Does Executive Inner Pay Gap Restrain Corporate Risk-taking?

Since the Shanghai Stock Exchange and the Shenzhen Stock Exchange were established,the quantity of listed companies and the quality of corporate governance have improved significantly.The quality of senior managers is the foundation of corporate establishment and development,while the tournament incentive system also can attract and retain talents.Salary structure as an important part of corporate governance,it has the effect of alleviating the principal-agent problem between the shareholders and the managers.Executive compensation has been attached great importance to the domestic and foreign theorists and practitioners.In practice,the compensation reform of the state-owned enterprises is in progress.Many people are also concerned with the sky-high annual salary.In theoretical field,the existing domestic researches mainly focus on the relationship between the pay gap and the company performance,and less consider corporate risk-taking.Base on a sample of A-Share listed companies listed in Shenzhen and Shanghai Stock Exchanges in the period 2011-2016,this paper studies the effect of executive pay gap on corporate risk-taking.The collection and calculation of inner pay gap data is finished manually,and risk-taking is measured with earnings volatility and non-system risk.This paper builds an OLS regression model to empirically test the influence and mechanism of executive inner pay gap on corporate risk-taking,and further investigate the moderating effect of managerial ability and equity incentive.The empirical results reveal that:(1)Executive inner pay gap and corporate risk-taking bear the negative correlation.Based on the Prospect Theory,when CEO and key executives are paid higher than the other members,which meets certain effect,CEO tends to value vested interests and avoid risk.While when pay gap is low,it has certain loss,which improves the corporate risk-taking.(2)Executive internal compensation gap affects corporate risk-taking through the company's investment and financing decisions.Capital expenditure intensity and debt maturity structure plays a partial mediating role.Specifically,when the pay gap widens,the intensity of capital expenditure increases,and the proportion of short-term debt financing decreases,which leads to the decrease of risk-taking.(3)Based on the theory of heterogeneity,highly competent executives possess the ability of risk-taking,which can moderates the relationship between executive pay gap and corporate risk-taking.Managerial ability can curb the negative association between executive pay gap and corporate risk-taking.(4)Equity incentive can also decrease management risk aversion.The negative relationship between short term incentive and risk-taking is weakened.(5)Compared with state-owned enterprises,the moderating effect of managerial ability and equity incentive is more significant in non-state-owned enterprises.Our research fills the gap of tournament theory,enriches the research on relation of pay gap to risk-taking and has practical significance on determining pay gap and implementation of equity incentive.