PhD Lunch Seminars Rotterdam

Yuhao (Harry) Zhu (Erasmus University Rotterdam)
Tuesday, 22 August 2017


We propose an asset pricing model in which the optimal wage gap between managers and workers increases with managerial skills. In a world with noise traders and short-sales constraints, we show that firms with lower wage gaps should trade at a premium, and the mispricing becomes even stronger if some investors exhibit inequality aversion. Using a unique data set of German firms, we provide strong support for the model’s predictions. The results suggest that pay inequality within firms has important implications for asset prices.