Corporate Governance and Executive Perquisites: Evidence from the New SEC Disclosure Rules

58 Pages Posted: 16 Sep 2008 Last revised: 18 Mar 2009

See all articles by Angela B. Andrews

Angela B. Andrews

Indiana University - Kelley School of Business - Department of Accounting

Scott C. Linn

University of Oklahoma - Michael F. Price College of Business

Han Yi

Korea University

Date Written: March 17, 2009

Abstract

The Securities and Exchange Commission (SEC) amended its rules on executive compensation disclosure in 2006 to provide more transparent disclosures to investors regarding stealth compensation items (e.g., executive perks and pensions). In order to shed additional light on the mixed results from prior research, we re-examine 608 S&P 1500 firms' 2007 proxy statements to determine if executive perquisites reflect agency problems (Yermack 2006) or whether they serve a legitimate purpose (Rajan and Wulf 2006). Consistent with the agency cost argument, we find that firms with weak corporate governance are more likely to award perquisites to executives. In additional tests, we document that weakly governed firms that hid large amounts of CEO perquisites prior to the new rules experienced a negative market reaction after their proxy statements were released, and that a small number of firms with abnormally high CEO compensation prior to the new rules reduced or eliminated perquisite programs following the new rules. These results suggest that the SEC's expanded disclosure requirements are informative and useful to capital market investors in their attempts to detect the misappropriation of firm resources by weakly governed firms, but that the expanded SEC requirements have been politically costly for some firms.

Keywords: Perquisites (Perks), Agency Costs, Corporate Governance, Executive Compensation, the SEC regulation

JEL Classification: G30, G34, G38, J33, D82, L20

Suggested Citation

Andrews, Angela B. and Linn, Scott C. and Yi, Han, Corporate Governance and Executive Perquisites: Evidence from the New SEC Disclosure Rules (March 17, 2009). AAA 2009 Financial Accounting and Reporting Section (FARS) Paper. Available at SSRN: https://ssrn.com/abstract=1268087 or http://dx.doi.org/10.2139/ssrn.1268087

Angela B. Andrews

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

Scott C. Linn (Contact Author)

University of Oklahoma - Michael F. Price College of Business ( email )

307 West Brooks
Norman, OK 73019-4004
United States
405-325-3444 (Phone)
405-325-1957 (Fax)

Han Yi

Korea University ( email )

Main Business Building 402
Korea University Business School
Seoul, 136-701
+82-2-3290-2629 (Phone)

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