Firm-Level Pay Disparity and Breach Risk

Abstract

The 2008 financial crisis highlighted the significant, vertical pay disparity between chief executive officers (CEOs) and all other employees. Following equity theory, prior research finds negative associations between vertical pay disparity and job satisfaction and performance (i.e., more errors). We build on this research to investigate if vertical pay disparity between the CEO and employees/other executives is a previously unidentified determinant of data security breaches (DSBs). Results suggest that firms with large, vertical pay disparities are more likely to be breached, are associated with more DSBs, and are more likely to be associated with internal DSBs. We also find some evidence of remediation through narrowing the pay disparity between CEOs and employees/other executives after the DSB. Our findings contribute to the growing accounting information systems (AIS) cybersecurity literature, extend equity theory to a new context, and should be of interest to AIS governance researchers and stakeholders.