The Effects of Presidential Politics on CEO Compensation

The Effects of Presidential Politics on CEO Compensation Humnath Panta, Ph.D. Assistant Professor and Finance Program Director Brenau University, Gainesville, GA 30501 Salil K. Sarkar, Ph.D., CFA Coordinator, Doctoral Finance Program & Associate Professor The University of Texas at Arlington Arlington, TX 76019 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

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

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

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 2011. All variables are defined in Appendix A. N Mean Std.De Minimu p25 p50 p75 Maximu Variables v m m 3213 495.50 203.07 157.62 320.00 496.88 731.25 750.00 SALARY 9 3213 255.10 261.96 0.0000 0.0000 165.00 506.00 666.00 BONUS 9 3213 770.00 374.46 200.00 447.02 718.00 1,155. 1,293.9 CASH_COMP 9 0 EQUITY_COMP 3213 1,040. 1,068.5 0.0000 30.706 607.56 2,040. 2,759.8 4

9 3 0 6 3213 2,077. 1,461.2 266.44 772.90 1,636. 3,627. 4,278.3 TOTAL_COMP 9 1 6 3 7 3213 0.0270 0.0099 0.0151 0.0185 0.0250 0.0342 0.0456 STD. RETURN 9 3213 0.6950 0.4606 0.0000 0.0000 1.0000 1.0000 1.0000 ZSCORE_DUM 9 3213 0.0486 0.3300-0.4438-0.210 0.0273 0.2774 0.6362 STOCK RETURN 9 6 3213 0.0943 0.0578 0.0067 0.0508 0.0882 0.1366 0.1956 ROA 9 3213 27.920 17.092 7.0000 12.000 24.000 43.000 57.000 FIRM AGE 9 6 3213 4,169. 5,583.8 198.12 480.66 1,437. 5,059. 17,318.4 TOTAL ASSETS 9 9 8 7 GROWTH_OPPO RT 3213 9 0.6600 0.2290 0.3000 0.4665 0.6714 0.8608 0.9964 3213-0.164 0.0901-0.3201-0.230-0.155-0.093-0.0305 CASH_SHORT 9 0 8 6 1 3213 0.1120 0.3155 0.0000 0.0000 0.0000 0.0000 1.0000 OPERAT_LOSS 9 3213 0.0062 0.0121 0.0000 0.0000 0.0000 0.0047 0.0359 ADV_EXP/AT 9 3213 0.7020 0.4574 0.0000 0.0000 1.0000 1.0000 1.0000 ADV_MISSING 9 3213 0.0219 0.0342 0.0000 0.0000 0.0000 0.0323 0.1010 R&D_EXP/AT 9 3213 0.4330 0.4956 0.0000 0.0000 0.0000 1.0000 1.0000 R&D_MISSING 9 3213 0.0444 0.0339 0.0050 0.0164 0.0356 0.0650 0.1117 INVEST_EXP/AT 9 3213 0.5390 0.1841 0.2257 0.3984 0.5555 0.6884 0.8087 LEVERATE 9 DIVIDEND_YIEL 3213 1.2910 2.0030 0.0000 0.0000 0.2307 1.6403 6.1005 D 9 3213 53.300 6.4121 42.000 48.000 54.000 59.000 62.000 EXE_AGE 9 3213 0.7370 0.4402 0.0000 0.0000 1.0000 1.0000 1.0000 DUALITY 9 3213 0.8000 0.3999 0.0000 1.0000 1.0000 1.0000 1.0000 EXE_DIR 9 3213 0.0218 0.1461 0.0000 0.0000 0.0000 0.0000 1.0000 FEMALE 9 3213 0.1140 0.3178 0.0000 0.0000 0.0000 0.0000 1.0000 TURNOVER 9 RATE_DUM 3213 0.5250 0.4994 0.0000 0.0000 1.0000 1.0000 1.0000 5

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 2011. 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 14245 524.50 17989 472.330 52.17 *** (23.09) BONUS 14245 262.60 17989 248.490 14.11 *** (4.81) CASH_COMP 14245 807.09 17989 739.860 67.23 *** (16.07) EQUITY_COMP 14245 1154.80 17989 946.660 208.1 *** (17.45) TOTAL COMP 14245 2249.90 17989 1936.900 313.0 *** (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 1820 473.12 2761 500.44-27.31 *** (-4.41) BONUS 1820 271.09 2761 164.50 106.6 *** (14.74) CASH_COMP 1820 748.43 2761 707.40 41.03 *** (3.74) EQUITY_COMP 1820 1,165.60 2761 903.01 262.5 *** (8.20) TOTAL_COMP 1820 2,209.10 2761 1,788.50 420.6 *** (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 1770 492.15 2851 503.26-11.11 (-1.81) 6

BONUS 1770 303.50 2851 190.00 113.5 *** (15.10) CASH_COMP 1770 794.34 2851 733.24 61.10 *** (5.51) EQUITY_COMP 1770 1,102.00 2851 975.29 126.7 *** (3.97) TOTAL_COMP 1770 2,194.40 2851 1,911.70 282.8 *** (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 1776 508.53 2701 496.57 11.95 (1.91) BONUS 1776 346.01 2701 205.33 140.7 *** (18.15) CASH_COMP 1776 846.41 2701 736.84 109.6 *** (9.67) EQUITY_COMP 1776 1,056.40 2701 962.67 93.77 ** (2.92) TOTAL_COMP 1776 2,254.10 2701 1,936.80 317.4 *** (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 1701 533.27 1837 433.05 100.2 *** (15.35) BONUS 1701 404.45 1837 287.82 116.6 *** (13.63) CASH_COMP 1701 929.20 1837 721.87 207.3 *** (16.35) EQUITY_COMP 1701 1,208.20 1837 744.69 463.5 *** (13.60) TOTAL_COMP 1701 2,544.30 1837 1,739.10 805.1 *** (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 7178 547.37 7839 452.02 95.35 *** (29.66) BONUS 7178 196.11 7839 304.99-108.9 *** (-25.81) CASH_COMP 7178 786.44 7839 758.95 27.49 *** (4.50) EQUITY_COMP 7178 1,176.70 7839 993.43 183.3 *** (10.40) TOTAL_COMP 7178 2,203.10 7839 2,044.70 158.4 *** (6.59) 7

