COMPENSATION DISCLOSURE AND INFORMATION TRANSPARENCY: EVIDENCE FROM REGULATION S-K 402(B)

This research investigates the determinants and consequences of compensation disclosure in the context of the SEC compensation regulation of 2006. Specifically, it focuses on the incentive-related compensation disclosure required by Reg. S-K 402(b). I find that compensation disclosure is negatively associated with managerial power and proprietary cost, but is positively associated with external monitoring. These relations are significant in both the pre- and post-regulation periods. With respect to the consequences of disclosure, I find that corporate information is more transparent when compensation disclosure is higher; however, this relation holds only in the post-regulation period. Additional tests further reveal that compensation disclosure may bring negative consequences that reduce corporate information transparency. For example, I show empirically that such disclosure fails to limit CEO excess compensation and may induce earnings management in the post-regulation period.