Tracy Wang at her desk.

Market Response to Pay Disparities May Spur Change

Tuesday, January 17, 2023


Tracy Wang poses by her desk.
Professor Tracy Wang

What role can investors play in addressing inequality?

A large one, according to recent research from Tracy Wang, the John Spooner Professor of Finance.

Following a new requirement for public companies to disclose the ratios of pay between CEOs and workers in 2018, Wang and her colleagues studied the initial investor reactions. The paper, “Do Equity Markets Care about Income Inequality? Evidence from Pay Ratio Disclosure,” was published in the Journal of Finance.

Professor Wang’s research is the first to suggest that a significant fraction of investors, including institutional investors, dislike income inequality. Her research finds that firms disclosing higher pay disparities between CEOs and rank-and-file employees experienced significant value reductions after their pay ratio disclosures. The valuation effect is driven by inequality-averse investors rebalancing their portfolios away from stocks of firms with high disclosed pay ratios.

Wang, also the chairperson of the Finance Department, notes that this research, and others, suggests the growing presence of investors concerned about pay disparity and income inequality—through portfolio decisions and impact on firms’ valuations—could lead to changes in corporate culture and policies that help restrain inequality, complementing political and other forces tackling this challenge.



Related Research on Inequality

Professor Avner Ben-Ner
Paper: “A Sectoral Comparison of Wage Levels and Wage Inequality in Human Services Industries”
Journal: Nonprofit and Voluntary Sector Quarterly
Published: August 2011

  • Compared to for-profit organizations, nonprofit and local government organizations are less likely to provide financial incentives;
  • Pay lower or higher compensation to their employees, depending on multiple factors; and
  • Have less wage inequality.

Assistant Professor Sofia Bapna
Paper: “Gender Gaps in Equity Crowdfunding: Evidence from a Randomized Field Experiment”
Journal: Management Science
Published: May 2021

  • Gender gaps observed in traditional equity financing are ameliorated in equity crowdfunding.
  • In low-stakes crowdfunding, inexperienced female investors are significantly more interested in ventures with female founders than those with male founders.
  • In high-stakes crowdfunding, investor experience serves as a contingency that reduces female investors’ preference for female founders.
Winter 2023 Discovery magazine cover

This article appeared in the Winter 2023 Discovery magazine

This issue highlights the Carlson School faculty's world-class research efforts that are elevating business research to new heights.

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