Digital Transformation and Within-Firm Pay Gap: Evidence from China

ABSTRACT

This paper examines the effect of digital transformation on pay gap between executives and employees using a large panel of listed companies in China spanning 2013–2020. Baseline results show that digital transformation of enterprises can largely increase the pay gap. Mechanism tests show that the digital transformation of enterprises increases the income of executives and ordinary employees, and the income of executives is increasing faster than ordinary employees. Furthermore, employee’s skill level is an important influence mechanism of the effect of digital transformation on within pay gap. Heterogeneity analysis finds that this effect is more pronounced in firms with fierce industry competition, traditional firms, large firms, and firms with lower shareholdings of executives. Lastly, we find that the pay gap induced by digital transformation enhances corporate performance. Overall, this study complements the determinants of compensation structure from a new perspective of digital transformation.

KEYWORDS:

• Digital transformation
• pay gap
• human capital

JEL CODES:

• G34
• J31
• O15

Acknowledgements

We thank Chen Lin, Rui Shen, and seminar participants at Jinan University, Sun Yat-sen University, Wuhan University, Tsinghua University, and Xiamen University for helpful comments. We acknowledge the financial support of the National Natural Science Foundation of China (grant no. 72272041,72132002,71972088). All errors are our own.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1. https://www.accenture.com/cn-zh/about/newsroom/company-news-release-2021-china-digital-transformation index.

Additional information

Funding

The work was supported by the National Natural Science Foundation of China [72272041,72132002,71972088].