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Government Subsidy, Corporate Pay-Gap and Firm’s Financial Performance: Evidence from China

Author

Listed:
  • Danlu Bu
  • Homayoon Shalchian
  • Rong Huang
  • Fang Hu

Abstract

We analyze the relation between government subsidization and the corporate pay-gap between executives and employees for a relatively large number of Chinese corporations. Our results show that government subsidy, under managerial control, can be used to increase executives’ compensation, and consequently, the corporate pay-gap in China. Our results also show that the effect of government subsidy on the corporate pay-gap is more significant among state-owned enterprises (SOEs) rather than private companies (non-SOEs). Finally, our results suggest that while the total pay-gap between the executives and employees has a positive impact on a firm’s financial success, the pay-gap caused by government subsidy negatively affects the firm’s economic performance. Â

Suggested Citation

  • Danlu Bu & Homayoon Shalchian & Rong Huang & Fang Hu, 2019. "Government Subsidy, Corporate Pay-Gap and Firm’s Financial Performance: Evidence from China," Accounting and Finance Research, Sciedu Press, vol. 8(3), pages 1-86, August.
    • Handle: RePEc:jfr:afr111:v:8:y:2019:i:3:p:86
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    References listed on IDEAS

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    1. Fenghua Song & Anjan V. Thakor, 2006. "Information Control, Career Concerns, and Corporate Governance," Journal of Finance, American Finance Association, vol. 61(4), pages 1845-1896, August.
    2. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
    3. repec:eee:labchp:v:3:y:1999:i:pb:p:2485-2563 is not listed on IDEAS
    4. Conyon, Martin J., 1997. "Corporate governance and executive compensation," International Journal of Industrial Organization, Elsevier, vol. 15(4), pages 493-509, July.
    5. Renée B. Adams & Daniel Ferreira, 2007. "A Theory of Friendly Boards," Journal of Finance, American Finance Association, vol. 62(1), pages 217-250, February.
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    Cited by:

    1. Bingqiang Li & Shan Wang & Nannan Dong & Jinzhi Li & Xi Li & He Yu, 2023. "Empirical Analysis of Subsidy Industrial Policy’s Effect on Export Innovation in the Chinese Manufacturing," SAGE Open, , vol. 13(4), pages 21582440231, November.

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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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