Say Pays! Shareholder Voice and Firm Performance

51 Pages Posted: 25 Oct 2014

See all articles by Vicente Cuñat

Vicente Cuñat

London School of Economics & Political Science (LSE) - Financial Markets Group; The London School of Economics

Mireia Gine

IESE Business School, University of Navarra ; The University of Pennsylvania

Maria Guadalupe

Centre for Economic Policy Research (CEPR); INSEAD - Economics and Political Sciences; Institute for the Study of Labor (IZA)

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Abstract

This paper estimates the effects of Say-on-Pay (SoP); a policy that increases shareholder "voice" by providing shareholders with a regular vote on executive pay. We apply a regression discontinuity design to the votes on shareholder-sponsored SoP proposals. Adopting SoP leads to large increases in market value (4%) and to improvements in long-term performance: profitability and labor productivity increase, while overheads and investment fall. In contrast, we find limited effects on pay levels and structure. This suggests that SoP serves as a regular vote of confidence on the CEO, which leads to higher efficiency and market value.

Keywords: say-on-pay, corporate governance, executive compensation

JEL Classification: G34, M52

Suggested Citation

Cuñat, Vicente and Cuñat, Vicente and Gine, Mireia and Guadalupe, Maria and Guadalupe, Maria, Say Pays! Shareholder Voice and Firm Performance. IZA Discussion Paper No. 8538, Available at SSRN: https://ssrn.com/abstract=2514731

Vicente Cuñat (Contact Author)

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom

HOME PAGE: http://www.vicentecunat.com

The London School of Economics ( email )

United Kingdom

HOME PAGE: http://www.vicentecunat.com

Mireia Gine

IESE Business School, University of Navarra ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

The University of Pennsylvania ( email )

Philadelphia, PA 19104
United States

Maria Guadalupe

INSEAD - Economics and Political Sciences ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

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