Say Pays! Shareholder Voice and Firm Performance

Authors

Vicente Cuñat, London School of Economics
Mireia Gine, University of Pennsylvania, Wharton Research Data Services, and Instituto de Estudios Superiores de la Empresa (IESE) Business SchoolFollow
Maria Guadalupe, Institut Privé d'enseignement Supérieur (INSEAD), Centre for Economic Policy Research, IZA, and National Bureau of Economic ResearchFollow

Series

Upjohn Institute working paper ; 13-192

DOI

10.17848/wp13-192

Issue Date

February 2013

Abstract

This paper estimates the effect of increasing shareholder “voice” in corporations through a new governance rule that provides shareholders with a regular vote on pay: Say on Pay. We apply a regression discontinuity design to Say on Pay shareholder proposals to deal with prior expectations and the endogeneity of internal governance rules. Adopting Say on Pay leads to large increases in market value (5.4 percent), firm profitability, and long-term performance. In contrast, we find small effects on the level and structure of pay. This suggests that Say on Pay operates as a regular confidence vote, increasing efficiency, and market value.

Sponsorship

W.E Upjohn Institute for Employment Research, Grant No. 11-129

Subject Areas

LABOR MARKET ISSUES; Wages, health insurance and other benefits