External Governance Environment?Executive Pay Gap And Corporate Performance

In recent years,people pay more attention to executive compensation.With the deepening of China's economic system reform,the national economy has been developed rapidly.However,the gap between rich and poor has gradually increased.How to balance the fairness and efficiency becomes an urgent problem.The pay gap is an important part of the executive compensation contract.Did the gap improve the corporate performance significantly?In addition,the companies are located in different regions,can the external governance environment affect the executive pay gap?When companies face different environment,will the relationship between executive pay gap and corporate performance change or not?This paper uses the data of Shenzhen Stock Exchange A-share listed companies from 2010 to 2014.Firstly,it discusses the relationship between the executive pay gap and the corporate performance.Secondly,it examines the influence of the external governance environment on the executive pay gap.Thirdly,it tests the impact of external governance on the relationship between executive pay gap and corporate performance.This paper not only considers the influence of internal and external pay gap on corporate performance,but also takes into account the common effect of both.As for the external governance environment,there are four dimensions:the competition of the industry,the quality of information disclosure,the market-oriented process and the degree of government intervention.This paper draws the following conclusions:(1)The internal pay gap can improve the corporate performance significantly.When considering the external pay gap,the pay gap is beneficial to the corporate performance only in those companies which executive compensation is lower than the average;(2)The external governance environment has significantly influence on the pay gap.With the increased competition,the improvement of the information disclosure quality,the deepening of the marketization process and the weakening of the government intervention,the internal pay gap gets larger.However,the same conclusion can only be set up for the external pay gap in the sample which is higher than the average;(3)The relationship between executive pay gap and corporate performance is also different due to the difference of external governance environment.In the cases where the industry competition is more intense,the quality of information disclosure is better,the marketization process is higher and the government intervention is less,the positive correlation between the internal pay gap and the enterprise performance is more significant and the coefficient is bigger.The role of external pay gap in the promotion of corporate performance will also increase with the improvement of the external governance environment.