The Real Effects of Disclosure Regulation: Evidence from Mandatory CFO Compensation Disclosure

38 Pages Posted: 31 May 2022

See all articles by Dichu Bao

Dichu Bao

Lingnan University

Lixin (Nancy) Su

Hong Kong Polytechnic University - School of Accounting and Finance

Yong Zhang

Hong Kong Polytechnic University

Date Written: May 20, 2022

Abstract

The 2006 SEC rule, by changing the definition of Named Executive Officers, mandates CFO compensation disclosure. Using this setting and a difference-in-differences research design, we study the real effects of CFO compensation disclosure regulation on CFO job performance. We hypothesize that the disclosure of CFO compensation information, by facilitating shareholder monitoring of the board in providing appropriate incentives to CFOs, leads to better CFO job performance in providing high-quality financial reports. The analyses support our prediction: the treatment firms, which start disclosing CFO compensation information under the 2006 rule, compared to the control firms, which already disclose CFO compensation before 2006, experience an improvement in CFO performance, as exhibited in decreases in accounting misstatements and unexplained audit fees. The results are more pronounced for firms with concentrated ownership, smaller compensation committees, and CFOs subject to weaker monitoring by audit committees. Overall, we provide evidence of a real effect resulting from mandatory CFO compensation disclosure.

Keywords: SEC compensation-disclosure mandate, accounting misstatements, unexplained audit fees, CFO performance, real effects of disclosure regulations

JEL Classification: G38, G30, M41

Suggested Citation

Bao, Dichu and Su, Lixin (Nancy) and Zhang, Yong, The Real Effects of Disclosure Regulation: Evidence from Mandatory CFO Compensation Disclosure (May 20, 2022). Journal of Accounting and Public Policy, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4116968

Dichu Bao

Lingnan University ( email )

8 Castle Peak Road
Lingnan University
Hong Kong, New Territories
China

Lixin (Nancy) Su (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong
852-2766-7033 (Phone)
852-2330-9845 (Fax)

Yong Zhang

Hong Kong Polytechnic University ( email )

Hung Hom
Hung Hom
Kowloon, AK HK HK
Hong Kong

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