Key points are not available for this paper at this time.
This study, grounded in incomplete contract theory, uses machine learning text analysis to examine the impact of cybersecurity risk on the within-firm pay gap. Using data from Chinese A-share listed firms between 2011 and 2024, we find that firms exposed to higher cybersecurity risk exhibit a significantly smaller within-firm pay gap. Mechanism tests show that cybersecurity risk only increases average employee pay; it does not affect executive pay. Moreover, employees’ education and skill levels are important mechanisms through which cybersecurity risk affects the within-firm pay gap. Heterogeneity tests reveals that this effect is more pronounced in state-owned firms, firms with higher ESG social (S) ratings, and those with greater gender diversity in management. Finally, we find that a narrower within-firm pay gap promotes cybersecurity innovation and reduces future stock price crash risk among firms exposed to cybersecurity risk. In conclusion, this study enriches the literature on the determinants of pay structure by exploring the role of firms’ ex ante cybersecurity risk, and further extends the application of incomplete contract theory in explaining firms’ compensation arrangements under cybersecurity risk.
Zhu et al. (Fri,) studied this question.