Does the Digital Transformation of Enterprises Affect Pay Gap? Evidence from China

This study uses the data of China’s A-share listed companies from 2009 to 2020 to examine the effect and mechanism of digital transformation of enterprises on their internal pay gap. The baseline results show that digital transformation of enterprises can significantly expand pay gap. Mechanism tests show digital transformation of enterprises significantly increases average executives’ compensation, but not for ordinary employees. Furthermore, due to different bargaining power, executives get more compensation from firm’s profits, which is more pronounced in the group with weaker worker bargaining power and leads to the pay gap. Heterogeneity analysis find that this effects are more pronounced in enterprises with weaker corporate governance, lower degree of marketization, and labor-intensive enterprises. Finally, we find that digital transformation of enterprises enhances productivity by increasing pay gap, which supports the tournament theory. Overall, this study complements the determinants of compensation structure from a new perspective of digital transformation