Determinants of Strategic Executive Pay Disclosure: Evidence from Korea
39 Pages Posted: 25 Feb 2013
Date Written: March 2013
Abstract
We examine factors influencing firms’ strategic disclosure of executive pay in Korea. Because the disclosure rules in Korea do not mandate but only recommend that firms distinguish between inside executive directors and outside directors when reporting the average pay of directors, this regulatory policy provides a unique opportunity to examine managers’ incentives to manage the disclosed levels of average executive pay opportunistically. We find that strategic disclosure for cloaking executive pay prevails when firms have weak corporate governance and high political costs of making strategic disclosures but that such disclosure is not associated with proprietary costs. Furthermore, we examine whether or not firms choosing different types of strategic disclosures base the choice on the political costs of making the strategic disclosures. In our data setting, there are two major ways of strategically managing the disclosed average executive pay downward: (1) deliberate aggregation of inside executive director pay and outside director pay in the calculation of average executive pay and (2) inclusion of part-time inside directors who receive a minimal or substantially low level of pay (which, of the two schemes, is the less visible). Our results suggest that the higher the political costs of a firm’s strategic disclosures, the less visible the firm’s cloaking of executive pay will be.
Keywords: strategic disclosure, executive pay, Korea
JEL Classification: J33, J44, M41, M52
Suggested Citation: Suggested Citation
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