Table III Correlations between Variables Variables 6 7 8 9 10 11 12 13 14 15 16 17 18 1 SALARY 1.00 2 BONUS 0.32 1.00 3 CASH_COMP 0.78 0.78 1.00 4 EQUITY_COMP 0.46 0.21 0.44 1.00 5 TOTAL_COMP 0.62 0.46 0.69 0.89 1.00 6 ZSCORE_DUM 0.04 0.03 0.04 0.03 0.03 1.00 7 STD.DEV -0.2 2-0.1 5-0.2 3 0.01-0.0 1-0.0 8-0.0 6 1.00 8 STOCK RETURN 0.00 0.13 0.08 0.02 0.06 0.01 1.00-0.1 ROA 0.03 0.18 0.14 0.06 0.09 0.24 9 9 0.11 1.00 1-0.4-0.0-0.0 FIRM_AGE 0.31 0.10 0.25 0.09 0.17 0.06 0 8 1 3 1.00 1-0.1-0.3-0.0-0.1 TOTAL ASSETS 0.41 0.24 0.43 0.35 0.44 1 6 4 3 1 0.43 1.00 1 GROWTH_OPPO -0.1-0.0-0.1-0.1-0.2-0.1-0.2-0.6 0.07 2 RT 1 2 3 0 4 0 3 1 0.20 0.18 1.00 1-0.0-0.0-0.0-0.1-0.0-0.4 CASH_SHORT 0.08 0.03 0.00 3 3 4 1 8 4 6 0.22 0.16 0.40 1.00 1-0.1-0.0-0.1-0.0-0.0-0.2-0.3-0.2-0.0 OPERT_LOSS 0.29 0.03 4 2 7 2 3 7 1 0 0 6 0.03 0.25 1.00 1-0.0-0.1-0.0-0.0 XAD/AT 0.11 0.05 0.10 0.05 0.08 0.10 0.03 0.17 0.01 0.00 5 1 4 8 5 1.00 1-0.1-0.0-0.1-0.0-0.1-0.1-0.3-0.0-0.0 R&D/AT 0.12 0.05 0.04 0.35 0.00 0.20 6 1 6 1 1 5 4 6 7 4 1.00 1-0.0-0.0-0.0-0.0-0.1-0.0-0.1-0.0-0.0-0.3-0.1-0.0-0.1 INVEST_EXP/AT 0.18 0.03 0.22 7 6 6 8 9 0 8 4 5 9 4 9 2 8 1.00 1 EXE_DIR 0.33 0.09 0.25 0.18 0.23 0.01 0.04 0.00 0.01-0.0-0.0-0.0-0.0 0.02 0.00 0.03-0.0 1.00 8

8 6 9 2 1 1 1-0.2-0.0-0.1-0.0-0.1-0.0-0.0-0.0 TURNOVER 0.00 0.00 0.01 0.01 0.02 0.03 0.02 0.02 0.01 9 6 6 9 8 2 2 3 3-0.2 0 9

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 2011. 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 1.9780 *** (0.073) 2.0050 *** (0.073) 2.0450 *** (0.072) 2.0727 *** (0.072) 1.9140 *** (0.082) HOUSE_DUM -0.0399 *** -0.0436 *** -0.0428 *** SENATE_DUM -0.0452 *** PRES_DUM 0.1091 *** 0.1104 *** 0.1133 *** LVOLATILITY 3.3608 *** 2.9343 *** (0.284) (0.283) ZSCORE_DUM 0.0709 *** 0.0707 *** LSTOCK_RTURN 0.0161 ** 0.0212 *** LROA 0.5355 *** 0.5306 *** (0.056) (0.056) FIRM AGE 0.0549 *** 0.0533 *** LTOTAL ASSETS 0.1802 *** 0.1795 *** (0.002) (0.002) LGROWTH_OPPORT 0.0164 0.0082 (0.022) (0.022) CASH_SHORT 0.1009 *** 0.1046 *** OPERT_LOSS -0.0381 *** -0.0367 *** LADV_EXP/AT 2.3165 *** 2.3725 *** (0.279) (0.279) ADV_MISSING -0.0425 *** -0.0414 *** LRD_EXP/AT -0.5665 *** -0.5461 *** (0.083) (0.083) RD_MISSING -0.0566 *** -0.0563 *** LINVEST_EXP/AT -0.4571 *** -0.4371 *** (0.071) (0.071) LLEVERAGE 0.0650 ** 0.0685 ** 10 2.1458 *** (0.282) 0.0717 *** 0.0218 *** 0.6280 *** (0.055) 0.0472 *** 0.1716 *** (0.002) 0.0461 * 0.1012 *** -0.0355 *** 2.6219 *** (0.276) -0.0289 *** -0.3934 *** (0.083) -0.0541 *** -0.3366 *** (0.071) 0.1075 *** 2.4320 *** (0.283) 0.0712 *** 0.0252 *** 0.6153 *** (0.055) 0.0454 *** 0.1720 *** (0.002) 0.0275 (0.022) 0.1011 *** -0.0369 *** 2.7523 *** (0.276) -0.0227 ** -0.4114 *** (0.083) -0.0539 *** -0.3186 *** (0.071) 0.1122 *** 1.8999 *** (0.291) 0.0365 *** 0.0393 *** 0.5505 *** (0.055) 0.0612 *** 0.1693 *** (0.002) 0.0846 *** (0.022) 0.0685 *** -0.0343 *** 0.8644 ** (0.293) -0.0240 *** -0.2038 * (0.101) -0.0232 *** 0.0090 (0.075) 0.1610 ***

