Abstract
Using a sample of Chinese listed companies for the period 2006-2019, we investigate whether pay gaps between executives at different career stages shape firm performance. We find that the pay gap between early-career and mid-career executives undermines firm performance, consistent with the notion that the risk-taking trait of early-career executives prevents them from harvesting the fruits of their creativity. We also find that the pay gap between late-career and mid-career executives is negatively associated with corporate performance. This finding is consistent with Bertrand and Mullainathan’s argument that late-career executives prefer a “quiet life”. Together, our findings suggest that mid-career executives, perceived as physically and cognitively fit, contribute more positively to corporate performance, compared to early-career and late-career executives. Yet, our moderation analyses further reveal that the contributory role of mid-career executives to firm performance, relative to that of early-career or late career executives, is substantially weaker in cases when the mid-career executives hold less shares or less senior positions in their firms or when they work for state-owned enterprises or high-tech firms.