Title:
The Effect of Accessibility of Status-Confirming Information on Investor Reactions to the Pay-Ratio Disclosure
The Effect of Accessibility of Status-Confirming Information on Investor Reactions to the Pay-Ratio Disclosure
Author(s)
Menon, Anish
Advisor(s)
Rupar, Kathy
Editor(s)
Collections
Supplementary to
Permanent Link
Abstract
The SEC provides companies with considerable flexibility in the disclosure of the ratio between CEO and median employee compensation (pay-ratio). Prior research suggests that pay-ratio disclosures negatively affect investors’ support for executive compensation (SoP). Using two experiments, I find that accessibility of information that helps justify the gap between CEO and median employee compensation (status-confirming information) increases nonprofessional investors’ support for executive compensation (SoP support). Drawing on research in psychology, in experiment 1, I predict that accessibility of status-confirming information increases investors’ perceptions of meritocracy especially when the pay-ratio is higher than the peer companies which helps investors rationalize the compensation gap made salient by the pay-ratio. I find that investors’ perceptions of meritocracy positively influence their SoP support. However, accessibility of status-confirming information does not increase perceptions of meritocracy when pay-ratio is higher than peer companies. Additional analysis reveals that accessibility of status-confirming information does not significantly increase SoP support and perceptions of meritocracy in higher income participants’, suggesting that participants income levels could potentially affect their evaluation of the pay-ratio disclosure when status-confirming information is accessible.
Since the analysis including income levels was conducted ex-post in Experiment 1, I conduct a second experiment to confirm my findings. In Experiment 2 I investigate whether participants’ perceptions of wealth impact their responses when the pay ratio is higher than peer companies. I find that investors’ perceptions of wealth and accessibility of status-confirming information affect both investors’ perceptions of meritocracy and SoP support when pay-ratio is higher than peer companies. Together, my findings provide evidence that the content of the pay-ratio disclosure apart from the disclosure itself could systematically affect investor decisions.
Sponsor
Date Issued
2022-07-29
Extent
Resource Type
Text
Resource Subtype
Dissertation