LDIV_YIELD -0.0580 *** -0.0586 *** -0.0514 *** -0.0522 *** -0.0292 *** EXE AGE 0.5785 *** 0.5763 *** 0.5590 *** 0.5591 *** 0.5540 *** DUALITY -0.0156 *** -0.0124 ** -0.0418 *** -0.0350 *** -0.0325 *** EXE_DIR 0.3577 *** 0.3580 *** 0.3669 *** 0.3617 *** 0.3541 *** FEMALE 0.0607 *** 0.0607 *** 0.0517 *** 0.0507 *** 0.0189 TURNOVER -0.2661 *** -0.2650 *** -0.2797 *** -0.2883 *** -0.2884 *** RATE_DUM 0.0047 0.0044 0.0080 0.0099 0.0073 Industry Effects No No No No Yes Observations 32139 32139 32139 32139 32139 Adjusted R 2 0.4757 0.4763 0.4857 0.4873 0.5091 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 2011. 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 1.6838 ** (0.521) 1.2360 * (0.526) 2.3940 *** (0.539) 1.4154 ** (0.520) 2.0488 *** (0.597) HOUSE_DUM 1.5337 *** (0.032) 1.5443 *** (0.032) 1.5468 *** (0.032) SENATE_DUM 1.2196 *** PRES_DUM -0.2683 *** -0.3129 *** (0.029) -0.3010 *** (0.029) LVOLATILITY -16.4484 *** (2.024) -1.8196 (2.035) -3.6732 (2.099) -13.8144 *** (2.036) -12.8565 *** (2.121) ZSCORE_DUM 0.0305 (0.034) 0.0313 (0.034) 0.0135 0.0296 (0.034) 0.0066 (0.036) LSTOCK_RTURN 1.1010 *** (0.044) 1.0002 *** (0.045) 1.1976 *** (0.046) 1.0752 *** (0.044) 1.0895 *** (0.044) LROA 10.8802 *** (0.396) 10.8699 *** (0.399) 10.2031 *** (0.410) 10.6541 *** (0.395) 10.4420 *** (0.402) FIRM AGE -0.1369 *** -0.1109 *** -0.1723 *** (0.027) -0.1098 *** -0.0729 ** (0.028) LTOTAL ASSETS 0.2855 *** 0.3101 *** 0.3234 *** 0.3087 *** 0.2942 *** LGROWTH_OPPORT 0.2353 (0.155) 0.2584 (0.157) -0.4561 ** (0.160) 0.2037 (0.155) 0.1717 (0.160) CASH_SHORT 0.3195 * (0.124) 0.2186 (0.125) 0.3183 * (0.129) 0.3187 * (0.124) 0.2958 * (0.127) OPERT_LOSS 0.2824 *** 0.2312 *** 0.2308 *** 0.2790 *** 0.1900 *** 11

(0.051) (0.051) (0.053) (0.051) (0.052) LADV_EXP/AT 10.2148 *** (1.986) 10.0243 *** (2.007) 13.5997 *** (2.056) 8.9790 *** (1.986) 12.8083 *** (2.140) ADV_MISSING 0.3183 *** (0.052) 0.3528 *** (0.052) 0.4796 *** (0.053) 0.2624 *** (0.052) 0.3135 *** (0.052) LRD_EXP/AT 1.7551 ** (0.593) 0.9971 (0.598) 0.6762 (0.614) 1.3155 * (0.593) 2.7691 *** (0.738) RD_MISSING 0.0920 ** 0.0869 * 0.0896 * (0.036) 0.0846 * 0.1506 *** (0.043) LINVEST_EXP/AT 0.8505 (0.507) 0.4829 (0.512) 1.0943 * (0.526) 0.4576 (0.508) 1.6252 ** (0.549) LLEVERAGE 0.6566 *** (0.149) 0.6076 *** (0.151) 0.6885 *** (0.155) 0.5230 *** (0.150) 0.4448 ** (0.154) LDIV_YIELD -0.1749 *** -0.1672 *** -0.2204 *** (0.032) -0.1914 *** -0.1744 *** (0.032) EXE AGE -0.7146 *** (0.126) -0.6515 *** (0.127) -0.6589 *** (0.130) -0.6593 *** (0.126) -0.7592 *** (0.126) DUALITY 1.0890 *** 1.0754 *** 1.3857 *** (0.034) 1.1439 *** 1.1448 *** EXE_DIR 0.0626-0.0010-0.1326 *** (0.039) 0.0512 0.0441 FEMALE -0.4593 *** (0.096) -0.4675 *** (0.097) -0.4663 *** (0.099) -0.4308 *** (0.095) -0.4072 *** (0.096) TURNOVER 0.5356 *** (0.045) 0.4170 *** (0.046) 0.2926 *** (0.047) 0.5984 *** (0.046) 0.5831 *** (0.046) RATE_DUM 0.0868 * (0.039) 0.1150 ** (0.039) 0.1399 *** (0.040) 0.0720 (0.039) 0.0588 (0.039) Industry Effects No No No No Yes Observations 32139 32139 32139 32139 32139 Adjusted R 2 0.1908 0.1750 0.1341 0.1936 0.2047 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 2011. 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 1.8548 *** (0.088) 1.8385 *** (0.089) 1.9730 *** (0.089) 1.9188 *** (0.088) 1.8639 *** (0.100) HOUSE_DUM 0.0880 *** 0.0855 *** 0.0868 *** SENATE_DUM 0.0616 *** PRES_DUM 0.0772 *** 0.0747 *** 0.0784 *** LVOLATILITY 3.2974 *** (0.344) ZSCORE_DUM 0.0605 *** 4.1081 *** (0.343) 0.0605 *** 12 3.2301 *** (0.345) 0.0598 *** 2.6687 *** (0.345) 0.0607 *** 2.1152 *** (0.355) 0.0295 ***

