The Effects of Presidential Politics on CEO Compensation

Transcription

1 The Effects of Presidential Politics on CEO Compensation Humnath Panta, Ph.D. Assistant Professor and Finance Program Director Brenau University, Gainesville, GA Salil K. Sarkar, Ph.D., CFA Coordinator, Doctoral Finance Program & Associate Professor The University of Texas at Arlington Arlington, TX ABSTRACT This paper provides evidence for the effects of presidential politics on chief executive officer (CEO) compensation. We hypothesize that CEO in publicly traded US companies earn more compensation during Republican regimes because of the expectation of affirmative government policies. Consistent with our prediction, we find that CEO compensation is significantly higher during Republican presidencies than during Democratic presidencies, even after controlling for income tax effect. Finally, incorporating the Senate and House of Representatives impact on CEO compensation in addition to presidencies validates our main proposition that CEO compensation is higher during Republican presidencies than during Democratic presidencies. We also examine the effects of presidential politics on non-ceo executive compensation and find that all components of non-ceo executive commendation are significantly higher during Republican presidencies than during Democratic presidencies. Keywords: CEO, Compensation, Democrats, Republicans. JEL Classification: G1, G14, G18. 1

2 Variables LSALARY LBONUS LCASH_COMP L EQUITY_COMP LTOTAL_COMP LPPS HOUSE_DUM SENATE_DUM PRES_DUM CYCLE1 CYCLE2 CYCLE3 CYCLE4 CYCLE5 VOLATILITY Appendix A Variable Definitions and Data Sources Data Definition and Source Logarithmic transformation of the dollar value of salary earned by the named executive officer during the fiscal year. Data source: Standard and Poor s ExecuComp database. Logarithmic transformation of the dollar value of bonus earned by the named executive officer during the fiscal year. Data source: Standard and Poor s ExecuComp database. Logarithmic transformation of the dollar value of the sum of salary and bonuses earned by the named executive officer during the fiscal year. Data source: Standard and Poor s ExecuComp database. Logarithmic transformation of sum of Black Scholes value option awards, fair value of option awards, restricted stock grant and fair value of stock awards. Data source: Standard and Poor s ExecuComp database. Logarithmic transformation of sum of salary, bonus, non-equity incentive plan compensation, grant-date fair value of option awards, grant-date fair value of stock awards, deferred compensation earnings reported as compensation, and other compensation. Data source: Standard and Poor s ExecuComp database. Logarithmic transformation of pay performance sensitivity. PPS is the change in the value of the CEO s stock and option portfolio due to a 1% increase in the value of the firm s common stock price. Data source: Standard and Poor s ExecuComp database. Data source: Standard and Poor s ExecuComp database. A dummy variable equal to 1 if Republican Party has majority in House of Representative and zero otherwise A dummy variable equal to 1 if Republican Party has majority in Senate and zero otherwise A dummy variable equal to 1 if Republican serves as US President and zero otherwise CYCLE1 indicates the first year after a Democratic or Republican incumbent becomes president. CYCLE2 indicates the second year after a Democratic or Republican incumbent becomes president. CYCLE3 indicates the third year after a Democratic or Republican incumbent becomes president. CYCLE4 indicates the fourth year after a Democratic or Republican incumbent becomes president. CYCLE5 indicates the 2nd term of an incumbent becomes president for repeated times. First obtain the standard deviation of daily log returns over the past five years, and then annualize the standard deviation by multiplying by the square root of 254. This is the percentage return volatility. Data source: CRSP monthly stock returns 2

3 ZSCORE_DUM LROA LSTOCK_RETURN LASSETS LSALE LGROWTH_OPPORT CASH_SHORT OPEARATING_LOSS LTAX_RATE LADV_EXP/AT ADV_MISSING LR&D_EXP/AT RD_MISSING LINVEST_EXP/AT Equals one if Altman s Z-score is greater than 1.81, and zero otherwise. Altman s Z-score is computed as sum of 3.3*OIADP/AT, 1.2*(ACT-LCT)/AT, Sale/AT, 0.6*PRCCF*CSHO/Sum (of DLTT DLC), and 1.4*RE/AT. Data source: COMPUSTAT Annual Industrial file. Logarithmic transformation of ROA. ROA is ratio of operating income before depreciation to total assets. Data source: COMPUSTAT Annual Industrial file. Logarithmic transformation of stock return. Stock return is the buy-and-hold return during the fiscal year. Data source: CRSP monthly file. Logarithmic transformation of total assets. Data source: COMPUSTAT Annual Industrial file. Logarithmic transformation of total sales. Data source: COMPUSTAT Annual Industrial file. Logarithmic transformation of growth opportunity. It is is book value of assets scaled by the market value of assets. Data source: COMPUSTAT Annual Industrial file. Cash flow shortfall is defined as sum of three year average of common and preferred dividends and cash flow from investing minus cash flow from operations scaled by total assets. Data source: COMPUSTAT Annual Industrial file. Net operating loss equals to 1 if the firm has net operating loss carry forwards in any of the three years prior to when the new equity grant is awarded. Data source: COMPUSTAT Annual Industrial file. Logarithmic transformation of taxes. Taxes are the tax rate faced by a firm after interest deduction. Data source: COMPUSTAT Annual Industrial file. Logarithmic transformation of ADV_EXP/AT. Advertising expenditure (xad or zero if missing) scaled by assets. Data source: COMPUSTAT Annual Industrial file. A dummy variable equal to one if the Advertising expenditure is missing. Data source: COMPUSTAT Annual Industrial file. Logarithmic transformation of R&D_EXP/AT. Research and development expenditures (xrd or zero if missing) scaled by assets. Data source: COMPUSTAT Annual Industrial file. A dummy variable equal to one if the research and development expenditure is missing. Data source: COMPUSTAT Annual Industrial file. Logarithmic transformation of INVEST_EXP/AT. Investment expenditure is the sum of capital expenditures plus acquisitions over the last three years divided by market value of assets. Data source: COMPUSTAT Annual Industrial file. 3

