Working Paper: CEPR ID: DP10141
Authors: Vicente Cuat; Mireia Gin; Maria Guadalupe
Abstract: 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%) and to improvements in longterm 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 serves as a regular vote of confidence on the CEO, that leads to higher efficiency and market value.
Keywords: Corporate Governance; Executive Compensation; Say on Pay
JEL Codes: G34; M52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| say-on-pay (SOP) proposals (G35) | shareholder value (G34) |
| say-on-pay (SOP) proposals (G35) | firm performance (L25) |
| passing of SOP proposals (Y20) | market efficiency (G14) |
| say-on-pay (SOP) proposals (G35) | profitability (L21) |
| say-on-pay (SOP) proposals (G35) | labor productivity (J24) |
| say-on-pay (SOP) proposals (G35) | earnings per share (G35) |
| say-on-pay (SOP) proposals (G35) | return on assets (G32) |
| say-on-pay (SOP) proposals (G35) | return on equity (D33) |
| say-on-pay (SOP) proposals (G35) | CEO performance monitoring (M12) |