TY - JOUR
T1 - Say-on-Pay Laws and Financial Reporting Quality Around the World
T2 - Evidence from a Natural Experiment
AU - He, Chang
AU - Shi, Haina
AU - Zhou, Gaoguang
AU - Zhu, Xindong
N1 - Funding Information:
We thank Jeong-Bon Kim, Byron Song, Song Tang, and the participants at Fudan University and City University of Hong Kong for their constructive comments. We are grateful for the constructive comments from Linda A. Myers (editor) and two anonymous referees. The authors are grateful for the research assistance from Zhenwen He. All authors contributed equally. Gaoguang Zhou acknowledges financial support by General Research Fund (GRF) from the Research Grants Council of Hong Kong (RGC) [12501918]. Haina Shi acknowledges financial support from the National Natural Science Foundation of China [Grant No. 72372028]. Chang He and Xindong (Kevin) Zhu have no financial conflicts of interest related to this research.
Publisher Copyright:
© 2025, American Accounting Association. All rights reserved.
PY - 2025/3/1
Y1 - 2025/3/1
N2 - In response to criticisms of executive pay policies, say-on-pay (SoP) laws have been adopted worldwide. However, evidence on the effectiveness of these laws remains inconclusive. This study examines the effect of SoP laws on financial reporting quality (FRQ) by employing a shock-based research design. Using a large sample of firms from 34 economies from 2000 through 2019, we document a significant improvement in FRQ after the adoption of SoP laws, suggesting increased monitoring on financial reporting. In addition, our cross-sectional analyses show that the improvement in FRQ is more pronounced for firms with strong demand for better FRQ or with corporate governance mechanisms that enable effective monitoring. Taken together, our findings support the monitoring effect of SoP laws and suggest that improved FRQ may be an unintended benefit of SoP laws.
AB - In response to criticisms of executive pay policies, say-on-pay (SoP) laws have been adopted worldwide. However, evidence on the effectiveness of these laws remains inconclusive. This study examines the effect of SoP laws on financial reporting quality (FRQ) by employing a shock-based research design. Using a large sample of firms from 34 economies from 2000 through 2019, we document a significant improvement in FRQ after the adoption of SoP laws, suggesting increased monitoring on financial reporting. In addition, our cross-sectional analyses show that the improvement in FRQ is more pronounced for firms with strong demand for better FRQ or with corporate governance mechanisms that enable effective monitoring. Taken together, our findings support the monitoring effect of SoP laws and suggest that improved FRQ may be an unintended benefit of SoP laws.
KW - say-on-pay
KW - executive compensation
KW - financial reporting quality
KW - corporate governance
UR - https://www.scopus.com/pages/publications/86000506356
U2 - 10.2308/JIAR-2022-050
DO - 10.2308/JIAR-2022-050
M3 - Journal article
AN - SCOPUS:86000506356
SN - 1542-6297
VL - 24
SP - 47
EP - 70
JO - Journal of International Accounting Research
JF - Journal of International Accounting Research
IS - 1
ER -