4 LLEVERAGE LDIV_YIELD LEXE_AGE DUALITY EXE_DIR FEMALE TURNOVER EINDEX RATE_DUM Logarithmic transformation of leverage. Leverage is calculated as the difference between book value of assets and book value of equity scaled by market value of equity. Data source: COMPUSTAT Annual Industrial file. Logarithmic transformation of DIV_YIELD. Dividend yield is dividend per share divided by close price of firm stock for the fiscal year. Data source: COMPUSTAT Annual Industrial file. Logarithmic transformation of EXE_AGE. Executive's age CEO s age during the fiscal year. Data source: Standard and Poor s ExecuComp database. Duality equals one if the firm s executive holds more than one position during the fiscal year and zero otherwise. Data source: Standard and Poor s ExecuComp database. Equals one if the firm s executive served as a director during the fiscal year and zero otherwise. Data source: Standard and Poor s ExecuComp database. Equals to one if an executive is female and zero otherwise. Data source: Standard and Poor s ExecuComp database. Executive turnover equals 1 if an executive during the fiscal year is different from the last fiscal year and zero otherwise. Data source: Standard and Poor s ExecuComp database. EINDEX constructed by Bebchuk, Fried, and Walker (2009) as a proxy for corporate governance. The highest value of EINCEX is 6. Data source: Professor Bebchuk s Website. Equals to one if a firm has a bond rating during the fiscal year and zero otherwise. Data source: Standard and Poor s Credit Rating database. Main Results TABLE I Summary Statistics This table reports summary statistics for dependent and explanatory variables. The sample period is from 1992 to All variables are defined in Appendix A. N Mean Std.De Minimu p25 p50 p75 Maximu Variables v m m SALARY BONUS ,155. 1,293.9 CASH_COMP 9 0 EQUITY_COMP ,040. 1, ,040. 2,

5 ,077. 1, ,636. 3,627. 4,278.3 TOTAL_COMP STD. RETURN ZSCORE_DUM STOCK RETURN ROA FIRM AGE ,169. 5, ,437. 5, ,318.4 TOTAL ASSETS GROWTH_OPPO RT CASH_SHORT OPERAT_LOSS ADV_EXP/AT ADV_MISSING R&D_EXP/AT R&D_MISSING INVEST_EXP/AT LEVERATE 9 DIVIDEND_YIEL D EXE_AGE DUALITY EXE_DIR FEMALE TURNOVER 9 RATE_DUM

6 9 Table II Average excess CEO compensation during Republican and Democratic presidencies This table reports comparative annual average excess CEO compensation during Democratic and Republican presidencies for full sample period and in different election cycles. Here, 1st year indicates the first year after a Democratic or Republican incumbent becomes president, so as the 2nd, 3rd, and 4th year; 2nd term indicates the tenure of an incumbent becomes president for repeated times. The sample period is from 1992 to Panel A, B, C, D, E and F report excess CEO compensation for our full sample and election cycle respectively. All variables are defined in Appendix A. Test statistics are reported in parentheses. ***, **, and * denote significance at less than the 1%, 5% and 10% levels respectively. Panel A: Average excess compensation during Republican and Democratic presidencies full sample Republican Democratic Compensation Difference t-stat Observation Mean Observation Mean SALARY *** (23.09) BONUS *** (4.81) CASH_COMP *** (16.07) EQUITY_COMP *** (17.45) TOTAL COMP *** (19.21) Panel B: Average excess compensation during Republican and Democratic presidencies 1 st Year Republican Democratic Compensation Difference t-stat Observation Mean Observation Mean SALARY *** (-4.41) BONUS *** (14.74) CASH_COMP *** (3.74) EQUITY_COMP , *** (8.20) TOTAL_COMP , , *** (9.72) Panel C: Average excess compensation during Republican and Democratic presidencies 2 nd Year Republican Democratic Compensation Difference t-stat Observation Mean Observation Mean SALARY (-1.81) 6

7 BONUS *** (15.10) CASH_COMP *** (5.51) EQUITY_COMP , *** (3.97) TOTAL_COMP , , *** (6.52) Panel D: Average excess compensation during Republican and Democratic presidencies 3 nd Year Compensation Republican Democratic Observation Mean Observation Mean Difference t-stat SALARY (1.91) BONUS *** (18.15) CASH_COMP *** (9.67) EQUITY_COMP , ** (2.92) TOTAL_COMP , , *** (7.21) Panel E: Average excess compensation during Republican and Democratic presidencies 4 th Year Republican Democratic Compensation Difference t-stat Observation Mean Observation Mean SALARY *** (15.35) BONUS *** (13.63) CASH_COMP *** (16.35) EQUITY_COMP , *** (13.60) TOTAL_COMP , , *** (17.02) Panel F: Average excess compensation during Republican and Democratic presidencies 2 nd Term Republican Democratic Compensation Difference t-stat Observation Mean Observation Mean SALARY *** (29.66) BONUS *** (-25.81) CASH_COMP *** (4.50) EQUITY_COMP , *** (10.40) TOTAL_COMP , , *** (6.59) 7

