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CEO pay ratios and financial reporting quality

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  • Bao, May Xiaoyan
  • Cheng, Xiaoyan
  • Smith, David
  • Tanyi, Paul

Abstract

We address the Dodd Frank Act controversy about the usefulness of the CEO pay ratio to investors by investigating the relationship between that ratio and financial quality, measured by the level of discretionary accruals and the likelihood of restating previously issued financial statements. We test two conflicting explanations of pay disparity: (1) competition for CEO talent and (2) managerial rent-seeking. Though we find that the unconditional relationship between the CEO pay ratio and financial quality is negative, the sign of this relationship is sensitive to CEO power and competence. Our findings suggest that the pay ratio does shed light on the fairness of compensation structures.

Suggested Citation

  • Bao, May Xiaoyan & Cheng, Xiaoyan & Smith, David & Tanyi, Paul, 2021. "CEO pay ratios and financial reporting quality," Global Finance Journal, Elsevier, vol. 47(C).
    • Handle: RePEc:eee:glofin:v:47:y:2021:i:c:s1044028319301097
    DOI: 10.1016/j.gfj.2019.100506
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    Cited by:

    1. Patrick Velte, 2023. "The link between corporate governance and corporate financial misconduct. A review of archival studies and implications for future research," Management Review Quarterly, Springer, vol. 73(1), pages 353-411, February.

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    More about this item

    Keywords

    Pay ratio; Earnings management; Dodd-frank;
    All these keywords.

    JEL classification:

    • M1 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration
    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting

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