Confucianism, Executive Inequity Aversion and Corporate Innovation: Evidence from China

Confucianism, Executive Inequity Aversion and Corporate Innovation: Evidence from China

Xiaozhen Jiang^1,2

School of Economics and Management

¹ Fuzhou University of International Studies and Trade

² Fuzhou University

Fuzhou,FuJian,350116,China

 

Lerong He

School of Business Administration and Economics

State University of New York at Brockport

Brockport, NY, 14420, USA

 

Abstract

Building on equity theory and behavioral theory,this study examines the nexus between Confucianism, executive inequity aversion,and corporate innovation in Chinese listed firms. We explore how the contingencies of regional pay disparity and ownership shape executive’s perception of pay inequity,and consequently form their decision on innovation. Utilizing longitudinal sample of Chinese listed firms from 2008 to 2017, it provides original evidence that executives who are deeply influenced by Confucianism have a higher likely hood to reduce R&D expense when confronted with pay inequity. Moreover, the negative relationship between executive pay inequity and R&D expense is strengthened when the company is located in a region with less pay disparity which is measured by Gini index. And we also document that the state ownership will mitigate the negative relationship between executive pay inequity and R&D expense.

 

Keywords: Pay Inequity, Equity Theory, Behavioral Theory, R&D, Innovation