How Vertical and Horizontal Pay Gaps in Research and Development Affect Corporate Innovation in Indonesian Public Firms
This study examines how vertical and horizontal pay disparities influence corporate innovation in publicly listed Indonesian firms from 2018 to 2022. Using a dataset of 1,505 firm-year observations, we apply Social Comparison Theory to analyze how perceived compensation inequalities impact innovatio...
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| Format: | Article |
| Language: | English |
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2025-06-01
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| Series: | ECONOMICS |
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| Online Access: | https://doi.org/10.2478/eoik-2025-0048 |
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| author | Budiandriani Fahlevi Mochammad |
| author_facet | Budiandriani Fahlevi Mochammad |
| author_sort | Budiandriani |
| collection | DOAJ |
| description | This study examines how vertical and horizontal pay disparities influence corporate innovation in publicly listed Indonesian firms from 2018 to 2022. Using a dataset of 1,505 firm-year observations, we apply Social Comparison Theory to analyze how perceived compensation inequalities impact innovation performance, measured by patent filings and citations. To ensure robustness, we employ Ordinary Least Squares (OLS), Two-Stage Least Squares (2SLS), Propensity Score Matching (PSM), Difference-in-Differences (DID), Entropy Balancing, and Tobit Regression. The results indicate that vertical pay disparity (CV_MT-RDP) positively affects patent quantity but negatively impacts patent quality, implying that larger managerial pay gaps encourage more patents but may not enhance their impact. Conversely, horizontal pay disparity (CV_RDP-OE) consistently reduces both patent output and citation impact, demonstrating that excessive pay differences across departments undermine cross-functional collaboration and innovation efficiency. Further, state-owned enterprises (SOEs) experience stronger negative effects of pay disparities on innovation than private firms, reinforcing the role of fairness concerns in shaping employee motivation. These findings suggest that firms should strategically design compensation policies to balance tournament incentives and pay equity to sustain long-term innovation performance. |
| format | Article |
| id | doaj-art-ffef9b8c150445cf9ea157f43fabd66c |
| institution | DOAJ |
| issn | 2303-5013 |
| language | English |
| publishDate | 2025-06-01 |
| publisher | Sciendo |
| record_format | Article |
| series | ECONOMICS |
| spelling | doaj-art-ffef9b8c150445cf9ea157f43fabd66c2025-08-20T03:09:52ZengSciendoECONOMICS2303-50132025-06-0113236738710.2478/eoik-2025-0048How Vertical and Horizontal Pay Gaps in Research and Development Affect Corporate Innovation in Indonesian Public FirmsBudiandriani0Fahlevi Mochammad1Universitas Muslim Indonesia, Faculty Economic and Business, Makassar, IndonesiaManagement Department, BINUS Online, Bina Nusantara University, Jakarta11480, IndonesiaThis study examines how vertical and horizontal pay disparities influence corporate innovation in publicly listed Indonesian firms from 2018 to 2022. Using a dataset of 1,505 firm-year observations, we apply Social Comparison Theory to analyze how perceived compensation inequalities impact innovation performance, measured by patent filings and citations. To ensure robustness, we employ Ordinary Least Squares (OLS), Two-Stage Least Squares (2SLS), Propensity Score Matching (PSM), Difference-in-Differences (DID), Entropy Balancing, and Tobit Regression. The results indicate that vertical pay disparity (CV_MT-RDP) positively affects patent quantity but negatively impacts patent quality, implying that larger managerial pay gaps encourage more patents but may not enhance their impact. Conversely, horizontal pay disparity (CV_RDP-OE) consistently reduces both patent output and citation impact, demonstrating that excessive pay differences across departments undermine cross-functional collaboration and innovation efficiency. Further, state-owned enterprises (SOEs) experience stronger negative effects of pay disparities on innovation than private firms, reinforcing the role of fairness concerns in shaping employee motivation. These findings suggest that firms should strategically design compensation policies to balance tournament incentives and pay equity to sustain long-term innovation performance.https://doi.org/10.2478/eoik-2025-0048corporate innovationpay gapstate-owned enterprisesfinancial compensationperformance-based incentivesg14g22 |
| spellingShingle | Budiandriani Fahlevi Mochammad How Vertical and Horizontal Pay Gaps in Research and Development Affect Corporate Innovation in Indonesian Public Firms ECONOMICS corporate innovation pay gap state-owned enterprises financial compensation performance-based incentives g14 g22 |
| title | How Vertical and Horizontal Pay Gaps in Research and Development Affect Corporate Innovation in Indonesian Public Firms |
| title_full | How Vertical and Horizontal Pay Gaps in Research and Development Affect Corporate Innovation in Indonesian Public Firms |
| title_fullStr | How Vertical and Horizontal Pay Gaps in Research and Development Affect Corporate Innovation in Indonesian Public Firms |
| title_full_unstemmed | How Vertical and Horizontal Pay Gaps in Research and Development Affect Corporate Innovation in Indonesian Public Firms |
| title_short | How Vertical and Horizontal Pay Gaps in Research and Development Affect Corporate Innovation in Indonesian Public Firms |
| title_sort | how vertical and horizontal pay gaps in research and development affect corporate innovation in indonesian public firms |
| topic | corporate innovation pay gap state-owned enterprises financial compensation performance-based incentives g14 g22 |
| url | https://doi.org/10.2478/eoik-2025-0048 |
| work_keys_str_mv | AT budiandriani howverticalandhorizontalpaygapsinresearchanddevelopmentaffectcorporateinnovationinindonesianpublicfirms AT fahlevimochammad howverticalandhorizontalpaygapsinresearchanddevelopmentaffectcorporateinnovationinindonesianpublicfirms |