CEO-to-worker Pay Disparity and the Cost of Debt

dc.contributor.authorLei, Lijunen
dc.contributor.committeechairMaher, John J.en
dc.contributor.committeechairHansen, Thomas Boween
dc.contributor.committeememberEasterwood, John C.en
dc.contributor.committeememberFan, Weiguoen
dc.contributor.committeememberJohnson, Eugene Scotten
dc.contributor.departmentAccounting and Information Systemsen
dc.description.abstractPrior research on intra-firm pay disparity suggests intra-firm pay disparity at various hierarchy levels affects firm performance and executive-level pay disparity is related to investment risk in the credit and the equity market. However, none of the studies examine the relationship between CEO-to-worker pay disparity and credit investment risk. The purpose of this study is to investigate the association between CEO-to-worker pay disparity on credit investors' risk assessments. Large CEO-to-worker pay disparity could suggest CEO rent extraction which increases credit risk or effective labor cost management that decreases credit risk. Overall results of this study indicate increased CEO-to-worker pay disparity is associated with a lower cost of debt (a higher probability of credit rating upgrades). This association weakens as the growth rate of average employee pay increases and is more pronounced for labor-intensive firms than for capital-intensive firms, suggesting credit investors incorporate the information about the effectiveness of labor cost management in CEO-to-worker pay disparity in their risk assessments. In addition, the negative relationship between the change in CEO-to-worker pay disparity and the change in the cost of debt is less salient when CEO compensation increases rapidly. Further analysis shows the association is attenuated by increased excessive CEO compensation. The findings indicate credit investors also consider the risk arising from CEO rent extraction when they evaluate CEO-to-worker pay disparity.en
dc.description.degreePh. D.en
dc.publisherVirginia Techen
dc.rightsIn Copyrighten
dc.subjectCEO-to-worker pay disparityen
dc.subjectCost of debten
dc.subjectCredit rating Executive compensationen
dc.subjectLabor adjustment costsen
dc.titleCEO-to-worker Pay Disparity and the Cost of Debten
dc.typeDissertationen and Information Systemsen Polytechnic Institute and State Universityen D.en


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