|
RAAS 2024/12
Vol.14 No.2:
87-132
|
|
Within-Firm Pay Inequality and Corporate Credit Rating
Liu-Ching Tsai1, Yuan-Ju Chen2*, and Pei-Chi Chang1
1Department of Banking and Finance, National Chia Yi University
2Department of Accountancy and Graduate Institute of Finance, National Cheng Kung University
|
Abstract:
Taiwan's regulatory authorities stipulated in 2018 that all listed firms are required to publicly disclose the "non-executive full-time employee compensation information" of the previous year starting in 2019. Given the availability of compensation information on both top executive and non-executive full-time employees, this study investigates the relationship between the executive-to-worker pay ratio and corporate credit rating. We also investigate how the divergence in the control rights and ownership of controlling shareholders affects the relationship. Using a sample of Taiwanese firms publicly traded on either the Taiwan Stock Exchange or the Taipei Stock Exchange between 2018 and 2021, the empirical results show that the higher the pay ratio, the better the credit rating, supporting the talent assignment theory and tournament theory. This suggests that the pay gaps help firms attract talented executives and motivate their greatest efforts to enhance long-term firm value, which lowers firms’ uncertainty about future operations and in turn increases the credit rating. Next, we find that the degree of deviation between the controlling shareholder's ownership and control rights negatively affects the relationship between the pay ratio and credit rating. This result implies that the higher the degree of deviation, the more likely the pay gap is induced by the rent extraction of controlling shareholders, which deepens the aversion of various stakeholders to unfairness and in turn increases uncertainty about firms’ future performance and credit risk evaluation.
|
|
Keywords: Pay inequality; Pay gap; Top executives; Ordinary employees; Credit ratings; Controlling shareholders
|
|
| *
Corresponding author
; e-mail: r18121027@gs.ncku.edu.tw
|
©
2024
Review of Accounting and Auditing Studies, ISSN 2221-9374
|
|
175 Views 64 Downloads
|