Management Accounting Section Midyear Meeting

Priming Say on Pay

• In Event: Pay Regulation

Abstract

Say on pay voting at annual meetings is an important tool for shareholders to directly voice their discontent with management. By influencing managerial pay packages, these votes put pressure on managers to gain proxy advisor and shareholder approval. We examine whether managers respond to this pressure by engaging in short term earnings management in the fourth quarter and by altering their voluntary disclosure decisions in the pre-meeting period. In years with say on pay votes, we find that managers are more likely to manage Q4 earnings to meet analysts’ forecasts, to the detriment of the subsequent first quarter. We further find that firms provide more good news management guidance, particularly when they have engaged in the short-term behavior. Collectively, our findings suggest that mandated say on pay voting appears to result in dysfunctional managerial short-termism and pressure to prime shareholders before annual meetings during years with say on pay.

Authors

• Melissa Martin, University of Illinois, Chicago

• Oscar Timmermans, London School of Economics

• Mary Ellen Carter, Boston College

• Jonathan Underwood, Boston College