The effect of say on pay on CEO compensation and spill-over effect on corporate cash holdings: Evidence from Australia

Muhammad Atif, Allen Huang and Benjamin Liu

Pacific-Basin Finance Journal, 2020, vol. 64, issue C

Abstract: We examine the impact of Australia's Remuneration Amendment Act 2011 on CEO compensation and its spill-over effect on cash holdings to better understand how the new legislation affects the principal–agent relationship. Using a sample of ASX top 300 firms from 2004 to 2015, we find that the Act leads to more use of equity-based compensation. We also document that, after the introduction of the Act, CEO equity-based and total compensations are negatively related with cash holdings, i.e., more equity and total compensations lead to lower cash holdings (a spill-over effect), indicating alignment of the principal–agent interests. Our results are robust to different estimation techniques. Our findings confirm that the Act is effective in driving a more efficient CEO pay strucure and provide important insights for the global discussion on compensation regulations.

Keywords: Corporate governance; Say on pay; CEO compensation; Cash holdings (search for similar items in EconPapers)
JEL-codes: G34 G38 M42 M48 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:64:y:2020:i:c:s0927538x17303219

DOI: 10.1016/j.pacfin.2019.01.001

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