8 Table III Correlations between Variables Variables SALARY BONUS CASH_COMP EQUITY_COMP TOTAL_COMP ZSCORE_DUM STD.DEV STOCK RETURN ROA FIRM_AGE TOTAL ASSETS GROWTH_OPPO RT CASH_SHORT OPERT_LOSS XAD/AT R&D/AT INVEST_EXP/AT EXE_DIR

9 TURNOVER

10 Table IV Presidential Politics and CEO Salary Compensation This table shows regression results for CEO salary compensation on presidencies and other control variables. The sample contains 32,139 firm-year observations. The sample period is from 1992 to Standard errors are reported in parentheses. The goodness-of-fit measures reported are the Adjusted R-squared. ***, **, and * denote significance at less than the 1%, 5% and 10% levels, respectively. All variables are defined in Appendix A. INTERCEPT *** (0.073) *** (0.073) *** (0.072) *** (0.072) *** (0.082) HOUSE_DUM *** *** *** SENATE_DUM *** PRES_DUM *** *** *** LVOLATILITY *** *** (0.284) (0.283) ZSCORE_DUM *** *** LSTOCK_RTURN ** *** LROA *** *** (0.056) (0.056) FIRM AGE *** *** LTOTAL ASSETS *** *** (0.002) (0.002) LGROWTH_OPPORT (0.022) (0.022) CASH_SHORT *** *** OPERT_LOSS *** *** LADV_EXP/AT *** *** (0.279) (0.279) ADV_MISSING *** *** LRD_EXP/AT *** *** (0.083) (0.083) RD_MISSING *** *** LINVEST_EXP/AT *** *** (0.071) (0.071) LLEVERAGE ** ** *** (0.282) *** *** *** (0.055) *** *** (0.002) * *** *** *** (0.276) *** *** (0.083) *** *** (0.071) *** *** (0.283) *** *** *** (0.055) *** *** (0.002) (0.022) *** *** *** (0.276) ** *** (0.083) *** *** (0.071) *** *** (0.291) *** *** *** (0.055) *** *** (0.002) *** (0.022) *** *** ** (0.293) *** * (0.101) *** (0.075) ***

11 LDIV_YIELD *** *** *** *** *** EXE AGE *** *** *** *** *** DUALITY *** ** *** *** *** EXE_DIR *** *** *** *** *** FEMALE *** *** *** *** TURNOVER *** *** *** *** *** RATE_DUM Industry Effects No No No No Yes Observations Adjusted R Table V Presidential Politics and CEO Bonus Compensation This table shows regression results for CEO bonus compensation on presidencies and other control variables. The sample contains 32,139 firm-year observations. The sample period is from 1992 to Standard errors are reported in parentheses. The goodness-of-fit measures reported are the Adjusted R-squared. ***, **, and * denote significance at less than the 1%, 5% and 10% levels, respectively. All variables are defined in Appendix A. INTERCEPT ** (0.521) * (0.526) *** (0.539) ** (0.520) *** (0.597) HOUSE_DUM *** (0.032) *** (0.032) *** (0.032) SENATE_DUM *** PRES_DUM *** *** (0.029) *** (0.029) LVOLATILITY *** (2.024) (2.035) (2.099) *** (2.036) *** (2.121) ZSCORE_DUM (0.034) (0.034) (0.034) (0.036) LSTOCK_RTURN *** (0.044) *** (0.045) *** (0.046) *** (0.044) *** (0.044) LROA *** (0.396) *** (0.399) *** (0.410) *** (0.395) *** (0.402) FIRM AGE *** *** *** (0.027) *** ** (0.028) LTOTAL ASSETS *** *** *** *** *** LGROWTH_OPPORT (0.155) (0.157) ** (0.160) (0.155) (0.160) CASH_SHORT * (0.124) (0.125) * (0.129) * (0.124) * (0.127) OPERT_LOSS *** *** *** *** *** 11

12 (0.051) (0.051) (0.053) (0.051) (0.052) LADV_EXP/AT *** (1.986) *** (2.007) *** (2.056) *** (1.986) *** (2.140) ADV_MISSING *** (0.052) *** (0.052) *** (0.053) *** (0.052) *** (0.052) LRD_EXP/AT ** (0.593) (0.598) (0.614) * (0.593) *** (0.738) RD_MISSING ** * * (0.036) * *** (0.043) LINVEST_EXP/AT (0.507) (0.512) * (0.526) (0.508) ** (0.549) LLEVERAGE *** (0.149) *** (0.151) *** (0.155) *** (0.150) ** (0.154) LDIV_YIELD *** *** *** (0.032) *** *** (0.032) EXE AGE *** (0.126) *** (0.127) *** (0.130) *** (0.126) *** (0.126) DUALITY *** *** *** (0.034) *** *** EXE_DIR *** (0.039) FEMALE *** (0.096) *** (0.097) *** (0.099) *** (0.095) *** (0.096) TURNOVER *** (0.045) *** (0.046) *** (0.047) *** (0.046) *** (0.046) RATE_DUM * (0.039) ** (0.039) *** (0.040) (0.039) (0.039) Industry Effects No No No No Yes Observations Adjusted R Table VI Presidential Politics and CEO Cash Compensation This table shows regression results for CEO cash compensation on presidencies and other control variables. The sample contains 32,139 firm-year observations. The sample period is from 1992 to Standard errors are reported in parentheses. The goodness-of-fit measures reported are the Adjusted R-squared. ***, **, and * denote significance at less than the 1%, 5% and 10% levels, respectively. All variables are defined in Appendix A. INTERCEPT *** (0.088) *** (0.089) *** (0.089) *** (0.088) *** (0.100) HOUSE_DUM *** *** *** SENATE_DUM *** PRES_DUM *** *** *** LVOLATILITY *** (0.344) ZSCORE_DUM *** *** (0.343) *** *** (0.345) *** *** (0.345) *** *** (0.355) ***

