IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp8538.html
   My bibliography  Save this paper

Say Pays! Shareholder Voice and Firm Performance

Author

Listed:
  • Cuñat, Vicente

    (London School of Economics)

  • Giné, Mireia

    (Wharton School, University of Pennsylvania)

  • Guadalupe, Maria

    (INSEAD)

Abstract

This paper estimates the effects of Say-on-Pay (SoP); a policy that increases shareholder "voice" by providing shareholders with a regular vote on executive pay. We apply a regression discontinuity design to the votes on shareholder-sponsored SoP proposals. Adopting SoP leads to large increases in market value (4%) and to improvements in long-term performance: profitability and labor productivity increase, while overheads and investment fall. In contrast, we find limited effects on pay levels and structure. This suggests that SoP serves as a regular vote of confidence on the CEO, which leads to higher efficiency and market value.

Suggested Citation

  • Cuñat, Vicente & Giné, Mireia & Guadalupe, Maria, 2014. "Say Pays! Shareholder Voice and Firm Performance," IZA Discussion Papers 8538, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp8538
    as

    Download full text from publisher

    File URL: http://ftp.iza.org/dp8538.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. David S. Lee & Thomas Lemieux, 2010. "Regression Discontinuity Designs in Economics," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 281-355, June.
    2. Cai, Jie & Walkling, Ralph A., 2011. "Shareholders’ Say on Pay: Does It Create Value?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 46(2), pages 299-339, April.
    3. Vicente Cuñat & Mireia Gine & Maria Guadalupe, 2012. "The Vote Is Cast: The Effect of Corporate Governance on Shareholder Value," Journal of Finance, American Finance Association, vol. 67(5), pages 1943-1977, October.
    4. Gantchev, Nickolay, 2013. "The costs of shareholder activism: Evidence from a sequential decision model," Journal of Financial Economics, Elsevier, vol. 107(3), pages 610-631.
    5. Larcker, David F. & Ormazabal, Gaizka & Taylor, Daniel J., 2011. "The market reaction to corporate governance regulation," Journal of Financial Economics, Elsevier, vol. 101(2), pages 431-448, August.
    6. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    7. Ashwini K. Agrawal, 2012. "Corporate Governance Objectives of Labor Union Shareholders: Evidence from Proxy Voting," Review of Financial Studies, Society for Financial Studies, vol. 25(1), pages 187-226.
    8. Lee, David S., 2008. "Randomized experiments from non-random selection in U.S. House elections," Journal of Econometrics, Elsevier, vol. 142(2), pages 675-697, February.
    9. David S. Lee & Alexandre Mas, 2012. "Long-Run Impacts of Unions on Firms: New Evidence from Financial Markets, 1961--1999," The Quarterly Journal of Economics, Oxford University Press, vol. 127(1), pages 333-378.
    10. Yonca Ertimur & Fabrizio Ferri & Volkan Muslu, 2011. "Shareholder Activism and CEO Pay," Review of Financial Studies, Society for Financial Studies, vol. 24(2), pages 535-592.
    11. Core, John & Guay, Wayne, 1999. "The use of equity grants to manage optimal equity incentive levels," Journal of Accounting and Economics, Elsevier, vol. 28(2), pages 151-184, December.
    12. McCrary, Justin, 2008. "Manipulation of the running variable in the regression discontinuity design: A density test," Journal of Econometrics, Elsevier, vol. 142(2), pages 698-714, February.
    13. Ernst Maug & Kristian Rydqvist, 2009. "Do Shareholders Vote Strategically? Voting Behavior, Proposal Screening, and Majority Rules," Review of Finance, European Finance Association, vol. 13(1), pages 47-79.
    14. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
    15. Fabrizio Ferri & David A. Maber, 2013. "Say on Pay Votes and CEO Compensation: Evidence from the UK," Review of Finance, European Finance Association, vol. 17(2), pages 527-563.
