ABSTRACT
In response to criticisms of executive pay policies, say-on-pay (SoP) laws have been adopted worldwide. However, evidence on the effectiveness of these laws remains inconclusive. This study examines the effect of SoP laws on financial reporting quality (FRQ) by employing a shock-based research design. Using a large sample of firms from 34 economies from 2000 through 2019, we document a significant improvement in FRQ after the adoption of SoP laws, suggesting increased monitoring on financial reporting. In addition, our cross-sectional analyses show that the improvement in FRQ is more pronounced for firms with strong demand for better FRQ or with corporate governance mechanisms that enable effective monitoring. Taken together, our findings support the monitoring effect of SoP laws and suggest that improved FRQ may be an unintended benefit of SoP laws.
Data Availability: All the data are available from the public sources described in the paper.
JEL Classifications: G34; M12; M41.