13 LSTOCK_RTURN *** *** *** *** *** LROA *** (0.067) *** (0.067) *** (0.067) *** (0.067) *** (0.067) FIRM AGE *** *** *** *** *** LTOTAL ASSETS *** *** *** *** *** LGROWTH_OPPORT ** (0.027) CASH_SHORT *** *** *** *** *** OPERT_LOSS ** LADV_EXP/AT *** (0.338) *** (0.338) *** (0.338) *** (0.337) *** (0.358) ADV_MISSING LRD_EXP/AT *** (0.101) *** (0.101) *** (0.101) *** (0.101) (0.124) RD_MISSING *** *** *** *** LINVEST_EXP/AT *** (0.086) *** (0.086) *** (0.086) *** (0.086) (0.092) LLEVERAGE *** *** *** *** *** LDIV_YIELD *** *** *** *** *** EXE AGE *** *** *** *** *** DUALITY *** *** *** *** *** EXE_DIR *** *** *** *** *** FEMALE TURNOVER *** *** *** *** *** RATE_DUM Industry Effects No No No No Yes Observations Adjusted R Table VII Presidential Politics and CEO Equity Compensation This table shows regression results for CEO equity compensation on presidencies and other control variables. The sample contains 32,139 firm-year observations. The sample period is from 1992 to Standard errors are reported in parentheses. The goodness-of-fit measures reported are the Adjusted R-squared. ***, **, and * denote significance at less than the 1%, 5% and 10% levels, respectively. All variables are defined in Appendix A. 13

14 INTERCEPT *** (0.592) *** (0.593) *** (0.592) *** (0.592) *** (0.681) HOUSE_DUM (0.036) (0.036) (0.036) SENATE_DUM *** (0.034) PRES_DUM *** *** *** LVOLATILITY *** (2.303) *** (2.292) ZSCORE_DUM *** *** LSTOCK_RTURN (0.050) (0.051) LROA (0.450) (0.450) FIRM AGE LTOTAL ASSETS *** *** LGROWTH_OPPORT *** *** (0.176) (0.177) CASH_SHORT (0.141) (0.141) OPERT_LOSS (0.058) (0.058) LADV_EXP/AT ** ** (2.260) (2.260) ADV_MISSING (0.059) (0.059) LRD_EXP/AT *** *** (0.674) (0.674) RD_MISSING *** *** (0.040) (0.040) LINVEST_EXP/AT * ** (0.577) (0.577) LLEVERAGE * * (0.170) (0.170) LDIV_YIELD * * EXE AGE *** *** (0.143) (0.143) DUALITY (0.037) EXE_DIR *** *** (0.043) (0.043) FEMALE ** ** (0.109) (0.109) TURNOVER *** *** (0.052) (0.051) *** (2.306) *** (0.050) (0.450) *** *** (0.175) (0.141) (0.058) * (2.259) (0.059) *** (0.675) *** (0.040) ** (0.578) (0.170) ** *** (0.143) (0.037) *** (0.043) * (0.109) *** (0.052) *** (2.318) *** (0.050) (0.450) *** *** (0.176) (0.141) (0.058) * (2.261) (0.059) *** (0.675) *** (0.040) ** (0.578) (0.170) ** *** (0.143) *** (0.043) * (0.109) *** (0.052) (0.034) *** (2.417) *** (0.041) (0.050) (0.458) *** *** (0.182) (0.145) (0.060) (2.438) (0.060) *** (0.841) *** (0.049) *** (0.626) (0.175) *** (0.036) *** (0.144) *** (0.043) ** (0.109) *** (0.052)

