Stock Market Reactions to the Pay Gap between Executives and Ordinary Employees under the Objective of Common Prosperity
Achieving common prosperity is a fundamental requirement of China's modernization.As a major component of initial income distribution,the allocation of salary income holds significant importance.We utilize data from Chinese A-share market listed companies between 2008 and 2022 to examine the stock market performance related to the pay gap between executives and ordinary employees.Both portfolio analysis and Fama-MacBeth regression indicate that the A-share market reacts negatively to excessive disparities in compensation between executives and regular staffs.Mechanism analysis reveals that employees'aversion to inequality impacts the company's earnings cash flow,thereby intensifying the negative effects of the pay gap.Additionally,external investors'aversion to inequality also plays a role in reducing excess stock returns.Further analysis of the sources of the internal pay gap's impact on returns suggests that risk compensation explains excess stock returns.Overall,in the context of advancing the concept of common prosperity,the Chinese A-share market demonstrates concern for internal pay disparities.This study contributes to a deeper understanding of the economic consequences of extreme internal pay gaps and offers policy insights for promoting common prosperity and improving the salary income system in initial distribution.