Unintended Consequences? The Effects of Regulation on Executive Compensation: Evidence from the Forbes 500

Since 1990, the amount and way CEOs of American firms are paid has changed drastically. While some theorists posit that the increase in CEO pay witnessed over this time period is an efficient outcome of market forces, other argue that CEO has risen indefensibly as a result of powerful CEOs capturing the pay-setting process. Another idea put forth is that regulation, and thus the accounting expenses related to executive pay, have played a role in shaping CEO compensation levels and composition. This thesis explores this idea further by utilizing a difference-in-difference approach to study the effects of specific government regulation on executive compensation. The results suggest that government regulation has indeed affected CEO compensation levels and composition. Furthermore, the effects are not in line with the original intent of the lawmakers who passed the bill, highlighting the ineffectiveness of such regulation.