15 RATE_DUM *** (0.044) *** (0.044) *** (0.044) *** (0.044) *** (0.045) Industry Effects No No No No Yes Observations Adjusted R Table VIII Presidential Politics and CEO Total Compensation This table shows regression results for CEO total compensation on presidencies and other control variables. The sample contains 32,139 firm-year observations. The sample period is from 1992 to Standard errors are reported in parentheses. The goodness-of-fit measures reported are the Adjusted R-squared. ***, **, and * denote significance at less than the 1%, 5% and 10% levels, respectively. All variables are defined in Appendix A. INTERCEPT *** (0.138) *** (0.138) *** (0.138) *** (0.137) *** (0.156) HOUSE_DUM *** *** *** SENATE_DUM *** PRES_DUM *** *** *** LVOLATILITY *** (0.535) *** (0.534) *** (0.537) *** (0.538) *** (0.558) ZSCORE_DUM *** *** *** *** *** LSTOCK_RTURN * * *** ** *** LROA *** (0.104) *** (0.105) *** (0.105) *** (0.104) *** (0.105) FIRM AGE * ** LTOTAL ASSETS *** *** *** *** *** LGROWTH_OPPORT *** (0.050) *** (0.050) *** (0.050) *** (0.050) *** (0.051) CASH_SHORT *** *** *** *** ** OPERT_LOSS * * * * *** LADV_EXP/AT * (0.525) * (0.527) *** (0.526) ** (0.525) (0.560) ADV_MISSING *** ** * LRD_EXP/AT *** (0.156) ** (0.157) *** (0.157) *** (0.156) *** (0.193) RD_MISSING *** *** *** *** *** (0.011) LINVEST_EXP/AT *** (0.134) *** (0.135) ** (0.135) *** (0.134) (0.144) LLEVERAGE *** *** *** *** * 15

16 LDIV_YIELD *** *** *** *** *** EXE AGE *** *** *** *** *** DUALITY *** *** *** *** *** EXE_DIR *** *** *** *** *** FEMALE TURNOVER *** *** *** *** *** RATE_DUM *** *** *** *** *** Industry Effects No No No No Yes Observations Adjusted R Table IX Presidential Politics and CEO Compensation: Robust Regression This table shows robust regression results for CEO compensation on presidencies and other control variables. In model 1 through 5 dependent variables are log salary, bonus, cash compensation, equity compensation, total compensation respectively. The sample contains 32,139 firm-year observations. The sample period is from 1992 to Standard errors are reported in parentheses. The goodness-of-fit measures reported are the Adjusted R-squared. ***, **, and * denote significance at less than the 1%, 5% and 10% levels, respectively. All variables are defined in Appendix A. INTERCEPT *** (0.074) (0.698) *** (0.098) *** (0.275) *** (0.160) PRES_DUM *** *** (0.034) *** *** *** LVOLATILITY ** (0.275) *** (2.575) *** (0.361) *** (1.017) *** (0.591) ZSCORE_DUM *** (0.042) *** *** LSTOCK_RTURN ** *** (0.051) *** *** *** LROA *** (0.050) *** (0.469) *** (0.066) * (0.185) *** (0.108) FIRM AGE *** * (0.032) *** *** LTOTAL ASSETS *** (0.002) *** *** *** *** LGROWTH_OPPORT ** *** (0.224) * *** (0.088) *** (0.051) CASH_SHORT *** *** *** OPERT_LOSS *** (0.148) *** (0.065) (0.059) ** (0.034) **

17 LTAX_RATE *** (0.040) *** (0.378) *** (0.053) * (0.149) (0.087) LADV_EXP/AT * (0.263) *** (2.464) *** (0.345) (0.973) (0.565) ADV_MISSING *** *** (0.060) *** LRD_EXP/AT *** (0.091) (0.856) (0.120) *** (0.338) *** (0.196) RD_MISSING *** (0.051) *** *** LINVEST_EXP/AT (0.068) *** (0.632) (0.089) * (0.250) (0.145) LLEVERAGE *** (0.087) *** *** ** LDIV_YIELD *** *** *** *** *** EXE AGE *** *** (0.146) *** (0.058) *** DUALITY *** *** (0.039) *** *** *** EXE_DIR *** (0.044) *** *** *** FEMALE *** (0.112) * (0.044) TURNOVER *** *** (0.052) *** *** *** RATE_DUM *** (0.045) *** ** *** Industry Effects Yes Yes Yes Yes Yes Observations Adjusted R Table X Presidential Politics and CEO Compensation: Median Regression This table shows median regression results for CEO compensation on presidencies and other control variables. In model 1 through 5 dependent variables are log salary, bonus, cash compensation, equity compensation, total compensation respectively. The sample contains 32,139 firm-year observations. The sample period is from 1992 to Standard errors are reported in parentheses. The goodness-of-fit measures reported are the Adjusted R-squared. ***, **, and * denote significance at less than the 1%, 5% and 10% levels, respectively. All variables are defined in Appendix A. INTERCEPT *** (0.086) *** (0.497) *** (0.109) *** (0.375) *** (0.160) PRES_DUM *** * *** *** *** LVOLATILITY *** *** *** *** (0.319) ZSCORE_DUM *** (1.840) (0.405) *** (1.387) ** (0.590) ***

18 LSTOCK_RTURN ** *** (0.036) *** *** (0.028) *** LROA *** (0.058) *** (0.335) *** (0.074) ** (0.253) *** (0.108) FIRM AGE *** * *** * LTOTAL ASSETS *** (0.002) *** *** *** (0.011) *** LGROWTH_OPPORT (0.028) *** (0.160) ** *** (0.121) *** (0.051) CASH_SHORT *** *** (0.106) *** (0.080) (0.034) OPERT_LOSS *** *** (0.046) *** LTAX_RATE *** (0.047) *** (0.270) * (0.059) *** (0.204) (0.087) LADV_EXP/AT * (0.305) *** (1.759) *** (0.387) (1.327) (0.564) ADV_MISSING *** *** (0.043) *** LRD_EXP/AT *** (0.106) (0.611) ** (0.135) *** (0.461) *** (0.196) RD_MISSING *** (0.036) * *** (0.027) *** LINVEST_EXP/AT (0.078) *** (0.452) (0.099) *** (0.341) (0.145) LLEVERAGE (0.011) *** (0.063) *** *** (0.047) LDIV_YIELD *** *** (0.027) *** *** *** EXE AGE *** * (0.104) *** *** (0.079) *** DUALITY *** *** (0.028) *** *** ** EXE_DIR *** *** *** *** *** FEMALE *** (0.080) * (0.060) TURNOVER *** ** (0.037) *** *** (0.028) *** RATE_DUM ** *** (0.032) *** *** *** Industry Effects Yes Yes Yes Yes Yes Observations Pseudo R Table XI Presidential Politics and CEO Compensation: Linear Probability Model This table shows linear probability regression results for CEO compensation on presidencies and other control variables. Here president is a dummy variable indicating 1 if Republican president 18

