Abstract
This paper studies the relationship between three measures of relative earnings and firm performance based on data of 664 listed manufacturing companies in China over the period 2005–2012. It finds that a firm’s financial performance was (1) negatively associated with the capital to labor earnings ratio in the firm; (2) negatively associated with regional average wage relative to the firm’s average wage; and (3) positively associated with the earnings of high-level managers relative to ordinary workers. It also finds that the effects of relative earnings on firm performance differed across regions, industry characteristics and firm ownership structures, and over different time periods.
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