Publication Type

Journal Article

Publication Date

3-2018

Abstract

The usefulness of the CEO-to-employee pay ratio disclosure to investors is subject to significant debate. Our experiment examines participant responses to higher-than-industry and comparable-to-industry pay ratio disclosures in a company. A prior experiment by Kelly and Seow (2016) (hereafter KS) found that incrementally disclosing a higher-than-industry pay ratio on top of higher-than-industry CEO pay had indirect negative effects on the company’s perceived investment potential, via negative perceptions about the fairness of the CEO pay and workplace climate. We find that the negative indirect effects of pay ratio disclosures on perceived investment potential in KS are replicable in our study, and for a less extreme comparable-to-industry pay ratio. We do not find evidence that the effects of incremental pay ratio disclosure on investor perceptions are stronger when the pay ratio is higher-than-industry than when it is comparable-to-industry. Our study suggests that the ability of pay ratio disclosures to impact investor perceptions extends across a range of pay ratios.

Keywords

CEO compensation disclosure, CEO-to-employee pay ratio, investor perceptions

Discipline

Accounting | Industrial Organization

Research Areas

Corporate Governance, Auditing and Risk Management

Publication

Management Accounting Research

Volume

38

First Page

51

Last Page

58

ISSN

1044-5005

Identifier

10.1016/j.mar.2017.09.002

Publisher

Elsevier: 24 months

Additional URL

https://doi.org/10.1016/j.mar.2017.09.002

Download

Share

COinS