On the Consequences of Mandatory CEO Pay Ratio Disclosure

Abstract

We examine the consequences of the highly anticipated and controversial Section 953(b) of the Dodd-Frank Act, which mandates companies to disclose the CEO-to-median employee pay ratio starting from 2018. We address endogeneity concerns by using a regression discontinuity design around the public float of companies. Contrary to one of the main arguments of the supporters of the rule, the disclosure requirement does not reduce CEO compensation. We also find no evidence that investors are substantially influenced by the disclosure since firms that disclose the ratio experience no change in investor attention and no change in say-on-pay voting outcomes.

Keywords: CEO-employee Pay Ratio Disclosure, CEO Compensation, Say-on-pay, Investor Attention, Google Search Volume

JEL Classification: G30, G38, M48