Managerial ownership and labor income share

Abstract

This paper investigates the influence of executive compensation on labor income share. I expect that higher managerial shareholding reduces labor income share. Consistent with this conjecture, the empirical evidence suggests that both augmented innovation investment and alleviated bankruptcy costs explain the reduction in labor income share. Our results remain robust by addressing the potential unobserved variable concerns and reverse causality issues. Heterogeneity tests show that the effect is more pronounced in firms with weaker political connections, higher institutional ownership, higher customer concentration, and in state-owned firms. This study contributes to the merging literature on the lowering of labor income share.