Does Corporate R&D Drive Industry Pay Gap?

In this article, the relation between corporate R&D and industry pay gap is tested. We further test the relation between CEO pay and R&D. We find positive bidirectional influence between corporate R&D and industry pay gap. We further find positive bidirectional influence between CEO pay and corporate R&D, and between corporate R&D and industry pay dispersion. CEO pays rise in an industry as competitive dynamics come into play as other firms respond to the focal firm's investment in R&D, thereby increasing industry pay dispersion, which widens the industry pay gap. Moreover, investment opportunities increase CEO pay that further increases the firm's R&D investment. CEO pay thus drives greater R&D investment. The positive association between R&D and industry pay gap is stronger for more proactive and aggressive firms. A higher uncertainty makes a firm's growth options embedded in R&D investments more valuable, enhancing the firm value that increases the CEO pay. R&D lowers the firm's stock undervaluation that increases the CEO pay. Our results suggest CEO pays increase R&D investments that further increase industry pay dispersion and industry pay gap. The board of directors increases CEO pay in line with the industry pay gap, which drives greater investment in R&D.