19 and 0 otherwise. In model 1 through 5, we regress log of salary, bonus, cash, equity and total compensation on presidencies. The sample contains 32,139 firm-year observations. The sample period is from 1992 to Standard errors are reported in parentheses. The goodness-of-fit measures reported are the Adjusted R-squared. ***, **, and * denote significance at less than the 1%, 5% and 10% levels, respectively. All variables are defined in Appendix A. INTERCEPT *** (0.072) ** (0.063) *** (0.071) * (0.063) LSALARY *** LBONUS *** (0.001) LCASH_COMP *** LEQUITY_COMP *** *** (0.067) (0.001) LTOTAL_COMP *** LVOLATILITY *** (0.403) *** (0.410) *** (0.406) *** (0.410) *** (0.406) ZSCORE_DUM * LSTOCK_RTURN *** *** *** *** *** LROA *** (0.077) *** (0.079) *** (0.078) *** (0.079) *** (0.078) LGROWTH_OPPORT *** (0.037) *** (0.037) *** (0.037) *** (0.037) *** (0.037) CASH_SHORT OPERT_LOSS *** (0.011) *** (0.011) *** (0.011) *** (0.011) *** (0.011) LTAX_RATE *** (0.062) * (0.064) (0.063) (0.063) (0.063) LADV_EXP/AT *** (0.275) *** (0.280) *** (0.277) *** (0.280) *** (0.278) LRD_EXP/AT *** (0.129) *** (0.132) *** (0.130) *** (0.132) *** (0.131) LINVEST_EXP/AT *** (0.104) *** (0.106) *** (0.105) *** (0.106) *** (0.105) LLEVERAGE *** *** *** *** *** LDIV_YIELD *** *** DUALITY *** *** *** *** *** TURNOVER *** *** *** *** *** Industry Effects Yes Yes Yes Yes Yes Observations Pseudo R

20 Table XII Presidential Politics and CEO Compensation: logistic regression This table shows logistic regression results for CEO compensation on presidencies and other control variables. Here president is a dummy variable indicating 1 if Republican president and 0 otherwise. In model 1 through 5, we regress log of salary, bonus, cash, equity and total compensation on presidencies. The sample contains 32,139 firm-year observations. The sample period is from 1992 to Standard errors are reported in parentheses. The goodness-of-fit measures reported are the Adjusted R-squared. ***, **, and * denote significance at less than the 1%, 5% and 10% levels, respectively. All variables are defined in Appendix A. PRES_DUM INTERCEPT *** *** (0.278) (0.341) LSALARY *** LBONUS *** *** (0.321) LCASH_COMP *** *** (0.280) LEQUITY_COMP *** *** (0.303) LTOTAL_COMP *** LVOLATILITY *** (1.863) ZSCORE_DUM * (0.032) LSTOCK_RTURN *** LROA *** (0.352) LGROWTH_OPPORT *** (0.166) CASH_SHORT (0.112) OPERT_LOSS *** (0.049) LTAX_RATE *** (0.282) LADV_EXP/AT *** (1.258) LRD_EXP/AT *** (0.592) LINVEST_EXP/AT *** (0.481) LLEVERAGE *** (0.062) LDIV_YIELD *** (1.804) *** *** (0.346) *** (0.163) (0.109) *** (0.048) * (0.279) *** (1.228) *** (0.579) *** (0.471) *** (0.060) *** *** (1.836) *** *** (0.352) *** (0.165) (0.110) *** (0.048) (0.280) *** (1.246) *** (0.587) *** (0.476) *** (0.062) *** (1.808) *** *** (0.346) *** (0.164) (0.109) *** (0.048) (0.278) *** (1.231) *** (0.582) *** (0.472) *** (0.061) *** *** (1.824) *** *** (0.349) *** (0.166) (0.111) *** (0.048) (0.279) *** (1.242) *** (0.588) *** (0.476) *** (0.062)

