How Does Business Strategy Affect Wage Premium? Evidence from China

Abstract Although previous studies have evaluated the effects of business strategy on managers’ compensation, limited evidence has focused on the impact of business strategy on employee wage premium due to data unavailability. Based on a typical emerging market, we present evidence that prospectors exhibit lower wages than defenders, and results are robust after controlling for endogeneity, including firm fixed effects and with alternative measures. We further find that the negative relation between business strategy and wage premium are more pronounced in state-owned firms. Finally, we find that government intervention attenuates the negative association between business strategy and wage premium. This study thus shed significantly policy implications for regulators and managers.