Open Access Journal Article

Political Connection and the Executive-employee Pay Gap: An Institutional Economics Perspective

by Zhuocheng Lu a,*
a
Institute of Public Administration, Chongqing University, Chongqing, China
*
Author to whom correspondence should be addressed.
REA  2024 3(2):30; https://doi.org/10.58567/rea03020002
Received: 21 November 2024 / Accepted: 27 December 2024 / Published Online: 7 January 2025
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Abstract

Increasingly huge executive-employee pay gap has attracted wide attention, hence it is therefore crucial to control it at a reasonable level. Using a sample of 23,563 firm-year observations in China covering 2010-2021, we examine the U-shape relationship between the political connection, an informal institution, and the executive-employee pay gap. The U-curve reveals that political connections are beneficial whereas excessive can be harmful, and the best measure controlling the executive-employee pay gap is to keep political connections between the district level and the city level. Under different institutional environments, on the one hand, firms with higher percentages of overseas experienced CEOs are more motivated to narrow the pay gap and promote equity, on the other hand, media attention could also help reduce the pay gap, especially for traditional newspaper media. Our findings have important implications for the local government that rational political connection helps reduce excessive executive-employee pay inequity, as well as the significant role of media by creating an open and permissive environment.

Keywords: Political Connection; The Executive-Employee Pay Gap; U-Curve; Institutional Environment;
Copyright: © 2025 by Lu. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) (Creative Commons Attribution 4.0 International License). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.

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ACS Style
Lu, Z. Political Connection and the Executive-employee Pay Gap: An Institutional Economics Perspective. Review of Economic Assessment, 2024, 3, 30. https://doi.org/10.58567/rea03020002
AMA Style
Lu Z. Political Connection and the Executive-employee Pay Gap: An Institutional Economics Perspective. Review of Economic Assessment; 2024, 3(2):30. https://doi.org/10.58567/rea03020002
Chicago/Turabian Style
Lu, Zhuocheng 2024. "Political Connection and the Executive-employee Pay Gap: An Institutional Economics Perspective" Review of Economic Assessment 3, no.2:30. https://doi.org/10.58567/rea03020002
APA style
Lu, Z. (2024). Political Connection and the Executive-employee Pay Gap: An Institutional Economics Perspective. Review of Economic Assessment, 3(2), 30. https://doi.org/10.58567/rea03020002

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