CEO Pay Ratio Voluntary Disclosures and Stakeholder Reactions

Review of Accounting Studies

54 Pages Posted: 25 Jun 2020 Last revised: 11 Aug 2022

See all articles by Lisa LaViers

Lisa LaViers

A.B. Freeman School of Business at Tulane

Jason Sandvik

Eller College of Management, University of Arizona

Da Xu

Tsinghua University, School of Economics and Management

Date Written: August 10, 2022

Abstract

Since 2018 the Security and Exchange Commission has required firms to disclose the ratio of their chief executive officer's and median employee’s pay. This rule was enacted to address increasing concerns from investors about the human capital management practices of firms. Due to the uncertainty surrounding the ratio's interpretation, some managers provide voluntary disclosures to complement and clarify their mandatory disclosures. We document this behavior by manually inspecting the proxy statements of all firms in the S&P 1500. We predict and find that a firm's propensity to provide voluntary disclosures increases in the magnitude of its pay ratio. This relation is only present, however, when voluntary disclosures contain firm-specific information, as opposed to boilerplate information that is similar across firms. In line with these findings, we show that investors react differently to firm-specific disclosures than to boilerplate disclosures, especially when firms have relatively large CEO pay ratios. We also show that voluntary disclosure provision impacts compensation-related media coverage.

Keywords: CEO Pay Ratio, Pay Fairness, Voluntary Disclosure, Executive Compensation

JEL Classification: G14, G23, G41, J31, M41, M48, M52

Suggested Citation

LaViers, Lisa and Sandvik, Jason and Xu, Da, CEO Pay Ratio Voluntary Disclosures and Stakeholder Reactions (August 10, 2022). Review of Accounting Studies, Available at SSRN: https://ssrn.com/abstract=3617262 or http://dx.doi.org/10.2139/ssrn.3617262

Lisa LaViers

A.B. Freeman School of Business at Tulane ( email )

7 McAlister Dr.
New Orleans, LA 70118
United States
8656172944 (Phone)

Jason Sandvik (Contact Author)

Eller College of Management, University of Arizona ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States

Da Xu

Tsinghua University, School of Economics and Management ( email )

Haidian District, Beijing, China
Beijing, Beijing 100084
China

HOME PAGE: http://www.da-xu.com/

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