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The effect of say on pay on CEO compensation and spill-over effect on corporate cash holdings: Evidence from Australia

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  • Atif, Muhammad
  • Huang, Allen
  • Liu, Benjamin

Abstract

We examine the impact of Australia's Remuneration Amendment Act 2011 on CEO compensation and its spill-over effect on cash holdings to better understand how the new legislation affects the principal–agent relationship. Using a sample of ASX top 300 firms from 2004 to 2015, we find that the Act leads to more use of equity-based compensation. We also document that, after the introduction of the Act, CEO equity-based and total compensations are negatively related with cash holdings, i.e., more equity and total compensations lead to lower cash holdings (a spill-over effect), indicating alignment of the principal–agent interests. Our results are robust to different estimation techniques. Our findings confirm that the Act is effective in driving a more efficient CEO pay strucure and provide important insights for the global discussion on compensation regulations.

Suggested Citation

  • Atif, Muhammad & Huang, Allen & Liu, Benjamin, 2020. "The effect of say on pay on CEO compensation and spill-over effect on corporate cash holdings: Evidence from Australia," Pacific-Basin Finance Journal, Elsevier, vol. 64(C).
    • Handle: RePEc:eee:pacfin:v:64:y:2020:i:c:s0927538x17303219
    DOI: 10.1016/j.pacfin.2019.01.001
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    2. Atif, Muhammad & Nadarajah, Sivathaasan & Richardson, Grant, 2023. "Staggered adoption of stakeholder constituency statutes and corporate cash holdings in the U.S," Economic Modelling, Elsevier, vol. 124(C).

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    More about this item

    Keywords

    Corporate governance; Say on pay; CEO compensation; Cash holdings;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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