LSTOCK_RTURN 0.1307 *** 0.1265 *** 0.1437 *** 0.1369 *** 0.1532 *** LROA 2.1038 *** (0.067) 2.1000 *** (0.067) 2.1329 *** (0.067) 2.1578 *** (0.067) 2.0139 *** (0.067) FIRM AGE 0.0286 *** 0.0295 *** 0.0186 *** 0.0221 *** 0.0479 *** LTOTAL ASSETS 0.2357 *** 0.2371 *** 0.2310 *** 0.2302 *** 0.2245 *** LGROWTH_OPPORT 0.0355 0.0322 0.0066 0.0431 0.0739 ** (0.027) CASH_SHORT 0.1538 *** 0.1487 *** 0.1540 *** 0.1540 *** 0.1187 *** OPERT_LOSS -0.0102-0.0131-0.0120-0.0093-0.0286 ** LADV_EXP/AT 2.9688 *** (0.338) 2.9895 *** (0.338) 3.5196 *** (0.338) 3.2638 *** (0.337) 2.0059 *** (0.358) ADV_MISSING -0.0154-0.0122 0.0100-0.0021 0.0099 LRD_EXP/AT -0.5268 *** (0.101) -0.5699 *** (0.101) -0.4572 *** (0.101) -0.4218 *** (0.101) 0.1345 (0.124) RD_MISSING -0.0408 *** -0.0411 *** -0.0388 *** -0.0391 *** 0.0113 LINVEST_EXP/AT -0.6617 *** (0.086) -0.6763 *** (0.086) -0.5327 *** (0.086) -0.5679 *** (0.086) 0.0149 (0.092) LLEVERAGE 0.1428 *** 0.1413 *** 0.1839 *** 0.1747 *** 0.2246 *** LDIV_YIELD -0.0897 *** -0.0895 *** -0.0874 *** -0.0858 *** -0.0594 *** EXE AGE 0.5447 *** 0.5480 *** 0.5316 *** 0.5315 *** 0.5133 *** DUALITY 0.0705 *** 0.0715 *** 0.0708 *** 0.0574 *** 0.0607 *** EXE_DIR 0.3583 *** 0.3538 *** 0.3509 *** 0.3610 *** 0.3530 *** FEMALE 0.0078 0.0072-0.0009 0.0010-0.0239 TURNOVER -0.1889 *** -0.1970 *** -0.2209 *** -0.2039 *** -0.2059 *** RATE_DUM -0.0013 0.0006 0.0060 0.0023 0.0025 Industry Effects No No No No Yes Observations 32139 32139 32139 32139 32139 Adjusted R 2 0.4490 0.4470 0.4485 0.4528 0.4751 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 2011. 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

INTERCEPT 4.5412 *** (0.592) 4.6983 *** (0.593) 4.7655 *** (0.592) 4.7743 *** (0.592) 4.8705 *** (0.681) HOUSE_DUM -0.0047 (0.036) -0.0139 (0.036) 0.0003 (0.036) SENATE_DUM -0.1412 *** (0.034) PRES_DUM 0.2715 *** 0.2719 *** 0.2620 *** LVOLATILITY 33.0603 *** (2.303) 32.5449 *** (2.292) ZSCORE_DUM 0.4319 *** 0.4300 *** LSTOCK_RTURN -0.0355-0.0105 (0.050) (0.051) LROA 0.6243 0.5714 (0.450) (0.450) FIRM AGE 0.0509 0.0413 LTOTAL ASSETS 0.7356 *** 0.7348 *** LGROWTH_OPPORT -1.6675 *** -1.7446 *** (0.176) (0.177) CASH_SHORT -0.0359-0.0243 (0.141) (0.141) OPERT_LOSS -0.0009-0.0004 (0.058) (0.058) LADV_EXP/AT -6.5624 ** -6.0426 ** (2.260) (2.260) ADV_MISSING -0.0653-0.0458 (0.059) (0.059) LRD_EXP/AT 3.8051 *** 3.8143 *** (0.674) (0.674) RD_MISSING -0.3910 *** -0.3899 *** (0.040) (0.040) LINVEST_EXP/AT 1.4258 * 1.5333 ** (0.577) (0.577) LLEVERAGE -0.4097 * -0.3877 * (0.170) (0.170) LDIV_YIELD 0.0764 * 0.0720 * EXE AGE -1.5909 *** -1.5973 *** (0.143) (0.143) DUALITY 0.0216 0.0511 (0.037) EXE_DIR 1.3915 *** 1.3781 *** (0.043) (0.043) FEMALE 0.2955 ** 0.2929 ** (0.109) (0.109) TURNOVER -0.5664 *** -0.5859 *** (0.052) (0.051) 14 30.6803 *** (2.306) 0.4327 *** -0.0141 (0.050) 0.8249 (0.450) 0.0279 0.7153 *** -1.6341 *** (0.175) -0.0352 (0.141) 0.0026 (0.058) -5.5301 * (2.259) -0.0186 (0.059) 4.1929 *** (0.675) -0.3846 *** (0.040) 1.7614 ** (0.578) -0.2951 (0.170) 0.0909 ** -1.6389 *** (0.143) -0.0283 (0.037) 1.4031 *** (0.043) 0.2711 * (0.109) -0.6182 *** (0.052) 30.7716 *** (2.318) 0.4326 *** -0.0130 (0.050) 0.8208 (0.450) 0.0273 0.7154 *** -1.6400 *** (0.176) -0.0352 (0.141) 0.0021 (0.058) -5.4885 * (2.261) -0.0167 (0.059) 4.1872 *** (0.675) -0.3846 *** (0.040) 1.7671 ** (0.578) -0.2936 (0.170) 0.0907 ** -1.6389 *** (0.143) -0.0261 1.4014 *** (0.043) 0.2708 * (0.109) -0.6210 *** (0.052) (0.034) 28.5746 *** (2.417) 0.3017 *** (0.041) 0.0106 (0.050) 0.4856 (0.458) 0.0520 0.7011 *** -1.5096 *** (0.182) -0.1008 (0.145) -0.0616 (0.060) -2.5933 (2.438) -0.0403 (0.060) 3.1592 *** (0.841) -0.2884 *** (0.049) 2.7340 *** (0.626) 0.0048 (0.175) 0.1797 *** (0.036) -1.7301 *** (0.144) -0.0142 1.3837 *** (0.043) 0.2873 ** (0.109) -0.6184 *** (0.052)

