The real effects of disclosure regulation: Evidence from mandatory CFO compensation disclosure |
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| Affiliation: | 1. Lingnan University, Hong Kong;2. The Hong Kong Polytechnic University, Hong Kong;1. Hanyang University, Republic of Korea;2. Seoul National University, Republic of Korea;1. University of Nebraska, Lincoln, USA;2. DePaul University, USA;3. Texas A&M University, USA;1. South China University of Technology, China;2. Kogod School of Business, American University, United States;3. Hong Kong Polytechnic University, Hong Kong;4. University of Central Florida, United States;5. Merrick School of Business, University of Baltimore, United States;1. Emeritus Professor, The University of Akron, United States;2. Department of Accounting & Finance, Coggin College of Business, University of North Florida, United States;1. Cardiff Business School, Cardiff University, Colum Drive, Cardiff CF10 3EU, UK;2. Portsmouth Business School, University of Portsmouth, Portsmouth PO1 3DE, UK;3. Centre for Responsible Banking & Finance, School of Management, University of St Andrews, St Andrews KY16 9RJ, UK |
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| 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. |
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