Entrenchment or efficiency? CEO‐to‐employee pay ratio and the cost of debt

Entrenchment or efficiency? CEO‐to‐employee pay ratio and the cost of debt

Using new data on S&P 1500 firms’ chief executive officer (CEO)‐to‐employee pay ratios disclosed by mandate of Section 953(b) of the Dodd–Frank Act, we examine the effect of within‐firm pay inequality on bond yield spreads. We find a significant negative relation between industry‐adjusted CEO‐to...

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Veröffentlicht in:The Financial review (Buffalo, N.Y.) N.Y.), 2021-08, Vol.56 (3), p.511-533
Hauptverfasser: Bardos, Katsiaryna, Kozlowski, Steven E., Puleo, Michael R.
Format: Artikel
Sprache:eng
Schlagworte:
Chief executive officers
Compensation and benefits
cost of debt
Dodd–Frank Act
Executive compensation
Executives
pay disparity
Wall Street Reform & Consumer Protection Act 2010-US
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container_end_page 533
container_issue 3
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container_title The Financial review (Buffalo, N.Y.)
container_volume 56
creator Bardos, Katsiaryna
Kozlowski, Steven E.
Puleo, Michael R.
description Using new data on S&P 1500 firms’ chief executive officer (CEO)‐to‐employee pay ratios disclosed by mandate of Section 953(b) of the Dodd–Frank Act, we examine the effect of within‐firm pay inequality on bond yield spreads. We find a significant negative relation between industry‐adjusted CEO‐to‐employee pay ratio and yield spreads while controlling for covariates and endogeneity. This result is strongest in financially constrained, labor‐intensive, and small‐to‐medium‐sized firms. The evidence supports the incentive‐provision explanation of CEO‐to‐employee pay disparity, reflecting efficient CEO compensation rather than rent extraction. We also document selection bias in self‐reported pay ratios, highlighting the efficacy of the Dodd–Frank provisions.
doi_str_mv 10.1111/fire.12256
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source Wiley Journals Collection; EBSCOhost Business Source Complete
subjects Chief executive officers
Compensation and benefits
cost of debt
Dodd–Frank Act
Executive compensation
Executives
pay disparity
Wall Street Reform & Consumer Protection Act 2010-US
title Entrenchment or efficiency? CEO‐to‐employee pay ratio and the cost of debt
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