Publishing Limited, vol. 9(1), pages 110-136, August.
    16. Kong, Dongmin & Qin, Ni & Xiang, Junyi, 2021. "Minimum wage and entrepreneurship: Evidence from China," Journal of Economic Behavior & Organization, Elsevier, vol. 189(C), pages 320-336.
    17. Kong, Dongmin & Zhang, Bohui & Zhang, Jian, 2022. "Higher education and corporate innovation," Journal of Corporate Finance, Elsevier, vol. 72(C).
    18. Beladi, Hamid & Hou, Qingsong & Hu, May, 2022. "The party school education and corporate innovation: Evidence from SOEs in China," Journal of Corporate Finance, Elsevier, vol. 72(C).
    19. Zhu, Chen & Qiu, Zhiyi & Liu, Fengjun, 2021. "Does innovation stimulate employment? Evidence from China," Economic Modelling, Elsevier, vol. 94(C), pages 1007-1017.
    20. Mukherjee, Abhiroop & Singh, Manpreet & Žaldokas, Alminas, 2017. "Do corporate taxes hinder innovation?," Journal of Financial Economics, Elsevier, vol. 124(1), pages 195-221.
    21. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wei, Wei & Song, Yan & Jin, Ruifeng, 2024. "The impact of tax digitalization on corporate salary structures," Finance Research Letters, Elsevier, vol. 64(C).
    2. Zhao, Meiyu & Zhang, Bo, 2023. "Credit corruption, financial constraint and corporate innovation: Evidence on China," Finance Research Letters, Elsevier, vol. 53(C).
    3. Yao, Wenyun & Qian, Yuhang & Yang, Hang & Xu, Wei, 2023. "Does minimum wages affect executive compensation? – Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 80(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pestel, Nico & Bonin, Holger & Isphording, Ingo E. & Gregory, Terry & Caliendo, Marco, 2020. "Auswirkungen des gesetzlichen Mindestlohns auf Beschäftigung und Arbeitslosigkeit," IZA Research Reports 95, Institute of Labor Economics (IZA).
    2. Liu, Guanchun & Liu, Hangjuan & Liu, Yuanyuan & Yang, Jinyu & Zhang, Yanren, 2024. "Personal income tax and corporate innovation: The key role of inventors’ financial incentives," Journal of Banking & Finance, Elsevier, vol. 164(C).
    3. Sun, Yanyang & Chen, Yu & Wu, Wenruo, 2024. "Short-term success and long-term failure? The case of GDP growth targets and corporate innovation," Pacific-Basin Finance Journal, Elsevier, vol. 84(C).
    4. Cui, Xin & Wang, Chunfeng & Liao, Jing & Fang, Zhenming & Cheng, Feiyang, 2021. "Economic policy uncertainty exposure and corporate innovation investment: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
    5. Lei Xu & Yu Zhu, 2023. "Does the employment effect of national minimum wage vary by non‐employment rate? A regression discontinuity approach," Manchester School, University of Manchester, vol. 91(1), pages 18-36, January.
    6. Kong, Dongmin & Qin, Ni & Xiang, Junyi, 2021. "Minimum wage and entrepreneurship: Evidence from China," Journal of Economic Behavior & Organization, Elsevier, vol. 189(C), pages 320-336.
    7. Liu, Shasha & Kong, Dongmin & Zhang, Jian, 2024. "Air pollution-induced brain drain: Evidence from inventor mobility," International Review of Financial Analysis, Elsevier, vol. 91(C).
    8. Ziyang Li & Qianwei Ying & Wu Yan & Chenjun Fan, 2022. "Does just‐in‐time adoption have an impact on corporate innovation: evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(S1), pages 1599-1635, April.
    9. Zhang, Ming-ang & Lu, Shuling & Zhang, Sihan & Bai, Yanfeng, 2023. "The unintended consequence of minimum wage hikes: Evidence based on firms' pollution emission," Energy Economics, Elsevier, vol. 125(C).
    10. Riley, Rebecca & Rosazza Bondibene, Chiara, 2017. "Raising the standard: Minimum wages and firm productivity," Labour Economics, Elsevier, vol. 44(C), pages 27-50.
    11. Medrano-Adán, Luis & Salas-Fumás, Vicente, 2023. "Do minimum wages deliver what they promise? Effects of minimum wage on employment, output, and income inequality from occupational choice theory," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 366-383.
    12. Robayo,Monica & Terskaya,Anastasia & Koettl-Brodmann,Stefanie, 2020. "Ex-ante Evaluation of the Impact of Increases in Minimum Wages on Labor Market Outcomes in Kosovo," Policy Research Working Paper Series 9357, The World Bank.
    13. Dongying Du & Xiaojian Tang & Huaiming Wang & Joseph H. Zhang & Stephanie Tsui & Dongjie Lin, 2022. "CEO organizational identification and corporate innovation investment," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(3), pages 4185-4217, September.
    14. Guo, Bing & Pérez-Castrillo, David & Toldrà-Simats, Anna, 2019. "Firms’ innovation strategy under the shadow of analyst coverage," Journal of Financial Economics, Elsevier, vol. 131(2), pages 456-483.
    15. Kong, Dongmin & Zhang, Bohui & Zhang, Jian, 2022. "Higher education and corporate innovation," Journal of Corporate Finance, Elsevier, vol. 72(C).
    16. Gregory, Terry & Zierahn, Ulrich, 2022. "When the minimum wage really bites hard: The negative spillover effect on high-skilled workers," Journal of Public Economics, Elsevier, vol. 206(C).
    17. Dami'an Vergara, 2022. "Minimum Wages and Optimal Redistribution," Papers 2202.00839, arXiv.org, revised Dec 2022.
    18. Seong K. Byun & Jong-Min & Han Xia, 2021. "Incremental vs. Breakthrough Innovation: The Role of Technology Spillovers," Management Science, INFORMS, vol. 67(3), pages 1779-1802, March.
    19. Kevin Rinz & John Voorheis, 2018. "The Distributional Effects of Minimum Wages: Evidence from Linked Survey and Administrative Data," CARRA Working Papers 2018-02, Center for Economic Studies, U.S. Census Bureau.
    20. Lavecchia, Adam M., 2020. "Minimum wage policy with optimal taxes and unemployment," Journal of Public Economics, Elsevier, vol. 190(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:50:y:2022:i:c:s1544612322004585. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.