Publication Type
Journal Article
Version
acceptedVersion
Publication Date
1-2016
Abstract
There is significant debate about the usefulness of disclosing the CEO-to-median employee pay ratio, as required under Section 953(b) of the Dodd-Frank Act in the United States. Using an experiment, we find that disclosing higher-than-industry CEO pay (versus comparable-to-industry CEO pay) marginally decreases perceived CEO pay fairness and perceived workplace climate, which is counteracted by a significant positive effect on perceived CEO attraction/retention ability, although there are no significant indirect effects through these perceptions on perceived investment potential. However, incrementally disclosing a higher-than-industry pay ratio (versus disclosing only higher-than-industry CEO pay) significantly decreases perceived CEO pay fairness and marginally deceases perceived workplace climate, and we find a significant indirect negative effect on perceived investment potential through perceived CEO pay fairness. If companies are concerned about negative public perceptions, then our results suggest that pay ratio disclosures may be better able than current CEO pay disclosures at shaming companies into restraining CEO pay.
Keywords
Dodd-Frank Act, CEO compensation, CEO-to-employee pay ratio, investor judgments
Discipline
Accounting | Corporate Finance
Research Areas
Accounting Information System
Publication
Journal of Management Accounting Research
Volume
28
Issue
1
First Page
107
Last Page
125
ISSN
1049-2127
Identifier
10.2308/jmar-51392
Publisher
American Accounting Association
Citation
KELLY, Khim and SEOW, Jean Lin.
Investor reactions to company disclosure of high CEO pay and high CEO-to-employee pay ratio: An experimental investigation. (2016). Journal of Management Accounting Research. 28, (1), 107-125.
Available at: https://ink.library.smu.edu.sg/soa_research/1523
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://doi.org/10.2308/jmar-51392