Management Accounting Section Midyear Meeting

Real Effects of Pay Ratio Disclosure Regulation: Evidence from France

• In Event: Pay Regulation

Abstract

Real effects of disclosure regulation imply that firms not only disclose a certain piece of information but change their economic behavior as a consequence of the disclosure mandate. We study the real effects of a European mandate that requires firms to disclose their CEO-to-worker pay ratio. Due to the unique setting of implementation of the mandate across European countries, this setting offers a fruitful avenue for the research of disclosure mandates’ real effects. Our analysis focuses on two real effects intended by the regulator a decrease in executive compensation and an increase in employee compensation as well as a possibly unintended real effect, firms’ change in organizational structure to manage the disclosed pay ratio downward. While our first results of a DiD regression do not indicate real effects for the whole sample of affected firms, we do observe that firms paying their CEOs the highest excess compensation, decoupled from economic determinants, do reduce executive compensation in anticipation of and in reaction to the pay ratio disclosure mandate. Our results imply that firms that have the highest costs of public disclosure adjust their behavior as a consequence of the disclosure mandate.

Authors

• Christian Hofmann, Ludwig Maximilian University of Munich

• Victor Schauer, Ludwig Maximilian University Munich

• Nina Schwaiger, Ludwig Maximilian University of Munich