21 DUALITY *** *** (0.029) *** (0.029) *** (0.029) *** (0.029) TURNOVER *** (0.042) *** (0.037) *** (0.040) *** *** (0.039) Industry Effects Yes Yes Yes Yes Yes Observations Pseudo R Table XIII Presidential Politics and CEO Compensation: probit regression This table shows probit regression results for CEO compensation on presidencies and other control variables. Here president is a dummy variable indicating 1 if Republican president and 0 otherwise. In model 1 through 5, we regress log of salary, bonus, cash, equity and total compensation on presidencies. The sample contains 32,139 firm-year observations. The sample period is from 1992 to Standard errors are reported in parentheses. The goodness-of-fit measures reported are the Adjusted R-squared. ***, **, and * denote significance at less than the 1%, 5% and 10% levels, respectively. All variables are defined in Appendix A. PRES_DUM INTERCEPT *** *** (0.171) (0.204) LSALARY *** LBONUS *** *** (0.195) LCASH_COMP *** *** (0.172) LEQUITY_COMP *** *** (0.184) (0.002) LTOTAL_COMP *** LVOLATILITY *** (1.128) ZSCORE_DUM * LSTOCK_RTURN *** LROA *** (0.214) LGROWTH_OPPORT *** (0.101) CASH_SHORT (0.067) OPERT_LOSS *** LTAX_RATE *** (0.172) LADV_EXP/AT *** (0.765) LRD_EXP/AT *** (0.359) *** (1.106) *** *** (0.212) *** (0.100) (0.067) *** (0.029) * (0.172) *** (0.752) *** (0.354) *** (1.118) *** *** (0.214) *** (0.101) (0.067) *** (0.172) *** (0.760) *** (0.357) *** (1.107) *** *** (0.211) *** (0.100) (0.067) *** (0.029) * (0.171) *** (0.754) *** (0.355) *** (1.113) *** *** (0.212) *** (0.101) (0.067) *** (0.029) (0.171) *** (0.758) *** (0.357)

22 LINVEST_EXP/AT *** (0.291) *** (0.287) *** (0.290) *** (0.288) *** (0.289) LLEVERAGE *** *** (0.037) *** *** (0.037) *** LDIV_YIELD *** *** DUALITY *** *** *** *** *** TURNOVER *** *** *** *** *** Industry Effects Yes Yes Yes Yes Yes Observations Pseudo R Robustness test Table XIV Presidential Politics and CEO Pay performance sensitivity This table shows robust regression results for pay performance sensitivity on presidencies and other control variables. The sample contains 24,047 firm-year observations. The sample period is from 1992 to Standard errors are reported in parentheses. The goodness-of-fit measures reported are the Adjusted R-squared. ***, **, and * denote significance at less than the 1%, 5% and 10% levels, respectively. All variables are defined in Appendix A. INTERCEPT *** (0.315) *** (0.316) *** (0.316) *** (0.316) *** (0.357) HOUSE_DUM *** *** *** SENATE_DUM PRES_DUM ** ** ** LVOLATILITY *** (1.207) *** (1.198) *** (1.206) *** (1.215) *** (1.266) ZSCORE_DUM (0.022) LROA *** (0.232) *** (0.232) *** (0.232) *** (0.232) ** (0.235) FIRM AGE *** *** *** *** *** LTOTAL ASSETS *** *** *** *** *** LGROWTH_OPPORT *** (0.110) *** (0.110) *** (0.109) *** (0.110) *** (0.111) CASH_SHORT *** (0.072) *** (0.072) *** (0.072) *** (0.072) *** (0.074) OPERT_LOSS * LADV_EXP/AT *** *** *** *** *** 22

23 (1.187) (1.188) (1.188) (1.190) (1.277) ADV_MISSING *** *** *** *** *** LRD_EXP/AT *** (0.348) *** (0.348) *** (0.349) *** (0.349) (0.431) RD_MISSING (0.022) (0.022) (0.022) (0.022) (0.027) LINVEST_EXP/AT *** (0.307) *** (0.308) ** (0.308) ** (0.308) (0.331) LLEVERAGE *** (0.043) *** (0.043) *** (0.043) *** (0.043) *** (0.044) LDIV_YIELD *** *** *** *** *** EXE AGE *** (0.076) *** (0.076) *** (0.076) *** (0.076) *** (0.076) DUALITY *** *** *** *** *** EXE_DIR *** *** *** *** *** FEMALE (0.059) (0.059) (0.059) (0.059) (0.060) TURNOVER *** *** *** *** *** RATE_DUM * * * Industry Effects No No No No Yes Observations Adjusted R Table XV Presidential Politics, marginal tax rates and CEO compensation This table shows regression results for CEO compensation on presidencies and other control variables. In model 1 through 5 dependent variables are log salary, bonus, cash compensation, equity compensation, total compensation respectively. The sample contains 31,635 firm-year observations. The sample period is from 1992 to Standard errors are reported in parentheses. The goodness-of-fit measures reported are the Adjusted R-squared. ***, **, and * denote significance at less than the 1%, 5% and 10% levels, respectively. All variables are defined in Appendix A. INTERCEPT *** (0.083) * (0.624) *** (0.102) *** (0.692) *** (0.160) PRES_DUM *** *** *** *** (0.034) *** LTAX_RATE *** (0.045) *** (0.338) *** (0.055) *** (0.375) (0.086) LVOLATILITY ** (0.307) *** (2.303) *** (0.376) *** (2.554) *** (0.589) ZSCORE_DUM *** *** *** (0.042) *** LSTOCK_RTURN *** *** *** *** 23

