Executive Internal Compensation, Executive Confidence and Corporate Risk Taking

Abstract

Researchers in the field of corporate governance has been committed to exploring the causes and effects of internal compensation dispersion. From the perspective of psychology, this paper discusses the effect of the executive internal compensation gap on risk-taking within the enterprise, from the perspective of CEO overconfidence. According to figures from non-financial corporations listed on Shanghai and Shenzhen A-shares from 2010 to 2021, the results of the research are as follows: (1) The internal executive pay gap has a positive impact on the company's level of risk-taking; (2) The large pay gap between CEO and non-CEO executives will cause CEO overconfidence; (3) CEO overconfidence is a path of action that the internal pay gap of senior executives affects enterprise risk-taking; (4) The internal pay gap of senior executives has a positive impact on the level of enterprise risk-taking both in state-owned enterprises and non-state-owned enterprises. The conclusion of this study has certain theoretical and practical significance. From the theoretical level, the introduction of CEO's psychological factors into the mechanism of the effect of the internal executive pay gap on enterprise risk-taking will help to understand the impact of compensation dispersion and enrich the research in this field. From the practical level, the results of this study have bright implications for policymakers and business practitioners.