RATE_DUM 0.1910 *** (0.044) 0.1951 *** (0.044) 0.2032 *** (0.044) 0.2038 *** (0.044) 0.1919 *** (0.045) Industry Effects No No No No Yes Observations 32139 32139 32139 32139 32139 Adjusted R 2 0.1440 0.1445 0.1457 0.1457 0.1563 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 2011. 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 2.3477 *** (0.138) 2.3550 *** (0.138) 2.5376 *** (0.138) 2.4569 *** (0.137) 2.4297 *** (0.156) HOUSE_DUM 0.1220 *** 0.1187 *** 0.1214 *** SENATE_DUM 0.0591 *** PRES_DUM 0.1024 *** 0.0990 *** 0.1023 *** LVOLATILITY 13.9900 *** (0.535) 15.0237 *** (0.534) 13.8579 *** (0.537) 13.0926 *** (0.538) 11.8723 *** (0.558) ZSCORE_DUM 0.0887 *** 0.0881 *** 0.0911 *** 0.0919 *** 0.0591 *** LSTOCK_RTURN 0.0264 * 0.0252 * 0.0448 *** 0.0352 ** 0.0564 *** LROA 1.4214 *** (0.104) 1.4050 *** (0.105) 1.4556 *** (0.105) 1.4919 *** (0.104) 1.3506 *** (0.105) FIRM AGE -0.0028-0.0033-0.0162 * -0.0114 0.0233 ** LTOTAL ASSETS 0.4199 *** 0.4218 *** 0.4135 *** 0.4123 *** 0.4026 *** LGROWTH_OPPORT -0.4547 *** (0.050) -0.4722 *** (0.050) -0.5368 *** (0.050) -0.4810 *** (0.050) -0.5047 *** (0.051) CASH_SHORT 0.1201 *** 0.1157 *** 0.1213 *** 0.1206 *** 0.0973 ** OPERT_LOSS -0.0300 * -0.0340 * -0.0322 * -0.0286 * -0.0499 *** LADV_EXP/AT 1.1346 * (0.525) 1.2630 * (0.527) 1.8893 *** (0.526) 1.5321 ** (0.525) 0.4618 (0.560) ADV_MISSING -0.0492 *** -0.0410 ** -0.0148-0.0316 * -0.0140 LRD_EXP/AT 0.5577 *** (0.156) 0.4965 ** (0.157) 0.6492 *** (0.157) 0.7015 *** (0.156) 1.1460 *** (0.193) RD_MISSING -0.0913 *** -0.0914 *** -0.0887 *** -0.0892 *** -0.0479 *** (0.011) LINVEST_EXP/AT -0.6089 *** (0.134) -0.6089 *** (0.135) -0.4255 ** (0.135) -0.4763 *** (0.134) 0.1910 (0.144) LLEVERAGE -0.1424 *** -0.1435 *** -0.1124 *** -0.1164 *** -0.0483 * 15

LDIV_YIELD -0.1136 *** -0.1143 *** -0.1102 *** -0.1080 *** -0.0697 *** EXE AGE 0.2899 *** 0.2931 *** 0.2721 *** 0.2722 *** 0.2569 *** DUALITY 0.0640 *** 0.0711 *** 0.0650 *** 0.0463 *** 0.0510 *** EXE_DIR 0.6095 *** 0.6007 *** 0.5989 *** 0.6131 *** 0.6009 *** FEMALE 0.0238 0.0224 0.0129 0.0155-0.0075 TURNOVER -0.1249 *** -0.1398 *** -0.1684 *** -0.1449 *** -0.1473 *** RATE_DUM 0.0471 *** 0.0507 *** 0.0572 *** 0.0517 *** 0.0511 *** Industry Effects No No No No Yes Observations 32139 32139 32139 32139 32139 Adjusted R 2 0.4278 0.4251 0.4271 0.4307 0.4482 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 2011. 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 1.5925 *** (0.074) 0.8728 (0.698) 1.4933 *** (0.098) 2.2656 *** (0.275) 2.0480 *** (0.160) PRES_DUM 0.1145 *** -0.1978 *** (0.034) 0.0840 *** 0.1759 *** 0.1166 *** LVOLATILITY 0.8279 ** (0.275) 10.1823 *** (2.575) 3.2543 *** (0.361) 28.5493 *** (1.017) 13.0217 *** (0.591) ZSCORE_DUM 0.0413 *** -0.0453 (0.042) 0.0299 *** -0.0120 0.0539 *** LSTOCK_RTURN 0.0173 ** 1.3633 *** (0.051) 0.1561 *** -0.1811 *** 0.0566 *** LROA 0.4715 *** (0.050) 9.1889 *** (0.469) 1.8790 *** (0.066) 0.4770 * (0.185) 1.2430 *** (0.108) FIRM AGE 0.0568 *** -0.0773 * (0.032) 0.0420 *** -0.0938 *** 0.0122 LTOTAL ASSETS 0.1835 *** (0.002) 0.3438 *** 0.2396 *** 0.6001 *** 0.4373 *** LGROWTH_OPPORT 0.0675 ** -1.3857 *** (0.224) -0.0671 * -1.4884 *** (0.088) -0.6386 *** (0.051) CASH_SHORT 0.0778 *** 0.7875 *** 0.1261 *** -0.0748 0.0607 OPERT_LOSS -0.0520 *** (0.148) 0.5594 *** (0.065) 16 0.0016 (0.059) -0.0806 ** (0.034) -0.0436 **

LTAX_RATE -0.4490 *** (0.040) 8.8506 *** (0.378) 0.2156 *** (0.053) -0.3549 * (0.149) -0.0683 (0.087) LADV_EXP/AT 0.6635 * (0.263) 18.7197 *** (2.464) 2.2672 *** (0.345) -0.0581 (0.973) 0.8524 (0.565) ADV_MISSING -0.0283 *** 0.6038 *** (0.060) 0.0323 *** -0.0005 0.0039 LRD_EXP/AT -0.3072 *** (0.091) 1.0473 (0.856) -0.2209 (0.120) 1.8905 *** (0.338) 1.2055 *** (0.196) RD_MISSING -0.0261 *** 0.0649 (0.051) -0.0131-0.1249 *** -0.0640 *** LINVEST_EXP/AT -0.1287 (0.068) 2.9168 *** (0.632) 0.0144 (0.089) 0.6327 * (0.250) 0.0965 (0.145) LLEVERAGE 0.0068 0.3723 *** (0.087) 0.0503 *** -0.2191 *** -0.0621 ** LDIV_YIELD -0.0455 *** -0.2679 *** -0.0697 *** -0.1364 *** -0.1092 *** EXE AGE 0.6714 *** -0.8244 *** (0.146) 0.6236 *** -0.0292 (0.058) 0.3315 *** DUALITY -0.0354 *** 1.4643 *** (0.039) 0.0673 *** -0.1017 *** 0.0512 *** EXE_DIR 0.3932 *** -0.0415 (0.044) 0.3718 *** 0.8216 *** 0.6223 *** FEMALE 0.0179-0.5183 *** (0.112) -0.0375 * -0.0061 (0.044) -0.0213 TURNOVER -0.2775 *** 0.3189 *** (0.052) -0.2312 *** -0.1101 *** -0.1994 *** RATE_DUM 0.0065 0.2470 *** (0.045) 0.0215 *** 0.0516 ** 0.0490 *** Industry Effects Yes Yes Yes Yes Yes Observations 31635 31635 31635 31635 31635 Adjusted R 2 0.5906 0.1721 0.5195 0.3558 0.4728 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 2011. 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 1.7606 *** (0.086) -3.4248 *** (0.497) 1.7152 *** (0.109) 2.8416 *** (0.375) 1.7942 *** (0.160) PRES_DUM 0.1167 *** 0.0571 * 0.0730 *** 0.2533 *** 0.1217 *** LVOLATILITY 0.0629 8.2599 *** 2.7715 *** 28.0699 *** 12.5340 *** (0.319) ZSCORE_DUM 0.0353 *** (1.840) -0.0200 17 (0.405) 0.0254 *** (1.387) 0.0709 ** (0.590) 0.0457 ***

