Media and social media sentiment and CEO pay cuts

Abstract

Purpose

This study investigates the relationship between media and social media sentiment and the likelihood of CEO pay cuts. The purpose is to examine whether and how these pay cuts influence market reactions. The study aims to provide insights into how external sentiment affects corporate decision-making and market perceptions, particularly in the context of CEO compensation.

Design/methodology/approach

Using a sample of 6,331 firm-year observations from 2015 to 2021, this paper employs quantitative analysis to assess the association between media and social media sentiment and CEO pay cuts. We utilise company DEF14A SEC filings to identify CEO pay cut dates and capture traditional media and Twitter sentiment 30-days prior to these filing dates.

Findings

We find a negative association between media and social media sentiment and CEO pay cuts, indicating that firms facing more negative sentiment are more likely to engage in pay cuts. We find evidence that CEO pay cuts are negatively correlated with market reactions, suggesting markets generally do not seem to favour decisions to cut CEO pay. This relationship, however, is complex and influenced by multiple factors, including the nature of sentiment and the specific components of CEO compensation.

Research limitations/implications

The study faces limitations in identifying the varying degrees of pay cuts and their motivations. Additionally, the content of news articles and Twitter posts used to measure sentiment was not specifically identified, which may affect the accuracy of sentiment measurement.

Practical implications

This research offers valuable insights for managers and corporate decision-makers, highlighting the potential impact of public sentiment on critical executive compensation decisions.

Social implications

The study underscores the influence of media and social media in shaping public opinion and driving corporate actions, highlighting the growing intersection between social perceptions and corporate governance. This has broader implications for how firms engage with media platforms and manage their public image, particularly in the realm of executive compensation.

Originality/value

We are the first to study the impact of media and social media sentiment on CEO compensation decisions and market reactions. By employing DEF14A filings as event dates for market reaction studies, we offer a novel approach to analysing the impact of executive compensation changes on market behaviour.

Citation

Cahill, D., Liu, Z.(F). and Santoso, T. (2024), "Media and social media sentiment and CEO pay cuts", Journal of Accounting Literature, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JAL-04-2024-0071