The Incentive Distortion Effect of Executive External Pay Gap:Evidence from the Enterprise Violation
The sustained development of China's economy has brought about significant progress in enterprise efficiency,and has also led to a larger gap in factor returns,further triggering incentive distortions.Clarifying the driving force and related mechanisms of opportunism in corporate management is of great policy significance for improving the external regulatory system of listed companies and building a fair competitive market environment.This article uses non-financial and non-real estate private listed companies from 2012 to 2018 as research samples to classify the salary distribution of enterprise management from an industry level perspective,and obtains the external pay gap indicator for the executives of listed companies,which is used to construct the incentive level faced by the management.Further construct a Logit estimation model to examine the impact of pay gaps on corporate violations and related impact mechanisms.This article finds that,firstly,compared to the median level in the industry,the lower the compensation of management,the significantly higher the probability of corporate violations.The results remain unchanged under endogeneity and heterogeneity tests,indicating that there is an incentive distortion mechanism in the pay gap,prompting management to be more inclined to choose non-compliant behavior driven by the goal of accelerating enterprise growth or meeting their own salary returns.Second,a KHB mediating effect model is constructed to examine the ways in which the pay gap affects violations.It is found that the pay gap promotes management to have more serious on-the-job consumption,related party transaction,tunneling behavior and earnings management,which further aggravates various opportunistic behaviors such as unfair competition,financial fraud and infringement of equity rights and interests.Among them,the proportion of indirect effects of on-the-job consumption and related party transaction is higher than tunneling behavior and earnings management,which is an important way for the incentive effect of pay gap.Thirdly,from the perspective of internal control and equity incentive,this paper discusses the countermeasures to restrain the distortion of compensation gap incentive.The test results show that the increase of management's shareholding ratio can significantly reduce the violations caused by the compensation gap,which indicates that equity incentive can not only indirectly improve the compensation return of management,but also realize the binding of interests between shareholders and management,reducing the occurrence of violations.The improvement of internal control quality has significantly suppressed the violation of pay gap.Due to the improvement of internal control system,mutual restraint and adjustment within the enterprise have been achieved,directly increasing the opportunity cost of implementing violations and significantly reducing the tendency of enterprises to violate regulations.An important implication of this article is that external pay gaps can lead to incentive distortion,leading to opportunistic behavior among corporate management,expanding research evidence in the field of salary incentives and corporate decision-making.In addition,research has found that strengthening internal governance and equity incentives are beneficial for correcting distortion in salary incentives,providing policy inspiration for strengthening the quality and efficiency of illegal governance,creating a fair and competitive market environment,and building a competitive and orderly high standard market.
external pay gapviolationincentive distortioninternal control
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