Abstract
The paper investigates the effect of CEO age on executive-employee pay gap (EEPG), a newly focused dimension of executive compensation arrangements by the literature, by choosing the panel data consisting of 3495 firm-years in Chinese listed manufacturing companies during 2010-2014 as the research sample. Empirical analysis based on multiple regression analysis adopting the method of OLS by applying SPSS19.0 makes a new finding, i.e., there is a positive relationship between CEO age and EEPG, which holds robust with the change of the measures. Further investigation on the determination mechanism of CEO age on EEPG show that older CEOs intend to set relatively lower EEPG out of their risk aversion needs.
Highlights
A key question in leadership, corporate governance and strategy management research is whether chief executive officer (CEO) matters
This paper investigates the role of CEO age in determining employee pay gap (EEPG) from the perspective of CEO’s risk aversion, which has not been explored till today by the scholars
Prove that CEO age can improve the enlargement of EEPG out of the purpose of lowering the operation risks
Summary
A key question in leadership, corporate governance and strategy management research is whether chief executive officer (CEO) matters. The spectrum of CEO traits ranges from age, gender, tenure, risk-aversion, education, and childhood experiences to behavioral biases such as loss aversion, confirmation bias, or overconfidence[2,3]. Among the mentioned CEO traits, CEO age is receiving more and more attention from the scholars, since CEO age may be systematically related to risk preferences both due to the changing incentives over the CEO’s career and due to the changing CEO characteristics, both physiological and psychological, as the CEO gets older[4,5]. Bertrand and Marianne (2003) argue that physiological changes may lead older CEOs to prefer ‘the quiet life’ [7], which could pull them away from corporate policies or events that require expending high levels of energy. Serfling (2014)[5] documents a negative relation between CEO age and stock return volatility, which is consistent with the prediction that risk-taking behaviour decreases as CEOs become older; Brandon(2015)[10] confirm that CEOs promoted during their 40s negatively influence firm value, while CEOs in older age brackets show a positive abnormal return on firm value
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