Non‐Compliance in Executive Compensation Disclosure: The Brazilian Experience

41 Pages Posted: 29 Apr 2016

See all articles by Cristiano M. Costa

Cristiano M. Costa

University of Vale do Rio dos Sinos (UNISINOS)

Fernando Caio Galdi

Fundacao Instituto Capixaba de Pesquisas em Contabilidade, Economia e Financas (FUCAPE)

Fabio Motoki

University of East Anglia (UEA) - Norwich Business School

Juan Manuel Sanchez

University of Texas at San Antonio

Multiple version iconThere are 2 versions of this paper

Date Written: March-April 2016

Abstract

We examine the determinants and consequences of firms’ choice not to comply with a new executive compensation disclosure regulation. We exploit a unique feature of Brazilian markets, where a change in the regulation of executive compensation disclosure could arguably lead to personal security‐related costs for executives. This major reform in executive compensation disclosure in Brazil became effective in December 2009. While some firms complied with the change in regulation, other firms explicitly refused to comply fully with the regulation by using a court injunction. After controlling for firm‐specific characteristics and both social and economic inequality measures, we find that the degree of criminality in the state in which the firm is headquartered (a proxy for security‐related costs) and the level of CEO compensation are important determinants of a firm's decision not to fully disclose executive compensation information. We also show that firms which do not fully comply with the regulation face costs in the form of higher bid‐ask spreads, suggesting investors are leery of the decision not to comply with the regulation. We discuss the potential implications of our results in the context of executive compensation disclosure reform.

Keywords: regulation, compliance, costs of disclosure, executive compensation, criminality

JEL Classification: G14, G34

Suggested Citation

Costa, Cristiano M. and Galdi, Fernando Caio and Suguri Motoki, Fabio Yoshio and Sanchez, Juan Manuel, Non‐Compliance in Executive Compensation Disclosure: The Brazilian Experience (March-April 2016). Journal of Business Finance & Accounting, Vol. 43, Issue 3-4, pp. 329-369, 2016, Available at SSRN: https://ssrn.com/abstract=2772310 or http://dx.doi.org/10.1111/jbfa.12177

Cristiano M. Costa

University of Vale do Rio dos Sinos (UNISINOS) ( email )

Av. Unisinos, 950
Cristo Rei
São Leopoldo, RS 93022-000
Brazil
+55 51 35911122 (Phone)

HOME PAGE: http://www.unisinos.br

Fernando Caio Galdi

Fundacao Instituto Capixaba de Pesquisas em Contabilidade, Economia e Financas (FUCAPE) ( email )

Av. Fernando Ferrari, 1358
Vitoria, ES 29075-010
Brazil

HOME PAGE: http://www.fucape.br

Fabio Yoshio Suguri Motoki

University of East Anglia (UEA) - Norwich Business School ( email )

Norwich
NR4 7TJ
United Kingdom

Juan Manuel Sanchez (Contact Author)

University of Texas at San Antonio ( email )

One UTSA Circle
San Antonio, TX 78249
United States

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