CEO‐employee pay ratio disclosure and dividend policy

Abstract We examine whether and how the magnitude of the CEO pay ratio affects dividend policy in the context of inequality‐averse investors. Our results demonstrate a positive association between the two and remain robust to endogeneity concerns. We find that the CEO pay ratios positively affect dividends irrespective of whether CEO compensation contracts motivate risk‐averse or risk‐taking policy choices. This non‐diverse effect on dividend policy across CEOs with different pay structures contradicts previous studies and highlights the wealth effect resulting from the SEC mandate. Further analyses reveal a negative effect of the pay ratio on cash holdings and investment inefficiency.