The real effects of disclosure regulation : Evidence from mandatory CFO compensation disclosure

Dichu BAO; Lixin Nancy SU; Yong ZHANG

doi:10.1016/j.jaccpubpol.2022.106995

The real effects of disclosure regulation : Evidence from mandatory CFO compensation disclosure

Dichu BAO, Lixin Nancy SU^*, Yong ZHANG

^*Corresponding author for this work

Lingnan University

Research output: Journal Publications › Journal Article (refereed) › peer-review

Abstract

The 2006 SEC rule, by changing the definition of Named Executive Officers, mandates CFO compensation disclosure. Using this setting and a difference-in-differences research design, we study the real effects of CFO compensation disclosure regulation on CFO job performance. We hypothesize that the disclosure of CFO compensation information, by facilitating shareholder monitoring of the board in providing appropriate incentives to CFOs, leads to better CFO job performance in providing high-quality financial reports. The analyses support our prediction: the treatment firms, which start disclosing CFO compensation information under the 2006 rule, compared to the control firms, which already disclose CFO compensation before 2006, experience an improvement in CFO performance, as exhibited in decreases in accounting misstatements and unexplained audit fees. The results are more pronounced for firms with concentrated ownership, smaller compensation committees, and CFOs subject to weaker monitoring by audit committees. Overall, we provide evidence of a real effect resulting from mandatory CFO compensation disclosure.

Original language	English
Article number	106995
Journal	Journal of Accounting and Public Policy
Volume	41
Issue number	6
Early online date	14 Jun 2022
DOIs	https://doi.org/10.1016/j.jaccpubpol.2022.106995
Publication status	Published - 1 Nov 2022

Bibliographical note

Publisher Copyright:
© 2022 Elsevier Inc.

Funding

This paper is previously circulated under the title “Does Compensation Disclosure Lead to Better Job Performance? Evidence from Mandatory CFO Compensation Disclosure”. We appreciate the helpful comments of Igor Goncharov, Yongtae Kim, Siqi Li, Jongwon Park, Grace Pownall, Suresh Radhakrishnan, Katherine Schipper, Tomomi Takada, Feng Tian, Rimmy Tomy (discussant), Steven Young and participants at the 2019 Hawaii Accounting Research Conference, 2019 AAA Conference, and at the workshops of Hong Kong Baptist University, Kobe University, Lancaster University and Santa Clara University. The work described in this paper was supported by a grant (General Research Fund 13500517) from the Research Grant Council of the Hong Kong SAR, China. Part of the work is done when Nancy Su was affiliated with Lingnan University and Dichu Bao was affiliated with Deakin University.

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10.1016/j.jaccpubpol.2022.106995

Cite this

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title = "The real effects of disclosure regulation : Evidence from mandatory CFO compensation disclosure",

abstract = "The 2006 SEC rule, by changing the definition of Named Executive Officers, mandates CFO compensation disclosure. Using this setting and a difference-in-differences research design, we study the real effects of CFO compensation disclosure regulation on CFO job performance. We hypothesize that the disclosure of CFO compensation information, by facilitating shareholder monitoring of the board in providing appropriate incentives to CFOs, leads to better CFO job performance in providing high-quality financial reports. The analyses support our prediction: the treatment firms, which start disclosing CFO compensation information under the 2006 rule, compared to the control firms, which already disclose CFO compensation before 2006, experience an improvement in CFO performance, as exhibited in decreases in accounting misstatements and unexplained audit fees. The results are more pronounced for firms with concentrated ownership, smaller compensation committees, and CFOs subject to weaker monitoring by audit committees. Overall, we provide evidence of a real effect resulting from mandatory CFO compensation disclosure.",

author = "Dichu BAO and SU, {Lixin Nancy} and Yong ZHANG",

note = "Publisher Copyright: {\textcopyright} 2022 Elsevier Inc.",

year = "2022",

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doi = "10.1016/j.jaccpubpol.2022.106995",

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AU - BAO, Dichu

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AU - ZHANG, Yong

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N2 - The 2006 SEC rule, by changing the definition of Named Executive Officers, mandates CFO compensation disclosure. Using this setting and a difference-in-differences research design, we study the real effects of CFO compensation disclosure regulation on CFO job performance. We hypothesize that the disclosure of CFO compensation information, by facilitating shareholder monitoring of the board in providing appropriate incentives to CFOs, leads to better CFO job performance in providing high-quality financial reports. The analyses support our prediction: the treatment firms, which start disclosing CFO compensation information under the 2006 rule, compared to the control firms, which already disclose CFO compensation before 2006, experience an improvement in CFO performance, as exhibited in decreases in accounting misstatements and unexplained audit fees. The results are more pronounced for firms with concentrated ownership, smaller compensation committees, and CFOs subject to weaker monitoring by audit committees. Overall, we provide evidence of a real effect resulting from mandatory CFO compensation disclosure.

AB - The 2006 SEC rule, by changing the definition of Named Executive Officers, mandates CFO compensation disclosure. Using this setting and a difference-in-differences research design, we study the real effects of CFO compensation disclosure regulation on CFO job performance. We hypothesize that the disclosure of CFO compensation information, by facilitating shareholder monitoring of the board in providing appropriate incentives to CFOs, leads to better CFO job performance in providing high-quality financial reports. The analyses support our prediction: the treatment firms, which start disclosing CFO compensation information under the 2006 rule, compared to the control firms, which already disclose CFO compensation before 2006, experience an improvement in CFO performance, as exhibited in decreases in accounting misstatements and unexplained audit fees. The results are more pronounced for firms with concentrated ownership, smaller compensation committees, and CFOs subject to weaker monitoring by audit committees. Overall, we provide evidence of a real effect resulting from mandatory CFO compensation disclosure.

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The real effects of disclosure regulation : Evidence from mandatory CFO compensation disclosure

Abstract

Bibliographical note

Funding

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CFO mandatory compensation disclosure and CFO performance (首席財務官的薪酬信息強制披露及其表現)

Cite this

The real effects of disclosure regulation : Evidence from mandatory CFO compensation disclosure

Abstract

Bibliographical note

Funding

Access to Document

Other files and links

Projects

CFO mandatory compensation disclosure and CFO performance (首席財務官的薪酬信息強制披露及其表現)

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