Do Disclosures of Performance Metrics Matter for SoP Voting?
52 Pages Posted: 21 Jan 2016 Last revised: 10 Jul 2019
Date Written: June 27, 2019
This paper examines whether investors are informationally constrained before SoP votes, and investigates the relations between the disclosures of managerial performance metrics made in proxy filings and subsequent Say-on-Pay (SoP) voting outcomes. Consistent with the explanation that investors face informational constraints, we find a positive relation between a firm’s optimally chosen level of compensation disclosure and its SoP voting outcome. We also find a positive relation between increased disclosure of compensation-related information following shocks to disclosure costs, and subsequent voting outcomes. The observed informational constraints are best explained as arising from the difficulties that boards of directors have in revealing all of the relevant compensation information without incurring substantial costs. Our findings are less supportive of the explanation that informational constraints are caused by boards seeking to obfuscate information as a means of concealing managerial rent-seeking. Our conclusions are robust to methodological controls for potential endogeneity concerns.
Keywords: Say-on-Pay, executive compensation, key performance indicators, textual disclosures
JEL Classification: G30, M12, M41
Suggested Citation: Suggested Citation