The Effect of Executives’ Horizon on the Association between Firm Value and Executive－employee Pay Disparity

[Purpose] This study examines the moderating effect of executives’ horizon on the relationship between executive－employee pay disparity and firm value. While prior research provides mixed evidence on the impact of pay disparity on firm value, this study explores whether executives with a longer horizon improve internal governance and align pay structures to enhance firm value. [Methodology] Using 19,260 firm－year observations from KOSPI and KOSDAQ－listed firms (2011－2022), we measure executives’ horizon as the years until retirement and pay disparity as the executive－employee compensation ratio. We conduct OLS regression analysis to test the moderating effect of executives’ horizon and perform robustness checks, including executive ownership, promotion possibilities, and abnormal pay disparity. [Findings] The results indicate that executives’ horizon positively moderates the association between pay disparity and firm value, suggesting that long－horizon executives reinforce a fair tournament－based compensation structure. This effect is stronger in firms with low executive ownership and high promotion opportunities. Moreover, executives’ horizon mitigates the negative impact of abnormal pay disparity. [Implications] This study highlights executives’ horizon as a key internal governance factor that improves compensation fairness and enhances firm value, offering insights for corporate boards and policymakers in designing sustainable pay structures.