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CEO pay ratio voluntary disclosures and stakeholder reactions

Author

Listed:
  • Lisa LaViers

    (Tulane University’s A.B. Freeman School of Business)

  • Jason Sandvik

    (University of Arizona’s Eller College of Management)

  • Da Xu

    (Tsinghua University’s School of Economics and Management)

Abstract

Since 2018 the Security and Exchange Commission has required firms to disclose the ratio of their chief executive officer’s and median employee’s pay. This rule was enacted to address increasing concerns from investors about the human capital management practices of firms. Due to the uncertainty surrounding the ratio’s interpretation, some managers provide voluntary disclosures to complement and clarify their mandatory disclosures. We document this behavior by manually inspecting the proxy statements of all firms in the S&P 1500. We predict and find that a firm’s propensity to provide voluntary disclosures increases in the magnitude of its pay ratio. This relation is only present, however, when voluntary disclosures contain firm-specific information, as opposed to boilerplate information that is similar across firms. In line with these findings, we show that investors react differently to firm-specific disclosures than to boilerplate disclosures, especially when firms have relatively large CEO pay ratios. We also show that voluntary disclosure provision impacts compensation-related media coverage.

Suggested Citation

  • Lisa LaViers & Jason Sandvik & Da Xu, 2024. "CEO pay ratio voluntary disclosures and stakeholder reactions," Review of Accounting Studies, Springer, vol. 29(1), pages 109-150, March.
    • Handle: RePEc:spr:reaccs:v:29:y:2024:i:1:d:10.1007_s11142-022-09720-1
    DOI: 10.1007/s11142-022-09720-1
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    References listed on IDEAS

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    Cited by:

    1. Pei-Fang Hsieh & Zih-Ying Lin, 2025. "The information content of options trading for the CEO employee pay ratio," Review of Quantitative Finance and Accounting, Springer, vol. 64(1), pages 89-118, January.

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    More about this item

    Keywords

    CEO pay ratio; Pay fairness; Voluntary disclosure; Executive compensation;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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