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

Danlu Bu, Homayoon Shalchian, Rong Huang and Fang Hu

Accounting and Finance Research, 2019, vol. 8, issue 3, 86

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

Date: 2019
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