Does Enhanced Disclosure Curb CEO Pay? Evidence from a Modern Information Technology Improvement

Abstract

We provide evidence that enhanced disclosure curbs CEO pay. Using a difference-in-differences design around the staggered implementation of the SEC EDGAR system from 1993 to 1996, we find that media coverage of executive pay increases following EDGAR implementation and that total CEO pay drops by 7-10%. The effect on pay is stronger for CEOs in the upper tail of the compensation distribution and concentrates in equity-based pay, resulting in weaker CEO compensation incentives (delta and vega). Our results suggest that disclosure-related changes in CEO incentives have negative implications for firm value. Finally, we find higher CEO turnover following EDGAR implementation.

Keywords: executive compensation, CEO pay, disclosure, governance reform, CEO turnover

JEL Classification: G30, G32