Societal equality sentiment and executive compensation

Bunyamin Onal, Dimitris Petmezas and Nan Xiong

Journal of Corporate Finance, 2022, vol. 77, issue C

Abstract: Using elections that reveal changes in countries' leniency on the left-right political spectrum, we examine whether societal sentiment regarding income inequality affects executive compensation. We find that elections that bring left-leaning (pro-equality) political leaders to power are associated with significantly lower CEO pay and this impact begins in the year of such elections, not before. We further show that a rise in pro-equality sentiment restrains powerful CEOs from extracting rents. However, such sentiment also imposes value-damaging limits on incentives of senior executives in a given firm or industry. Our results are robust to a host of alternative measures and specifications.

Keywords: Executive compensation; Societal equality sentiment; Elections; Managerial power; Efficient contracting; Firm value (search for similar items in EconPapers)
JEL-codes: G34 G38 G39 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:77:y:2022:i:c:s0929119922001572

DOI: 10.1016/j.jcorpfin.2022.102314

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