Changing the Blame Game: Does the Presence of a Pay Ratio Disclosure Impact Nonprofessional Investors’ Reactions to CEOs’ Internal Attributions for Poor Firm Performance?
forthcoming at Journal of Management Accounting Research
53 Pages Posted: 26 Feb 2021 Last revised: 27 Aug 2021
Date Written: August 21, 2021
We conduct two experiments to investigate how the presence of the CEO pay ratio, a recently mandated disclosure, influences nonprofessional investors’ reactions to a CEO’s internal attributions for poor firm performance. Results of our first experiment suggest that relative to blaming oneself, blaming other firm employees for poor firm performance more effectively absolves a CEO from responsibility for poor firm performance and damages perceptions of the CEO’s trustworthiness less when a pay ratio disclosure is present versus absent. These perceptions, in turn, affect investors’ support for the CEO’s compensation and the company’s attractiveness as an investment. Our second experiment provides evidence of the underlying process, showing the pay ratio disclosure and the CEO’s attribution to other employees affects the perceived status of a CEO. Together, our findings inform managers about the impact of their attributions for poor firm performance and regulators about potential unintended consequences of pay ratio disclosures.
Keywords: CEO compensation, CEO-to-employee pay ratio, pay ratio disclosure, internal attributions, management explanations, investment decisions, say-on-pay
JEL Classification: G40, M41, M52
Suggested Citation: Suggested Citation