Business environment trustworthiness and employee income share
Min Bai,
Yue Li and
Yu, Chia-Feng (Jeffrey)
International Review of Financial Analysis, 2025, vol. 103, issue C
Abstract:
Using China's social credit pilot program as a quasi-natural experiment and a sample of listed firms from 2011 to 2019, we provide robust evidence that employee income share rises as business environment trustworthiness improves. Notably, this increase is primarily driven by rank-and-file employees rather than executives. The mechanisms behind this trend include enhanced talent agglomeration, reduced agency problems, and eased financing constraints. The effect is more pronounced for firms facing greater competition, weaker corporate governance, poorer information environments, or located in less marketized regions. Further, the rise in employee income share positively impacts firms' future financial performance. These findings indicate that in a more trustworthy marketplace, where more customers and investors are likely to engage, firms—particularly those struggling to attract customers and investors—place greater value on rank-and-file employees and increase their income share. This behavior fosters employee reciprocity, leading to improved firm performance.
Keywords: Trust; Business environment; Income share; Rank-and-file employee (search for similar items in EconPapers)
JEL-codes: G30 G38 Z13 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:103:y:2025:i:c:s1057521925002881
DOI: 10.1016/j.irfa.2025.104201
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