To read this content please select one of the options below:

Pay gap, inventor promotion and corporate technology innovation

Qifeng Zhao (School of Economics, Renmin University of China, Beijing, China)
Yongzhong Wang (Institute of World Economics and Politics, Chinese Academy of Social Sciences, Beijing, China)

China Finance Review International

ISSN: 2044-1398

Article publication date: 23 April 2018

Issue publication date: 16 May 2019

902

Abstract

Purpose

The purpose of this paper is to investigate how the pay gap between the management and ordinary employees influence corporate technology innovation.

Design/methodology/approach

This study built a tournament model based on inventor innovation and career promotion. In addition, the authors use IV-GMM estimation method to address the possible endogeneity issue in the regressions.

Findings

Based on the unbalanced panel data of patents and pay gap in 1,501 Chinese listed manufacturing firms during 2001-2015, this paper finds that the pay gap could lead inventor innovation and improve technology innovation. The pay gap could encourage corporate innovation significantly: 1 percent increase in pay gap may increase the number of patents by 2 percent in the next year. The pay gap between the management and ordinary employees facilitates corporate innovation via two possible channels. First, inventor innovation and career promotion. Inventors are selected into the management mainly based on their innovation output. The larger the pay gap, the more innovation incentives and patents would gain. Second, investment increase in technology innovation. The pay gap and more patents that inventors gain would increase the ratio of inventors promoted to the management, who tend to pour more resources into R&D activities and absorb more inventors to the management due to their sectionalism and R&D preference. The above two channels constitute a positive feedback mechanism among technology innovation, inventor promotion and increase in R&D investment.

Research limitations/implications

This paper highlights that pay gap between the management and ordinary employees is an important issue that could encourage corporate innovation. The conclusions imply that pay gap could encourage inventors to work hard and produce more patents, which could help them to enter into the management such as executives or directors.

Originality/value

This study contributes to the current literature by implying that pay gap could have positive effects on innovation through theoretical and empirical analysis. Also, this study finds that inventor promotion due to the pay gap is a critical channel to stimulate corporate technology innovation.

Keywords

Acknowledgements

We are grateful for the valuable comments and suggestions from the referee, and Dic Lo(University of London); Yean Zhou(Renmin University of China); Pierre Mohnen(Maastricht University); Shilin Zheng(Peking University); Yaowu Wu(Chinese Academy of Social Sciences); Xiaoyang Li(Shanghai Jiao Tong University); Xiaosheng Ju(National University of Defense Technology); Aoran Wang(Renmin University of China); Zhiwei Liu(Beijing Incoshare CO., LTD). All errors are our own.

Citation

Zhao, Q. and Wang, Y. (2019), "Pay gap, inventor promotion and corporate technology innovation", China Finance Review International, Vol. 9 No. 2, pp. 154-182. https://doi.org/10.1108/CFRI-06-2017-0073

Publisher

:

Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

Related articles