CEO pay ratios and financial reporting quality

May Xiaoyan Bao, Xiaoyan Cheng, David Smith and Paul Tanyi

Global Finance Journal, 2021, vol. 47, issue C

Abstract: We address the Dodd Frank Act controversy about the usefulness of the CEO pay ratio to investors by investigating the relationship between that ratio and financial quality, measured by the level of discretionary accruals and the likelihood of restating previously issued financial statements. We test two conflicting explanations of pay disparity: (1) competition for CEO talent and (2) managerial rent-seeking. Though we find that the unconditional relationship between the CEO pay ratio and financial quality is negative, the sign of this relationship is sensitive to CEO power and competence. Our findings suggest that the pay ratio does shed light on the fairness of compensation structures.

Keywords: Pay ratio; Earnings management; Dodd-frank (search for similar items in EconPapers)
JEL-codes: M1 M3 M4 (search for similar items in EconPapers)
Date: 2021
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:glofin:v:47:y:2021:i:c:s1044028319301097

DOI: 10.1016/j.gfj.2019.100506

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