Business strategy, corporate social responsibility, and within-firm pay gap

• Published in: Economic modelling 2022-01, Vol.106, p.105703, Article 105703
• Main Authors: Kong, Xiaowei, Jiang, Fan, Zhu, Ling
• Format: Article
• Language: English
• Subjects: Business strategy; China; Corporate social responsibility; Pay gap
• ISSN: 0264-9993; 1873-6122
• DOI: 10.1016/j.econmod.2021.105703

Corporate social responsibility (CSR) attracts sustained attention in recent years, but the role of CSR in moderating the intrafirm pay inequality remains so far unexplored. This study examines the effects of CSR on the pay gap within firms conditioning on various business strategies (BSs) based on a typical emerging market. Specifically, by using firm-level data from listed firms in China during 2004–2017, we find that prospectors (firms following an innovation-oriented strategy) exhibit a higher pay gap than defenders (firms following a cost leadership strategy). Then, by considering the shock of CSR regulations, we explore whether CSR affects wage dispersion through firms’ BSs. Results show that CSR significantly alleviates the effect of business strategy on within-firm pay gap in prospectors instead of defenders, the effect of which is mainly induced by the growth in employee wage. Cross-sectionally, the above moderating effect is weakened by financing constraints, excess related party transactions (RPTs), and industry concentration. •We examine the effects of business strategies on pay gap.•Prospectors demonstrate a higher compensation gap than defenders.•Corporate social responsibility (CSR) interacting with BSs moderates pay inequity.•CSR motivates prospectors to improve employment relations.•The effects are weakened by financing constraints and industry concentration.