Rethinking Measurement of Pay Disparity and its Relation to Firm Performance

I develop measures of firm-level pay disparity and examine the relation between these measures and firm accounting performance. Using comprehensive compensation data for a large sample of firms in the S&P 1,500, I do not find a statistically significant relation between the ratio of CEO-to-mean employee compensation and accounting performance. I next create empirical models that allow me to separate the components of CEO and employee compensation explained by economic factors from those that are not, and use them to estimate explained and unexplained pay disparity. After validating my estimate of unexplained pay disparity as a proxy for pay fairness by documenting that it is negatively related to measures of employee satisfaction, I find robust evidence of a negative (positive) relation between unexplained (explained) pay disparity and future firm performance. Additional tests show that the negative relation between unexplained disparity and firm performance is driven by firms where both the CEO is overpaid and employees are underpaid, and is more pronounced for firms with weak corporate governance and those where employee turnover is more prevalent and more likely. These results provide support for the predictions of several theories on the relation between pay disparity and firm performance, and offer a roadmap for investors to interpret the CEO-to-median-employee pay ratio that publicly traded firms must disclose beginning in 2018

The Accounting Rookie Job Market: A Practitioner’s Guide

This paper offers guidance and shares collective wisdom for accounting Ph.D. students who will be entering the academic job market. It is divided into two sections. The first offers subjective advice on the dissertation process — from choosing a topic to surviving the inevitable self-doubt — from my personal experience and the experiences of other former job candidates. The second section mostly focuses on factual components of the job market, providing details that will be useful to candidates before they begin the search. It concludes with subjective advice on how to make the job hunt more enjoyable. Both sections are organized chronologically and attempt to be comprehensive, beginning with choosing a dissertation topic and adviser, and concluding with the decision to accept an offer

Human Capital Disclosures

We explore the recent landscape of quantitative human capital (HC) disclosures for publicly listed U.S. firms. Using a hand-collected sample of disclosures for 2,393 firms, we first provide detailed descriptive evidence about firms' HC disclosure in their ESG reports and 10-K filings. While only 22% of our sample publishes an ESG report, these reports contain much richer HC disclosures than do 10-Ks. Even so, an amendment to Regulation S-K that required firms to disclose more HC information had an economically meaningful effect on disclosure, although many firms seemed to shift information previously disclosed elsewhere. The increase in disclosure in 10-Ks post regulation is driven by metrics on diversity, equity, and inclusion, and employee turnover. Importantly, the amendment is associated with increased value relevance of the disclosures in the post-regulation period but only for firms disclosing financially material metrics in industries where human capital is said to be relevant to investors

The Role of Taxes in the Disconnect between Corporate Performance and Economic Growth

We investigate the relation between the growth in corporate profits and the overall U.S. economy, focusing on the impact of the U.S. corporate tax regime on this relation. We document that the growth of corporate profits, on average, has outpaced the growth of the economy and this disconnect increases as the difference between the corporate income tax rate of the U.S. and the other OECD countries increases. The underlying mechanism is fewer corporate profits being channeled into subsequent domestic investments when the U.S. tax rate is relatively higher, leading to lower economic growth. Our findings have implications for policy setters

Inclusive Managers

Many organizations acknowledge that inclusiveness, or the practice of directly engaging colleagues in activities, is becoming increasingly important as businesses become more complex. However, inclusive managers remain significantly understudied in large-sample archival research, largely because inclusiveness is difficult to measure. We overcome this barrier and develop a measure of managers’ inclusiveness by observing the interactions among corporate managers during conference calls, the only circumstance where interactions among managers can regularly be observed. We examine inclusive managers’ characteristics, individual career outcomes, leadership team outcomes and firm outcomes. We find that inclusive managers are more likely to be female and older. They are twice as likely as the average manager to be promoted to CEO, and teams composed of inclusive managers have greater retention. In addition, firms where inclusive managers are promoted to CEO experience more positive stock market reactions to the promotion announcements