Using the patent applications data of listed firms in China from 2005 to 2014,\nthis paper examines how the pay gap in the top management team influences\nenterprise innovation. The result shows that the number of patent applications\nespecially the number of patents for invention increases significantly\nwhen the pay gap enlarges. It means the enlargement of the pay gap in the top\nmanagement team could incent executives to make innovation decisions, to\npromote outputs of high-quality patents for invention. Finally the quality of\nenterprise innovation has been improved. Especially, the incentive effect of\nthe pay gap in the top management team is more significant in private enterprises\nand enterprises with strong financing constraints. Therefore, enterprises\nin these two groups have better innovation behaviors.
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