Financial Resource Allocation Efficiency and Internal Pay Gap

Using panel data of Chinese A-share listed enterprises spanning 2010–2022, this paper examines the relationship between financial resource allocation efficiency and internal pay gaps. The results reveal several principal findings. Firstly, improvements in financial resource allocation efficiency significantly widen internal pay gaps. The research findings remain robust when concerns about endogeneity are addressed and multiple robustness tests are conducted. Secondly, mechanism analysis suggests that enhanced financial allocation efficiency primarily widens internal pay gaps by improving firm performance and strengthening management bargaining power. Thirdly, the heterogeneity analysis indicates that financial resource allocation efficiency exerts a stronger influence on firms with a lower degree of green transformation, higher external financing dependence, and non-state ownership, especially in the manufacturing sector and among capital- and technology-intensive enterprises. Fourthly, extension analysis shows that improving financial resource allocation efficiency only increases reasonable internal pay gaps without affecting excessive pay disparities. Consequently, it contributes to productivity improvements without exacerbating internal income inequality, thereby achieving a balance between efficiency and equity. Furthermore, the relationship between financial resource allocation efficiency and reasonable pay gaps is positively moderated by a combination of green policy tools, while individual policy instruments fail to yield significant moderating effects.