Executive inequity aversion and corporate innovation: A behavioral agency theory perspective

ABSTRACT This study empirically examines the relationship between executive inequity aversion and corporate innovation through the lens of behavioral agency theory. Utilizing a sample of Chinese listed companies from 2007 to 2020, we find that executive inequity aversion negatively impacts corporate innovation. This result remains robust after addressing potential endogeneity and is consistent across various alternative measures and econometric models. Furthermore, moderation mechanism tests indicate that this negative effect is more pronounced when executives possess greater managerial power, yet this effect attenuates in state-owned enterprises. Additionally, heterogeneity analysis reveals that the inhibiting effect of executive inequity aversion on corporate innovation is stronger in high-tech firms. Overall, this study enhances the theoretical understanding of the executive pay gap from a behavioral perspective and offers implications for improving executive compensation design in an innovation-driven era.