LSTOCK_RTURN 0.0171 ** 0.9498 *** (0.036) 0.1579 *** -0.0932 *** (0.028) 0.0539 *** LROA 0.4389 *** (0.058) 6.7335 *** (0.335) 1.8090 *** (0.074) 0.7499 ** (0.253) 1.3035 *** (0.108) FIRM AGE 0.0496 *** -0.0502 * 0.0370 *** -0.0395 * 0.0043 LTOTAL ASSETS 0.1784 *** (0.002) 0.3659 *** 0.2380 *** 0.6919 *** (0.011) 0.4417 *** LGROWTH_OPPORT 0.0322 (0.028) -1.3995 *** (0.160) -0.0912 ** -1.3352 *** (0.121) -0.7163 *** (0.051) CASH_SHORT 0.0682 *** 0.9763 *** (0.106) 0.1219 *** -0.0277 (0.080) 0.0616 (0.034) OPERT_LOSS -0.0399 *** 0.4276 *** (0.046) -0.0019-0.1533 *** -0.0187 LTAX_RATE -0.4274 *** (0.047) 17.7637 *** (0.270) 0.1527 * (0.059) -0.9243 *** (0.204) -0.0167 (0.087) LADV_EXP/AT 0.6078 * (0.305) 12.4223 *** (1.759) 2.4902 *** (0.387) -1.5381 (1.327) 0.4368 (0.564) ADV_MISSING -0.0262 *** 0.4415 *** (0.043) 0.0407 *** -0.0476-0.0061 LRD_EXP/AT -0.5340 *** (0.106) -0.2564 (0.611) -0.4210 ** (0.135) 2.1071 *** (0.461) 1.0769 *** (0.196) RD_MISSING -0.0363 *** -0.0056 (0.036) -0.0189 * -0.2086 *** (0.027) -0.0813 *** LINVEST_EXP/AT -0.0502 (0.078) 2.5005 *** (0.452) 0.0490 (0.099) 1.5301 *** (0.341) 0.1305 (0.145) LLEVERAGE 0.0139 (0.011) 0.4294 *** (0.063) 0.0562 *** -0.2394 *** (0.047) -0.0183 LDIV_YIELD -0.0493 *** -0.2599 *** (0.027) -0.0715 *** -0.1107 *** -0.1191 *** EXE AGE 0.6414 *** -0.2284 * (0.104) 0.5860 *** -0.6072 *** (0.079) 0.3724 *** DUALITY -0.0385 *** 1.4109 *** (0.028) 0.0726 *** -0.0780 *** 0.0280 ** EXE_DIR 0.4083 *** 0.1701 *** 0.3902 *** 1.1247 *** 0.6445 *** FEMALE 0.0241-0.4919 *** (0.080) -0.0355 * 0.1120 (0.060) -0.0457 TURNOVER -0.2929 *** 0.1078 ** (0.037) -0.2279 *** -0.6407 *** (0.028) -0.2447 *** RATE_DUM 0.0146 ** 0.1881 *** (0.032) 0.0262 *** 0.0831 *** 0.0600 *** Industry Effects Yes Yes Yes Yes Yes Observations 31635 31635 31635 31635 31635 Pseudo R 2.3816.1257.3418.1323.3215 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

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 2011. 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 -1.1951 *** (0.072) 0.2051 ** (0.063) -0.7121 *** (0.071) 0.1467 * (0.063) LSALARY 0.2361 *** LBONUS -0.0079 *** (0.001) LCASH_COMP 0.1514 *** LEQUITY_COMP 0.0124 *** 19-0.4013 *** (0.067) (0.001) LTOTAL_COMP 0.0880 *** LVOLATILITY 9.1297 *** (0.403) 7.9790 *** (0.410) 8.6246 *** (0.406) 7.8454 *** (0.410) 7.8087 *** (0.406) ZSCORE_DUM -0.0166 * -0.0004-0.0102-0.0052-0.0100 LSTOCK_RTURN -0.0934 *** -0.0737 *** -0.1093 *** -0.0837 *** -0.0904 *** LROA -1.0063 *** (0.077) -0.8694 *** (0.079) -1.1540 *** (0.078) -0.9172 *** (0.079) -0.9717 *** (0.078) LGROWTH_OPPORT 0.1806 *** (0.037) 0.1792 *** (0.037) 0.2195 *** (0.037) 0.2167 *** (0.037) 0.2769 *** (0.037) CASH_SHORT -0.0062-0.0154-0.0131-0.0082 0.0041 OPERT_LOSS -0.0525 *** (0.011) -0.0795 *** (0.011) -0.0705 *** (0.011) -0.0773 *** (0.011) -0.0671 *** (0.011) LTAX_RATE 0.2340 *** (0.062) 0.1581 * (0.064) 0.0766 (0.063) 0.1237 (0.063) 0.1035 (0.063) LADV_EXP/AT 2.8183 *** (0.275) 3.5165 *** (0.280) 3.0735 *** (0.277) 3.4560 *** (0.280) 3.2483 *** (0.278) LRD_EXP/AT -1.2357 *** (0.129) -1.2075 *** (0.132) -1.2393 *** (0.130) -1.2941 *** (0.132) -1.3880 *** (0.131) LINVEST_EXP/AT -1.4353 *** (0.104) -1.5737 *** (0.106) -1.5010 *** (0.105) -1.6065 *** (0.106) -1.5234 *** (0.105) LLEVERAGE -0.2037 *** -0.1373 *** -0.2034 *** -0.1541 *** -0.1938 *** LDIV_YIELD -0.0044 0.0414 *** 0.0074 0.0279 *** 0.0053 DUALITY 0.1515 *** 0.1590 *** 0.1379 *** 0.1494 *** 0.1438 *** TURNOVER 0.2712 *** 0.1719 *** 0.2284 *** 0.1830 *** 0.2075 *** Industry Effects Yes Yes Yes Yes Yes Observations 31635 31635 31635 31635 31635 Pseudo R 2 0.1060 0.0679 0.0890 0.0716 0.0858

