Do Equity Markets Care about Income Inequality? Evidence from Pay Ratio Disclosure

Yihui Pan, Elena S. Pikulina, Stephan Siegel, Tracy Yue Wang

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

We examine equity markets’ reaction to the first-time disclosure of the CEO-worker pay ratio by U.S. public companies in 2018. We find that firms disclosing higher pay ratios experience significantly lower abnormal announcement returns. Firms whose shareholders are more inequality-averse experience a more negative market response to high pay ratios. Furthermore, during 2018 more inequality-averse investors rebalance their portfolios away from stocks with a high pay ratio relative to other investors. Our results suggest that equity markets are concerned about high within-firm pay dispersion, and investors’ inequality aversion is a channel through which high pay ratios negatively affect firm value.

Original languageEnglish (US)
Pages (from-to)1371-1411
Number of pages41
JournalJournal of Finance
Volume77
Issue number2
DOIs
StatePublished - Apr 2022

Bibliographical note

Publisher Copyright:
© 2022 the American Finance Association

Fingerprint

Dive into the research topics of 'Do Equity Markets Care about Income Inequality? Evidence from Pay Ratio Disclosure'. Together they form a unique fingerprint.

Cite this