We conduct two experiments to investigate how the presence of the CEO pay ratio, a recently mandated disclosure, influences nonprofessional investors’ reactions to a CEO’s internal attributions for poor firm performance. Results of our first experiment suggest that relative to blaming oneself, blaming other firm employees for poor firm performance more effectively absolves a CEO from responsibility for poor firm performance and damages perceptions of the CEO’s trustworthiness less when a pay ratio disclosure is present versus absent. These perceptions, in turn, affect investors’ support for the CEO’s compensation and the company’s attractiveness as an investment. Our second experiment provides evidence of the underlying process, showing the pay ratio disclosure and the CEO’s attribution to other employees affects the perceived status of a CEO. Together, our findings inform managers about the impact of their attributions for poor firm performance and regulators about potential unintended consequences of pay ratio disclosures.
Changing the blame game: Does the presence of a pay ratio disclosure impact nonprofessional investors’ reactions to CEOs’ internal attributions for poor firm performance?
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Nicole L Cade, Steven E Kaplan, Serena Loftus; Changing the blame game: Does the presence of a pay ratio disclosure impact nonprofessional investors’ reactions to CEOs’ internal attributions for poor firm performance?. Journal of Management Accounting Research 2021; doi: https://doi.org/10.2308/JMAR-2021-012
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