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Pay gap, inventor promotion and corporate technology innovation

Author

Listed:
  • Qifeng Zhao
  • Yongzhong Wang

Abstract

Purpose - The purpose of this paper is to investigate how the pay gap between the management and ordinary employees influence corporate technology innovation. Design/methodology/approach - This study built a tournament model based on inventor innovation and career promotion. In addition, the authors use IV-GMM estimation method to address the possible endogeneity issue in the regressions. Findings - Based on the unbalanced panel data of patents and pay gap in 1,501 Chinese listed manufacturing firms during 2001-2015, this paper finds that the pay gap could lead inventor innovation and improve technology innovation. The pay gap could encourage corporate innovation significantly: 1 percent increase in pay gap may increase the number of patents by 2 percent in the next year. The pay gap between the management and ordinary employees facilitates corporate innovation via two possible channels. First, inventor innovation and career promotion. Inventors are selected into the management mainly based on their innovation output. The larger the pay gap, the more innovation incentives and patents would gain. Second, investment increase in technology innovation. The pay gap and more patents that inventors gain would increase the ratio of inventors promoted to the management, who tend to pour more resources into R&D activities and absorb more inventors to the management due to their sectionalism and R&D preference. The above two channels constitute a positive feedback mechanism among technology innovation, inventor promotion and increase in R&D investment. Research limitations/implications - This paper highlights that pay gap between the management and ordinary employees is an important issue that could encourage corporate innovation. The conclusions imply that pay gap could encourage inventors to work hard and produce more patents, which could help them to enter into the management such as executives or directors. Originality/value - This study contributes to the current literature by implying that pay gap could have positive effects on innovation through theoretical and empirical analysis. Also, this study finds that inventor promotion due to the pay gap is a critical channel to stimulate corporate technology innovation.

Suggested Citation

  • 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.
    • Handle: RePEc:eme:cfripp:cfri-06-2017-0073
    DOI: 10.1108/CFRI-06-2017-0073
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    Citations

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    Cited by:

    1. Kong, Dongmin & Liu, Lihua & Yang, Zhiqing, 2021. "High-speed rails and rural-urban migrants’ wages," Economic Modelling, Elsevier, vol. 94(C), pages 1030-1042.
    2. 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).
    3. Wang, Li & Dai, Yunhao & Kong, Dongmin, 2021. "Air pollution and employee treatment," Journal of Corporate Finance, Elsevier, vol. 70(C).
    4. 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.
    5. Zhang, Yeqing & Zhang, Xueyong, 2020. "Patent growth and the long-run performance of VC-backed IPOs," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 33-47.
    6. Liu, Ying & Liu, Steve & Wu, Ziqi & Xiao, Yi, 2022. "How do technological innovations affect corporate investment and hiring?," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).
    7. Kong, Xiaowei & Jiang, Fan & Zhu, Ling, 2022. "Business strategy, corporate social responsibility, and within-firm pay gap," Economic Modelling, Elsevier, vol. 106(C).
    8. Tang, Tingfeng, 2020. "Hedge fund activism and corporate innovation," Economic Modelling, Elsevier, vol. 85(C), pages 335-348.
    9. Vladimir V. Lebedev & Nelia A. Deberdeeva & Natalya A. Farkova & Larisa S. Korobeinikova, 2022. "Systemic Risk Management of Investments in Innovation Based on CSR," Risks, MDPI, vol. 10(5), pages 1-26, April.
    10. Huan Chen & Tingyong Zhong & Jeoung Yul Lee, 2020. "Capacity Reduction Pressure, Financing Constraints, and Enterprise Sustainable Innovation Investment: Evidence from Chinese Manufacturing Companies," Sustainability, MDPI, vol. 12(24), pages 1-16, December.
    11. Zumian Xiao & Hongfeng Peng & Zheyao Pan, 2022. "Innovation, external technological environment and the total factor productivity of enterprises," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(1), pages 3-29, March.
    12. Eng, Li Li & Fang, Hanqing & Tian, Xi & Yu, T. Robert, 2021. "Path dependence and resource availability: Process of innovation activities in Chinese family and non-family firms," Emerging Markets Review, Elsevier, vol. 49(C).
    13. Wang, Yun & Wilson, Craig & Li, Yanxi, 2021. "Gender attitudes and the effect of board gender diversity on corporate environmental responsibility," Emerging Markets Review, Elsevier, vol. 47(C).
    14. Ma, Hongmei & Gao, Qian & Li, Xiuzhen & Zhang, Yun, 2022. "AI development and employment skill structure: A case study of China," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 242-254.

    More about this item

    Keywords

    Technology innovation; Inventor; Pay gap; Promotion channel; O31; D33; G34;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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