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Say Pays! Shareholder Voice and Firm Performance

  • Cuñat, Vicente
  • Gine, Mireia
  • Guadalupe, Maria

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 (4.6%) 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 operates as a regular vote of confidence, increasing efficiency and market value.

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File URL: http://mpra.ub.uni-muenchen.de/48489/1/MPRA_paper_48489.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 48489.

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Date of creation: 19 Jul 2013
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Handle: RePEc:pra:mprapa:48489
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  1. 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.
  2. 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.
  3. David S. Lee & Thomas Lemieux, 2009. "Regression Discontinuity Designs In Economics," Working Papers 1118, Princeton University, Department of Economics, Industrial Relations Section..
  4. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
  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. 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.
  7. 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.
  8. Vicente Cunat & Mireia Gine & Maria Guadalupe, 2010. "The Vote is cast: The effect of Corporate Governance on Shareholder Value," FMG Discussion Papers dp663, Financial Markets Group.
  9. 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(02), pages 299-339, April.
  10. 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.
  11. 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.
  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. 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.
  14. 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.
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