Regulating CEO pay and green innovation: moderating role of social capital and government subsidy.

The Chinese government has implemented the policies to regulate executive (CEO) pay in state-owned enterprises (SOEs) with the aim of promoting wage equality. This study examines whether these policies affect the motivation of CEOs to engage in green innovation (GI). By analyzing data from Chinese listed SOEs between 2008 and 2017, the study reveals an unintended environmental consequence of regulating CEO pay. We found a negative causal relationship between regulating CEO pay and GI. Moreover, we provide evidence that social capital act as a mitigating factor promotes cooperation and a shared sense of responsibility towards sustainable practices. Additionally, government subsidies provide financial incentives and support for businesses to invest in sustainable practices and technologies, which can offset the negative impact of CEO pay regulation on GI. The results of this study offer policy recommendations to encourage sustainable environmental initiatives; the government should increase its support for GI and introduce new incentives for managers. Overall the study findings are robust and remain valid even after conducting rigorous testing with instrumental variables and other robustness checks.
(© 2023. The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature.)