Corporate Value Based on the Median-to-Mean Pay Ratio: A Study of Taiwan's Semiconductor Industry

This study empirically examined the relationship between the median-to-mean pay ratio of non-executive employees (hereinafter referred to as “MMR†) and the earnings quality in Taiwan’s semiconductor industry. It also discussed the moderating effect of the type of accounting firm. The results showed that firms with higher MMRs and fairer distributions of employee pay had higher earnings quality. This phenomenon occurred because an unbiased pay system served to improve employees’ morale and productivity, reduce firms’ internal conflicts and human costs, and attract and retain talents. Firms audited by the Big 4 accounting firms, which feature rigorous auditing standards and highly effective corporate governance mechanisms, tended to attach more importance to the fairness and transparency of employee pay. This improved their earnings quality. Additionally, the rapid growth of Taiwan's semiconductor industry in 2023 promoted both growth of Taiwan’s overall economy and improvement in earnings quality. This revealed firms’ healthy pay culture and long-term sustainability. The higher MMRs also indicated good earnings quality, thus revealing firms’ healthy pay culture and long-term sustainability. Hence, the study recommend that Taiwan’s semiconductor firms attach importance to the fairness of pay distribution and continue to improve corporate governance to ensure the authenticity.  JEL classification numbers: H83, M12, M21.