A Study on Influence of Top Executive’s Pay Gap on Firm Performance

摘要

Using the panel data of Chinese listed firms during 2001-2007, this paper investigates the incentive function of the top executive’s pay gap. The results show that the performance first increases and then decreases when the pay gap keeps increasing. When pay gap is small, the feeling of unfair is slight, so the incentive of pay gap exceeds the unfair feeling and the increase of pay gap will bring better performance. The tournament theory is in control. But when the pay gap is big enough, the unfair feeling will exceeds the incentive of pay gap, so the increase of pay gap will bring worse performance, and the behavior theory is in control.