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 2011. 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 -7.9265 *** -1.2730 *** (0.278) (0.341) LSALARY 1.1105 *** LBONUS -0.0348 *** 20-5.4730 *** (0.321) LCASH_COMP 0.6891 *** -1.5359 *** (0.280) LEQUITY_COMP 0.0551 *** -4.0285 *** (0.303) LTOTAL_COMP 0.3967 *** LVOLATILITY 41.9069 *** (1.863) ZSCORE_DUM -0.0736 * (0.032) LSTOCK_RTURN -0.4225 *** LROA -4.5351 *** (0.352) LGROWTH_OPPORT 0.8537 *** (0.166) CASH_SHORT -0.0300 (0.112) OPERT_LOSS -0.2408 *** (0.049) LTAX_RATE 0.9827 *** (0.282) LADV_EXP/AT 12.8136 *** (1.258) LRD_EXP/AT -5.6689 *** (0.592) LINVEST_EXP/AT -6.6204 *** (0.481) LLEVERAGE -0.9438 *** (0.062) LDIV_YIELD -0.0184 34.6644 *** (1.804) -0.0012-0.3195 *** -3.7450 *** (0.346) 0.7913 *** (0.163) -0.0698 (0.109) -0.3472 *** (0.048) 0.6600 * (0.279) 15.3801 *** (1.228) -5.3331 *** (0.579) -6.9447 *** (0.471) -0.6004 *** (0.060) 0.1832 *** 38.4883 *** (1.836) -0.0437-0.4892 *** -5.1562 *** (0.352) 1.0059 *** (0.165) -0.0643 (0.110) -0.3158 *** (0.048) 0.2826 (0.280) 13.7740 *** (1.246) -5.5979 *** (0.587) -6.7811 *** (0.476) -0.9197 *** (0.062) 0.0347 34.1918 *** (1.808) -0.0226-0.3655 *** -3.9859 *** (0.346) 0.9640 *** (0.164) -0.0356 (0.109) -0.3385 *** (0.048) 0.5122 (0.278) 15.1850 *** (1.231) -5.7472 *** (0.582) -7.1151 *** (0.472) -0.6787 *** (0.061) 0.1243 *** 34.6305 *** (1.824) -0.0434-0.4005 *** -4.3106 *** (0.349) 1.2664 *** (0.166) 0.0184 (0.111) -0.2990 *** (0.048) 0.4035 (0.279) 14.4783 *** (1.242) -6.2735 *** (0.588) -6.8620 *** (0.476) -0.8742 *** (0.062) 0.0252

DUALITY 0.7126 *** 0.7030 *** (0.029) 0.6287 *** (0.029) 0.6643 *** (0.029) 0.6535 *** (0.029) TURNOVER 1.2498 *** (0.042) 0.7414 *** (0.037) 1.0202 *** (0.040) 0.7956 *** 0.9233 *** (0.039) Industry Effects Yes Yes Yes Yes Yes Observations 31624 31624 31624 31624 31624 Pseudo R 2.0837.0524.0694.0554.0667 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 2011. 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 -4.7649 *** -0.7881 *** (0.171) (0.204) LSALARY 0.6680 *** LBONUS -0.0209 *** 21-3.3204 *** (0.195) LCASH_COMP 0.4171 *** -0.9422 *** (0.172) LEQUITY_COMP 0.0334 *** -2.4446 *** (0.184) (0.002) LTOTAL_COMP 0.2403 *** LVOLATILITY 25.5195 *** (1.128) ZSCORE_DUM -0.0453 * LSTOCK_RTURN -0.2585 *** LROA -2.7511 *** (0.214) LGROWTH_OPPORT 0.5213 *** (0.101) CASH_SHORT -0.0170 (0.067) OPERT_LOSS -0.1462 *** LTAX_RATE 0.5930 *** (0.172) LADV_EXP/AT 7.7558 *** (0.765) LRD_EXP/AT -3.4428 *** (0.359) 21.3424 *** (1.106) -0.0012-0.1974 *** -2.3037 *** (0.212) 0.4834 *** (0.100) -0.0409 (0.067) -0.2122 *** (0.029) 0.4364 * (0.172) 9.3933 *** (0.752) -3.2645 *** (0.354) 23.4756 *** (1.118) -0.0271-0.2999 *** -3.1254 *** (0.214) 0.6119 *** (0.101) -0.0373 (0.067) -0.1925 *** 0.1836 (0.172) 8.3557 *** (0.760) -3.4013 *** (0.357) 21.0287 *** (1.107) -0.0142-0.2251 *** -2.4379 *** (0.211) 0.5865 *** (0.100) -0.0194 (0.067) -0.2066 *** (0.029) 0.3421 * (0.171) 9.2817 *** (0.754) -3.5170 *** (0.355) 21.1771 *** (1.113) -0.0270-0.2461 *** -2.6123 *** (0.212) 0.7688 *** (0.101) 0.0135 (0.067) -0.1821 *** (0.029) 0.2583 (0.171) 8.8312 *** (0.758) -3.8186 *** (0.357)

