Alternative Title
High CEO pay ratios: Governance failure or superior performance?
Publication Type
Working Paper
Publication Date
7-2017
Abstract
There is growing public concern over the rapid growth in CEO pay relative to average worker pay (CEO pay ratio). Critics contend that high CEO pay ratios could destroy firm value by damaging employee morale and/or signal CEO rent extraction. In this paper, we use a proprietary dataset to examine the relationship between CEO pay ratio and firm value/performance. Contrary to critics’ arguments, we find that industry-adjusted CEO pay ratios are positively associated with both firm value and performance. We also find that high CEO pay ratios are associated with higher quality acquisitions and stronger CEO turnover-performance sensitivity. Our results challenge the notion that high CEO pay ratios are on average economically harmful to the firm.
Keywords
pay ratio, corporate governance, firm value, acquisitions, CEO turnover-performance sensitivity
Discipline
Accounting | Corporate Finance
Research Areas
Corporate Reporting and Disclosure
First Page
1
Last Page
51
Citation
CHENG, Qiang; RANASINGHE, Tharindra; and ZHAO, Sha.
Do high CEO pay ratios destroy firm value?. (2017). 1-51.
Available at: https://ink.library.smu.edu.sg/soa_research/1629
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://ssrn.com/abstract=2861680