Abstract
This chapter examines the impact of executive pay dispersion on firm performance and valuation in a global sample of banks. Controlling for cultural differences across countries, we test whether the equity fairness theory (favoring smaller pay dispersion) or tournament theory (arguing for greater pay dispersion) is a better description of the relationship between pay dispersion and performance. We find that the equity fairness theory prevails in most sub-groups of our sample, with the exception of Common Law developed country banks. We also find for our sample banks in Developed Countries that Individualism is positively associated with market valuation, while Uncertainty Avoidance has a negative effect.
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Notes
- 1.
The measurement of culture is based on comprehensive studies by Hofstede on how values in the workplace are influenced by culture among IBM employees, starting in the late 1960s. Subsequent studies validating the earlier results include such respondent groups as commercial airline pilots and students in 23 countries, civil service managers in 14 counties, “‘up-market” consumers in 15 countries and “‘elites” in 19 countries. In the 2010 edition of the book Cultures and Organizations: Software of the Mind, scores on the dimensions are listed for 76 countries, partly based on replications and extensions of the IBM study on different international populations and by different scholars. We use these values for our study.
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Yu, E.Py., Van Luu, B. (2017). Pay Dispersion, Culture and Bank Performance. In: Ibeh, K., Tolentino, P., Janne, O., Liu, X. (eds) Growth Frontiers in International Business. The Academy of International Business. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-48851-6_13
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