Work

Wall Street's attitude toward the CEO-to-employee pay ratio: Evidence from M&As

Year: 2026

Type: article

Abstract: ABSTRACT Using U.S. M&A announcement events, we attempt to understand the market’s attitude towards CEO-to-employee pay-ratio. In a sample of 707 M&A events between 2018-2021, we find that acquirers’ M&A announcement returns are positively associated with their CEO-to-employee pay-ratio. Our findings are robust to utilizing variation in Minimum Wage across acquirer headquarters states as an instrument and in using Heckman sample selection correction. These findings support the optimal contracting view that the market likely perceives the size of pay-ratio as an outcome of boards’ pursuit to recruit and retain the best CEOs. For aptly talented and able CEOs, firms likely offer disproportionately higher pay premiums in the competitive CEO labor market pushing up the pay-ratio.

Source: International Review of Economics & Finance

DOI: 10.1016/j.iref.2025.104886

Authors: Katsiaryna Salavei Bardos, Dev R. Mishra, Hyacinthe Y. Somé, Yuxin Song

Institutions: Fairfield University, University of Saskatchewan, Université de Sherbrooke

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: gold

Estimated APC paid: $1,930