    16. Stuart L. Gillan & Laura T. Starks, 2007. "The Evolution of Shareholder Activism in the United States," Journal of Applied Corporate Finance, Morgan Stanley, vol. 19(1), pages 55-73, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Juan Pineiro-Chousa & Marcos Vizcaíno-González & Jérôme Caby, 2018. "Linking market capitalisation and voting pattern in corporate meetings," Post-Print halshs-02001463, HAL.
    2. Pierre Chaigneau & Nicolas Sahuguet, "undated". "The structure of CEO pay: pay-for-luck and stock-options," FMG Discussion Papers dp713, Financial Markets Group.
    3. Canil, Jean & Karpavičius, Sigitas, 2020. "Compensation consultants: Does reputation matter?," Journal of Corporate Finance, Elsevier, vol. 64(C).
    4. Vicente Cuñat & Mireia Giné & Maria Guadalupe, 2020. "Price and Probability: Decomposing the Takeover Effects of Anti‐Takeover Provisions," Journal of Finance, American Finance Association, vol. 75(5), pages 2591-2629, October.
    5. Vizcaíno, Marcos & Chousa, Juan P., 2016. "Analyzing the influence of the funds' support on Tobin's q using SEM and fsQCA," Journal of Business Research, Elsevier, vol. 69(6), pages 2118-2124.
    6. Caroline Flammer, 2015. "Does Corporate Social Responsibility Lead to Superior Financial Performance? A Regression Discontinuity Approach," Management Science, INFORMS, vol. 61(11), pages 2549-2568, November.
    7. Marcos Vizcaíno-González & Juan Pineiro-Chousa & Jorge Sáinz-González, 2017. "Selecting explanatory factors of voting decisions by means of fsQCA and ANN," Quality & Quantity: International Journal of Methodology, Springer, vol. 51(5), pages 2049-2061, September.
    8. Laura Henning, 2015. "Shareholder voting and merger returns," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 29(4), pages 337-363, November.
    9. Canil, Jean & Karpavičius, Sigitas & Yu, Chia-Feng, 2019. "Are shareholders gender neutral? Evidence from say on pay," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 169-186.
    10. Pierre Chaigneau & Nicolas Sahuguet, 2014. "Explaining the Association between Monitoring and Controversial CEO Pay Practices: an Optimal Contracting Perspective," Cahiers de recherche 1406, CIRPEE.
    11. Denes, Matthew R. & Karpoff, Jonathan M. & McWilliams, Victoria B., 2017. "Thirty years of shareholder activism: A survey of empirical research," Journal of Corporate Finance, Elsevier, vol. 44(C), pages 405-424.
    12. Fried, Jesse & Kamar, Ehud & Yafeh, Yishay, 2018. "The Effect of Minority Veto Rights on Controller Tunneling," CEPR Discussion Papers 12697, C.E.P.R. Discussion Papers.
    13. Martin Bugeja & Zoltan Matolcsy & Helen Spiropoulos, 2016. "The Association Between Gender-Diverse Compensation Committees and CEO Compensation," Journal of Business Ethics, Springer, vol. 139(2), pages 375-390, December.
    14. Arjun Mitra & Corinne Post & Steve Sauerwald, 2021. "Evaluating Board Candidates: A Threat-Contingency Model of Shareholder Dissent Against Female Director Candidates," Organization Science, INFORMS, vol. 32(1), pages 86-110, January.
    15. Chaigneau, Pierre & Sahuguet, Nicolas, 2013. "The effect of monitoring on CEO pay practices in a matching equilibrium," LSE Research Online Documents on Economics 55405, London School of Economics and Political Science, LSE Library.
    16. Fried, Jesse M. & Kamar, Ehud & Yafeh, Yishay, 2020. "The effect of minority veto rights on controller pay tunneling," Journal of Financial Economics, Elsevier, vol. 138(3), pages 777-788.
    17. Nicola Cucari, 2019. "Determinants of say on pay vote: a configurational analysis," International Entrepreneurship and Management Journal, Springer, vol. 15(3), pages 837-856, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Marco Becht & Julian Franks & Jeremy Grant & Hannes F. Wagner, 2017. "Returns to Hedge Fund Activism: An International Study," Review of Financial Studies, Society for Financial Studies, vol. 30(9), pages 2933-2971.
    2. Christopher S. Armstrong & Ian D. Gow & David F. Larcker, 2013. "The Efficacy of Shareholder Voting: Evidence from Equity Compensation Plans," Journal of Accounting Research, Wiley Blackwell, vol. 51(5), pages 909-950, December.
