| ID | 197909 |
| Title Proper | Impacts of CEO-employee pay disparity on investor behavior and market dynamics |
| Other Title Information | Evidence from laboratory asset markets |
| Language | ENG |
| Author | Yang, Xiaolan |
| Summary / Abstract (Note) | This study explores the impacts of CEO-to-employee pay disparity on investor behavior and market dynamics using an experimental methodology. We employed two laboratory asset markets with identical company valuations but differing CEO-employee pay ratios. Our findings reveal that a higher pay ratio leads investors to quote higher prices for the company's stock. This effect is driven by two conflicting mechanisms of social preference: inequality aversion, which motivates investors who value fairness to quote lower prices for stocks of companies with high pay ratios, and social comparison, where the high pay ratio prompts investors to compare their wealth with that of CEOs, thus becoming more risk-seeking and quoting higher prices. Moreover, higher pay ratios contribute to increased stock prices, fostering larger market bubbles, enhancing the dispersion of investor opinions, boosting trading volumes, and escalating market volatility. This study enriches our understanding of how asset markets react to CEO-to-employee pay disparities, providing valuable insights for policymakers and market participants. |
| `In' analytical Note | China Economic Review Vol. 88, Dec 2024: p.102282 |
| Journal Source | China Economic Review 2024-11 88 |
| Key Words | Inequality Aversion ; Social Comparison ; CEO-employee pay disparity ; Asset market ; Investor dispersion |