Research Note: Investor Perceptions Of Comparable-To-Industry Versus Higher-Than-Industry Pay Ratio Disclosures

Keywords

CEO compensation disclosure; CEO-to-employee pay ratio; Investor perceptions

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.

Publication Date

3-1-2018

Publication Title

Management Accounting Research

Volume

38

Number of Pages

51-58

Document Type

Article

Personal Identifier

scopus

DOI Link

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

Socpus ID

85030175374 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/85030175374

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