    3. Nadya Malenko & Yao Shen, 2016. "The Role of Proxy Advisory Firms: Evidence from a Regression-Discontinuity Design," Review of Financial Studies, Society for Financial Studies, vol. 29(12), pages 3394-3427.
    4. Maria Goranova & Rahi Abouk & Paul C. Nystrom & Ehsan S. Soofi, 2017. "Corporate governance antecedents to shareholder activism: A zero-inflated process," Strategic Management Journal, Wiley Blackwell, vol. 38(2), pages 415-435, February.
    5. Armstrong, Christopher S. & Gow, Ian D. & Larcker, David F., 2012. "The Efficacy of Shareholder Voting: Evidence from Equity Compensation Plans," Research Papers 2097, Stanford University, Graduate School of Business.
    6. Ormazabal, Gaizka, 2018. "The Role of Stakeholders in Corporate Governance: A View from Accounting Research," CEPR Discussion Papers 12775, C.E.P.R. Discussion Papers.
    7. Erin E. Smith, 2019. "Are Antitakeover Amendments Good for Shareholders? Evidence from the Adoption of Antitakeover Provisions in the Post-SOX Era," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 9(04), pages 1-40, December.
    8. Correa, Ricardo & Lel, Ugur, 2016. "Say on pay laws, executive compensation, pay slice, and firm valuation around the world," Journal of Financial Economics, Elsevier, vol. 122(3), pages 500-520.
    9. Denes, Matthew R. & Karpoff, Jonathan M. & McWilliams, Victoria B., 2017. "Thirty years of shareholder activism: A survey of empirical research," Journal of Corporate Finance, Elsevier, vol. 44(C), pages 405-424.
    10. Caroline Flammer & Pratima Bansal, 2017. "Does a long-term orientation create value? Evidence from a regression discontinuity," Strategic Management Journal, Wiley Blackwell, vol. 38(9), pages 1827-1847, September.
    11. Yonca Ertimur & Fabrizio Ferri & David Oesch, 2013. "Shareholder Votes and Proxy Advisors: Evidence from Say on Pay," Journal of Accounting Research, Wiley Blackwell, vol. 51(5), pages 951-996, December.
    12. Ricardo Correa & Ugur Lel, 2013. "Say on pay laws, executive compensation, CEO pay slice, and firm value around the world," International Finance Discussion Papers 1084, Board of Governors of the Federal Reserve System (U.S.).
    13. Caroline Flammer, 2015. "Does Corporate Social Responsibility Lead to Superior Financial Performance? A Regression Discontinuity Approach," Management Science, INFORMS, vol. 61(11), pages 2549-2568, November.
    14. Vicente Cuñat & Mireia Gine & Maria Guadalupe, 2012. "The Vote Is Cast: The Effect of Corporate Governance on Shareholder Value," Journal of Finance, American Finance Association, vol. 67(5), pages 1943-1977, October.
    15. Yonca Ertimur & Fabrizio Ferri & David Oesch, 2018. "Understanding Uncontested Director Elections," Management Science, INFORMS, vol. 64(7), pages 3400-3420, July.
    16. Ghaly, Mohamed & Kostakis, Alexandros & Stathopoulos, Konstantinos, 2021. "The (non-) effect of labor unionization on firm risk: Evidence from the options market," Journal of Corporate Finance, Elsevier, vol. 66(C).
    17. Vicente Cuñat & Mireia Giné & Maria Guadalupe, 2020. "Price and Probability: Decomposing the Takeover Effects of Anti‐Takeover Provisions," Journal of Finance, American Finance Association, vol. 75(5), pages 2591-2629, October.
    18. Tao Li, 2018. "Outsourcing Corporate Governance: Conflicts of Interest Within the Proxy Advisory Industry," Management Science, INFORMS, vol. 64(6), pages 2951-2971, June.
    19. Daniel Bradley & Incheol Kim & Xuan Tian, 2017. "Do Unions Affect Innovation?," Management Science, INFORMS, vol. 63(7), pages 2251-2271, July.
    20. Quoc-Anh Do & Yen-Teik Lee & Bang Dang Nguyen, 2013. "Political Connections and Firm Value: Evidence from the Regression Discontinuity Design of Close Gubernatorial Elections," Sciences Po publications 15, Sciences Po.

    More about this item

    Keywords

    say-on-pay; corporate governance; executive compensation;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp8538. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.