Determinants of Compensation Disclosure: Evidence From Reg. S-K 402(b)

Abstract

This study investigates the determinants of compensation disclosure transparency in the context of the Securities and Exchange Commission (SEC) compensation regulation of 2006. Specifically, it focuses on incentive-related compensation disclosure required by Reg. S-K 402(b). I find that compensation disclosure transparency is negatively associated with managerial power and proprietary cost but is positively associated with external monitoring. These findings hold for both the pre- and postregulation periods. Furthermore, the effects from proprietary cost become weaker in the postregulation years, and stronger external monitoring tends to reduce the negative relations between compensation disclosure transparency and managerial power and proprietary cost. Finally, I document an inverted U-shape relation between excess CEO compensation and compensation disclosure transparency.

Keywords

executive compensation compensation disclosure managerial power corporate governance

Get full access to this article

View all access options for this article.

References

Amir

Lev

Sougiannis

(1999). What value analysts? (Working Paper). New York: New York University.

Anderson

R. C.

Reeb

D. M.

(2003). Founding-family ownership and firm performance: Evidence from the S&P 500. The Journal of Finance, 58, 1301-1328.

Barron

O. E.

Byard

Kile

Riedl

E. J.

(2002). High-technology intangibles and analysts’ forecasts. Journal of Accounting Research, 40, 289-312.

Beasley

M. S.

(1996). An empirical analysis of the relation between the board of director composition and financial statement fraud. The Accounting Review, 71, 443-465.

Bebchuk

Fried

(2004). Pay without performance. Cambridge, MA: Harvard University Press.

Bertrand

Mullainathan

(2001). Are CEO’s rewarded for luck? The ones without principals are. The Quarterly Journal of Economics, 116, 901-932.

Bloomfield

R. J.

(2002). The “Incomplete revelation hypothesis” and financial reporting. Accounting Horizons, 16, 233-243.

Bushee

B. J.

Noe

C. F.

(2000). Corporate disclosure practices, institutional investors, and stock return volatility. Journal of Accounting Research, 38, 171-202.

Bushman

R. M.

Piotroski

J. D.

Smith

A. J.

(2004). What determines corporate transparency? Journal of Accounting Research, 42, 207-252.

10.

Chhaochharia

Grinstein

(2009). CEO compensation and board structure. The Journal of Finance, 64, 231-261.

11.

Claessens

Djankov

Lang

L. H. P.

(2000). The separation of ownership and control in East Asian corporations. Journal of Financial Economics, 58, 81-112.

12.

Collins

D. W.

Gong

Hribar

(2003). Investor sophistication and the mispricing of accruals. Review of Accounting Studies, 8, 251-276.

13.

Core

J. E.

Guay

W. R.

Larcker

D. F.

(2008). The power of the pen and executive compensation. Journal of Financial Economics, 88, 1-25.

14.

Dechow

P. M.

Sloan

R. G.

Sweeney

A. P.

(1996). Causes and consequences of earnings manipulations: An analysis of firms subject to enforcement actions by the SEC. Contemporary Accounting Research, 13, 1-36.

15.

Ertimur

Ferri

Muslu

(2011). Shareholder activism and CEO pay. The Review of Financial Studies, 24, 535-592.

16.

Faulkender

Yang

(2012). Is disclosure an effective cleansing mechanism? The dynamics of compensation peer benchmarking. The Review of Financial Studies, 26, 806-839.

17.

Feng

McVay

(2009). Internal control and management guidance. Journal of Accounting and Economics, 48, 190-209.

18.

Francis

J. R.

(2004). What do we know about audit quality? The British Accounting Review, 36, 345-368.

19.

Gaver

J. J.

Gaver

K. M.

Austin

J. R.

(1995). Additional evidence on bonus plans and income management. Journal of Accounting and Economics, 19, 3-28.

20.

Hanlon

Rajgopal

Shevlin

(2003). Are executive stock options associated with future earnings? Journal of Accounting and Economics, 36, 3-43.

21.

Healy

P. M.

Hutton

A. P.

Palepu

K. G.

(1999). Stock performance and intermediation changes surrounding sustained increases in disclosure. Contemporary Accounting Research, 16, 485-520.

22.

Healy

P. M.

Palepu

K. G.

(2001). Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature. Journal of Accounting and Economics, 31, 405-440.

23.

Hermalin

B. E.

Weisbach

M. S.

(2003). Boards of directors as an endogenously determined institution: A survey of the economic literature. Economic Policy Review, 9, 7-26.

24.

Holmstrom

(1979). Moral hazard and observability. The Bell Journal of Economics, 10, 74-91.

25.

Jensen

M. C.

(1993). The modern industrial revolution, exit, and the failure of internal control systems. The Journal of Finance, 48, 831-880.

26.

Karuna

(2007). Industry product market competition and managerial incentives. Journal of Accounting and Economics, 43, 275-297.

27.

Laksmana

(2008). Corporate board governance and voluntary disclosure of executive compensation practices. Contemporary Accounting Research, 25, 1147-1182.

28.

Laksmana

Tietz

Yang

Y. W.

(2012). Compensation discussion and analysis (CD&A): Readability and management obfuscation. Journal of Accounting and Public Policy, 31, 185-203.

29.

Lang

Lundholm

(1993). Cross-sectional determinants of analyst ratings of corporate disclosures. Journal of Accounting Research, 31, 246-271.

30.

Larcker

D. F.

Richardson

S. A.

Tuna

(2007). Corporate governance, accounting outcomes, and organizational performance. The Accounting Review, 82, 963-1008.

31.

Lennox

C. S.

(1999). Audit quality and auditor size: An evaluation of reputation and deep pockets hypotheses. Journal of Business Finance & Accounting, 26, 779-805.

32.

Lewellen

W. G.

Park

B. T.

(1996). Self-serving behavior in managers’ discretionary information disclosure decisions. Journal of Accounting and Economics, 21, 227-251.

33.

(2003). Economic consequences of regulated changes in disclosure: The case of executive compensation. Journal of Accounting and Economics, 35, 285-314.

34.

Murphy

K. J.

(1999). Executive compensation. In Ashenfelter

O. C.

(Ed.), Handbook of labor economics (pp. 2485-2563). Amsterdam, The Netherlands: Elsevier.

35.

Robinson

J. R.

Xue

(2011). Determinants of disclosure noncompliance and the effect of the SEC review: Evidence from the 2006 mandated compensation disclosure regulations. The Accounting Review, 86, 1415-1444.

36.

Shleifer

Vishny

R. W.

(1997). A survey of corporate governance. The Journal of Finance, 52, 737-783.

37.

Smith

C. W., Jr.

Watts

R. L.

(1992). The investment opportunity set and corporate financing, dividend, and compensation policies. Journal of Financial Economics, 32, 263-292.

38.

Verrecchia

R. E.

(1983). Discretionary disclosure. Journal of Accounting and Economics, 5, 179-194.

39.

Wang

I. Y.

(2007). Private earnings guidance and its implications for disclosure regulation. The Accounting Review, 82, 1299-1332.

40.

White

(2007). Speech by SEC staff: Where’s the analysis? SEC speech. Retrieved from http://www.sec.gov/news/speech/2007/spch100907jww.htm

Supplementary Material

Please find the following supplemental material available below.

For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.

For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.

0.00 MB

0.35 MB