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  5. Who is Monitoring Managers?
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Who is Monitoring Managers?

Paper Session

Sunday, Jan. 4, 2026 10:15 AM - 12:15 PM (EST)

Loews Philadelphia Hotel, Commonwealth Hall A2
Hosted By: American Finance Association
  • Todd Gormley, Washington University in St. Louis

Majority Voting Legislation and CEO Incentive Compensation

Zhengzhuo Li
,
University of Tennessee-Knoxville

Abstract

Following the staggered adoption of majority voting legislation (MVL), which enhances shareholder influence in director elections, I find a significant decrease in CEO incentive compensation. This effect is particularly pronounced in firms with weaker ex-ante governance, including those with low board independence, no female directors, and higher levels of shareholder opposition to directors. This policy change is also associated with a notable decrease in directors holding multiple board seats, a decline in co-opted board members, and diminished CEO power. Further analysis reveals that the reduction in incentive compensation following MVL adoption has not led to significant changes in firm policies, volatility, or profitability, which reinforces the view that strong board monitoring and CEO incentive pay can serve as substitutes in aligning managerial actions with shareholder interests.

Do Consumers Care about Pay Inequality? Evidence from Household Purchase Data

Konstantinos Bozos
,
University of Leeds
Jie Chen
,
University of Leeds
Yang Gao
,
University of Exeter
Xuan Tian
,
Tsinghua University
Jiayi Yuan
,
University of Leeds

Abstract

We examine the real effects of CEO-worker pay inequality via the lens of consumer reactions, using micro-level household purchase data. We find that, during the first-time disclosure of CEO-worker pay ratios by U.S. public firms in 2018, firms with high pay ratios experience a significant decline in consumer purchases. Specifically, sales of these firms’ products drop by 4.9% compared to similar products from firms without high pay ratios, purchased by the same households. This decline is demand-driven and the effect is significant only after the disclosure. Additional analyses reveal that negative consumer reactions are stronger in areas with greater inequality aversion, for high-value or hard-to-verify products, and when consumers are more likely to be exposed to pay ratio information. Our findings suggest that consumers are concerned about high within-firm pay dispersions, driven by their social preferences and a loss of trust, to the extent that they are aware of this information.

Watching the Watchdogs: The Information Content of SEC Interactions

Steve Irlbeck
,
University of New Hampshire
William Gerken
,
University of Kentucky
Marcus Painter
,
Saint Louis University
Guangli Zhang
,
Saint Louis University

Abstract

The Securities and Exchange Commission’s investigative practices have been challenging to examine due to limited transparency. Using de-identified smartphone geolocation data, we track SEC-associated devices that visit firm headquarters. While confirming that SEC oversight targets larger firms with enforcement histories and clusters by industry, we document two novel patterns: most visits occur outside formal investigations and monitoring occasionally crosses regional boundaries. These visits predict significant negative stock returns, even absent subsequent enforcement actions. Though insiders generally reduce selling around visits, those who do trade avoid substantial losses. Our findings reveal that important regulatory information flows occur before formal proceedings begin.

Discussant(s)
Ian Appel
,
University of Virginia
Paige Ouimet
,
University of North Carolina-Chapel Hill
Daniel Taylor
,
University of Pennsylvania
JEL Classifications
  • G3 - Corporate Finance and Governance