Lawsuits meant to protect the environment actually have the weird side effect of shrinking the pay gap between bosses and workers.
SSRN · March 17, 2026 · 6428113
The Takeaway
Researchers found that when firms are hit with public interest environmental litigation, it forces a level of transparency and internal discipline that curbs excessive executive bonuses. Surprisingly, it reduces income inequality within the firm not by raising worker wages, but by 'disciplining' outsized managerial pay.
From the abstract
This study investigates whether environmental public interest litigation (EPIL) functions as an external governance mechanism to mitigate the executive-employee pay gap. Exploiting China's EPIL pilot program (2015–2017) as a quasi-natural experiment, we employ a difference-in-differences approach using data from listed manufacturing firms (2008–2017). The results demonstrate that EPIL enforcement significantly narrows the pay gap, primarily by disciplining excessive executive compensation r