The growing pay gap between top executives and non-executive employees has become a key hurdle in combating income disparity. While prior studies have attributed external and internal corporate governance as the main determinants of the executive-employee pay gap, few studies have looked into the roles of CEOs, especially their heterogeneous psychological attachments toward different locations where their firms are located. We invoked the place attachment theory in sociopsychology and proposed that the pay gap would become smaller among firms located in the CEOs’ hometowns. By tracking a sample of Chinese public-listed firms from 2008 to 2019, we further corroborated that such inclination results from an instrumental calculation rather than proactive caring, as the effect of hometown attachment on the pay gap is strengthened when the CEOs possess higher social status, whereas being weakened when their firms have better financial performance. The study should enrich our knowledge of income disparity by highlighting a CEO locality effect in regard to the executive-employee pay gap. We further unmask that instrumental motivation underlies such hometown attachment.