24 (0.046) (0.051) LROA *** (0.056) *** (0.420) *** (0.068) (0.465) *** (0.107) FIRM AGE *** * (0.029) *** (0.032) ** LTOTAL ASSETS *** (0.002) *** *** *** *** LGROWTH_OPPORT *** (0.027) *** (0.200) *** (0.222) *** (0.051) CASH_SHORT *** *** (0.133) *** (0.022) (0.147) ** (0.034) OPERT_LOSS *** *** (0.058) *** (0.064) *** LADV_EXP/AT ** (0.294) *** (2.204) *** (0.360) (2.444) (0.563) ADV_MISSING *** *** (0.054) ** (0.060) LRD_EXP/AT (0.102) (0.765) (0.125) *** (0.849) *** (0.196) RD_MISSING ** (0.045) *** (0.050) *** LINVEST_EXP/AT (0.075) *** (0.566) (0.092) *** (0.627) (0.145) LLEVERAGE *** (0.078) *** *** (0.087) * LDIV_YIELD *** *** (0.034) *** *** (0.037) *** EXE AGE *** *** (0.131) *** *** (0.145) *** DUALITY *** *** *** (0.039) *** EXE_DIR *** * (0.039) *** *** (0.044) *** FEMALE *** (0.100) ** (0.111) TURNOVER *** *** (0.047) *** *** (0.052) *** RATE_DUM *** (0.041) * *** (0.045) *** Industry Effects Yes Yes Yes Yes Yes Observations Adjusted R Table XVI Presidential Politics, firm size and CEO compensation This table shows regression results for CEO compensation on presidencies and other control variables. In model 1 through 5 dependent variables are log salary, bonus, cash compensation, equity compensation, total compensation respectively. The sample contains 28,830 firm-year observations. The sample period is from 1992 to Standard errors are reported in parentheses. The goodness-of-fit measures reported are the Adjusted R-squared. ***, **, and * denote 24

25 significance at less than the 1%, 5% and 10% levels, respectively. All variables are defined in Appendix A. INTERCEPT *** (0.086) *** (0.646) *** (0.106) *** (0.720) *** (0.169) PRES_DUM *** *** (0.032) *** *** (0.036) *** LTAX_RATE *** (0.048) *** (0.355) *** (0.058) *** (0.396) (0.093) LVOLATILITY (0.324) *** (2.420) *** (0.396) *** (2.698) *** (0.633) ZSCORE_DUM * (0.040) *** (0.044) LSTOCK_RTURN *** *** (0.048) *** (0.054) *** LROA (0.059) *** (0.439) *** (0.072) ** (0.489) (0.115) FIRM AGE *** *** (0.034) LSALE *** *** *** *** *** LGROWTH_OPPORT ** (0.028) *** (0.209) (0.034) *** (0.233) *** (0.055) CASH_SHORT *** (0.139) * * (0.155) (0.036) OPERT_LOSS *** *** (0.062) *** (0.069) *** LADV_EXP/AT (0.306) *** (2.285) (0.374) ** (2.547) ** (0.597) ADV_MISSING *** *** (0.056) * (0.063) ** LRD_EXP/AT (0.107) (0.801) (0.131) *** (0.893) *** (0.209) RD_MISSING * (0.047) *** (0.053) *** LINVEST_EXP/AT (0.079) *** (0.588) (0.096) *** (0.656) (0.154) LLEVERAGE (0.011) *** (0.082) *** *** (0.091) LDIV_YIELD * *** *** *** (0.039) EXE AGE *** *** (0.137) *** (0.022) *** (0.152) *** (0.036) DUALITY *** *** (0.036) *** (0.040) ** EXE_DIR *** ** (0.040) *** *** (0.045) *** FEMALE *** ** TURNOVER *** (0.101) *** (0.047) *** (0.113) *** (0.053) ***

26 RATE_DUM *** *** (0.041) *** *** (0.046) *** (0.011) Industry Effects Yes Yes Yes Yes Yes Observations Adjusted R Table XVII Presidential Politics, corporate governance and CEO compensation This table shows regression results for CEO compensation on presidencies and other control variables. In model 1 through 5 dependent variables are log salary, bonus, cash compensation, equity compensation, total compensation respectively. The sample contains 28,830 firm-year observations. The sample period is from 1992 to Standard errors are reported in parentheses. The goodness-of-fit measures reported are the Adjusted R-squared. ***, **, and * denote significance at less than the 1%, 5% and 10% levels, respectively. All variables are defined in Appendix A. INTERCEPT *** (0.106) *** (0.806) *** (0.131) *** (0.883) *** (0.205) PRES_DUM *** *** *** *** (0.042) *** EINDEX *** (0.002) *** ** (0.002) *** *** LVOLATILITY (0.393) *** (2.995) *** (0.485) *** (3.283) *** (0.764) ZSCORE_DUM (0.049) ** (0.054) LSTOCK_RTURN *** *** (0.058) *** (0.064) *** LROA ** (0.071) *** (0.541) *** (0.088) ** (0.593) (0.138) FIRM AGE *** *** (0.041) LSALE *** *** *** *** *** LGROWTH_OPPORT *** (0.034) (0.263) *** (0.043) *** (0.288) *** (0.067) CASH_SHORT ** (0.195) *** (0.032) (0.214) (0.050) OPERT_LOSS *** (0.079) ** (0.087) ** LADV_EXP/AT (0.370) * (2.819) (0.457) * (3.089) ** (0.718) ADV_MISSING ** *** (0.071) (0.011) * (0.077) * LRD_EXP/AT (0.130) (0.993) (0.161) ** (1.088) *** (0.253) RD_MISSING * (0.056) *** (0.061) *** LINVEST_EXP/AT (0.095) *** (0.721) (0.117) *** (0.790) * (0.184) LLEVERAGE ** *