Judge Ideology and CEO Compensation

Abstract

We demonstrate that liberal judicial ideology, measured by the prevalence of circuit judges appointed by Democratic presidents, correlates with higher CEO compensation in public companies within those judicial circuits. This aligns with the compensating wage differential theory, as CEOs demand higher pay to manage the increased litigation risks associated with liberal courts. Robustness and identification tests confirm these findings, and we show that higher compensation is driven by CEO talent and risk-taking rather than rent-seeking behavior. Additionally, the presence of liberal prosecutors amplifies this effect. Notably, we find that increased CEO compensation under liberal circuits does not harm shareholder value.

Keywords: Judge ideology, Liberal courts, CEO compensation, Shareholder value G30