Seminar (Dept. of Accounting)

Title: Does ‘Say on Pay’ work? Evidence from Forced CEO Turnover and Compensation Committee Members Turnover

Speaker: Huishan Wan, Associate Professor, University of Northern Iowa

Time: 10:00-11:30, June 19th, 2024 (Wednesday)

Venue: Room 1007, Mingde Business Building

Language: Chinese & English

ABSTRACT:

This study adds to the literature about shareholders’ “Say on Pay” (SOP) debate by investigating the consequences of SOP dissent votes. Specifically, we examine the association between SOP dissent votes and subsequent forced CEO turnover and compensation committee members (CCM) turnover. Using shareholder SOP votes between 2011 and 2016, we find that firms with greater dissent vote are more likely to experience subsequent forced CEO turnover and CCM turnover. These results suggest that although shareholder dissent votes are advisory, they serve as an effective device for triggering board responsiveness. We also find that the relationship between SOP dissent votes and subsequent forced CEO turnover and CCM turnover is strengthened in firms with a high level of dedicated institutional ownership, but not in firms with a high level of transient ownership. These findings reveal that dedicated institutional ownership is a channel through which the disciplinary mechanism of SOP votes becomes more visible. Finally, we document that firm performance improves for firms experiencing a forced CEO turnover following SOP dissent votes. Overall, our study provides evidence that SOP votes serve as an effective corporate governance mechanism.