Strategic Silence: The Impact of the CEO Pay Ratio Disclosure on Conference Call Content

Abstract

Critics claimed that the CEO pay ratio disclosure unfairly shamed CEOs for their level of pay and treatment of employees. We investigate whether CEOs responded to this disclosure by avoiding topics related to their firms' human capital management practices when interacting with stakeholders. Analyzing the information content of conference calls, we find robust evidence that managers decreased their discussions about human capital management after the disclosures. Our results show that intentional topic avoidance by CEOs is the most likely mechanism, as analysts' discussions about these topics are unchanged after the pay ratio disclosures. Further, we find that reducing the amount of discussion given to human capital topics during conference calls is negatively related to stock returns. Overall, our study reveals a consequence of mandatory human capital disclosures and highlights CEOs' incentives to disengage with outsiders.

Keywords: CEO Pay Ratio, Conference Calls, Human Capital, Disclosure Policy