LINVEST_EXP/AT -4.0419 *** (0.291) -4.2534 *** (0.287) -4.1478 *** (0.290) -4.3489 *** (0.288) -4.1961 *** (0.289) LLEVERAGE -0.5728 *** -0.3668 *** (0.037) -0.5585 *** -0.4138 *** (0.037) -0.5307 *** LDIV_YIELD -0.0106 0.1099 *** 0.0205 0.0744 *** 0.0144 DUALITY 0.4212 *** 0.4217 *** 0.3755 *** 0.3984 *** 0.3886 *** TURNOVER 0.7529 *** 0.4516 *** 0.6175 *** 0.4829 *** 0.5557 *** Industry Effects Yes Yes Yes Yes Yes Observations 31624 31624 31624 31624 31624 Pseudo R 2.0831.0529.0690.0551.0663 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 2011. 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 -2.8956 *** (0.315) -2.8899 *** (0.316) -2.8165 *** (0.316) -2.8396 *** (0.316) -3.2210 *** (0.357) HOUSE_DUM 0.0693 *** 0.0668 *** 0.0671 *** SENATE_DUM 0.0154 PRES_DUM 0.0533 ** 0.0506 ** 0.0478 ** LVOLATILITY 12.5852 *** (1.207) 13.1641 *** (1.198) 12.7070 *** (1.206) 12.2066 *** (1.215) 10.4845 *** (1.266) ZSCORE_DUM -0.0380-0.0383-0.0360-0.0359-0.0340 (0.022) LROA 0.8580 *** (0.232) 0.8397 *** (0.232) 0.8635 *** (0.232) 0.8868 *** (0.232) 0.6715 ** (0.235) FIRM AGE -0.2712 *** -0.2737 *** -0.2801 *** -0.2763 *** -0.2047 *** LTOTAL ASSETS 0.6234 *** 0.6249 *** 0.6204 *** 0.6192 *** 0.5888 *** LGROWTH_OPPORT -2.3323 *** (0.110) -2.3527 *** (0.110) -2.3785 *** (0.109) -2.3474 *** (0.110) -2.4527 *** (0.111) CASH_SHORT -0.5172 *** (0.072) -0.5180 *** (0.072) -0.5183 *** (0.072) -0.5183 *** (0.072) -0.4781 *** (0.074) OPERT_LOSS -0.0517-0.0538-0.0534-0.0516-0.0644 * LADV_EXP/AT -4.6642 *** -4.5267 *** -4.2587 *** -4.4544 *** -6.3001 *** 22

(1.187) (1.188) (1.188) (1.190) (1.277) ADV_MISSING -0.1432 *** -0.1362 *** -0.1248 *** -0.1341 *** -0.1081 *** LRD_EXP/AT -1.2797 *** (0.348) -1.3212 *** (0.348) -1.2563 *** (0.349) -1.2152 *** (0.349) -0.7356 (0.431) RD_MISSING -0.0045 (0.022) -0.0045 (0.022) -0.0024 (0.022) -0.0027 (0.022) -0.0081 (0.027) LINVEST_EXP/AT -1.0455 *** (0.307) -1.0422 *** (0.308) -0.9868 ** (0.308) -0.9985 ** (0.308) 0.0940 (0.331) LLEVERAGE -0.8561 *** (0.043) -0.8572 *** (0.043) -0.8424 *** (0.043) -0.8428 *** (0.043) -0.8042 *** (0.044) LDIV_YIELD -0.5069 *** -0.5083 *** -0.5046 *** -0.5030 *** -0.4521 *** EXE AGE 1.0723 *** (0.076) 1.0771 *** (0.076) 1.0681 *** (0.076) 1.0638 *** (0.076) 1.1027 *** (0.076) DUALITY -0.0835 *** -0.0739 *** -0.0814 *** -0.0936 *** -0.0957 *** EXE_DIR 1.1245 *** 1.1205 *** 1.1237 *** 1.1284 *** 1.1086 *** FEMALE -0.0658 (0.059) -0.0665 (0.059) -0.0701 (0.059) -0.0690 (0.059) -0.0938 (0.060) TURNOVER -0.5366 *** -0.5501 *** -0.5665 *** -0.5502 *** -0.5462 *** RATE_DUM -0.0505 * -0.0486 * -0.0452-0.0477 * -0.0194 Industry Effects No No No No Yes Observations 24047 24047 24047 24047 24047 Adjusted R 2 0.3409 0.3406 0.3408 0.3411 0.3545 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 2011. 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 2.0207 *** (0.083) 1.2605 * (0.624) 1.9374 *** (0.102) 5.0450 *** (0.692) 2.4547 *** (0.160) PRES_DUM 0.1119 *** -0.2738 *** 0.0813 *** 0.2431 *** (0.034) 0.1057 *** LTAX_RATE -0.3995 *** (0.045) 7.2746 *** (0.338) 0.2316 *** (0.055) -2.2163 *** (0.375) -0.0611 (0.086) LVOLATILITY 0.8371 ** (0.307) 10.7653 *** (2.303) 2.7716 *** (0.376) 27.7852 *** (2.554) 12.8291 *** (0.589) ZSCORE_DUM 0.0444 *** -0.0508 0.0329 *** 0.2922 *** (0.042) 0.0596 *** LSTOCK_RTURN 0.0362 *** 1.2186 *** 0.1617 *** 0.0025 0.0643 *** 23

(0.046) (0.051) LROA 0.6372 *** (0.056) 8.0589 *** (0.420) 1.8913 *** (0.068) 0.8493 (0.465) 1.3142 *** (0.107) FIRM AGE 0.0603 *** -0.0696 * (0.029) 0.0478 *** 0.0584 (0.032) 0.0212 ** LTOTAL ASSETS 0.1733 *** (0.002) 0.2844 *** 0.2254 *** 0.7411 *** 0.4050 *** LGROWTH_OPPORT 0.0931 *** (0.027) -1.0871 *** (0.200) -0.0381-0.9920 *** (0.222) -0.5758 *** (0.051) CASH_SHORT 0.0712 *** 0.6256 *** (0.133) 0.1346 *** (0.022) -0.1121 (0.147) 0.0906 ** (0.034) OPERT_LOSS -0.0560 *** 0.4745 *** (0.058) -0.0037-0.2227 *** (0.064) -0.0548 *** LADV_EXP/AT 0.8568 ** (0.294) 15.5366 *** (2.204) 2.2073 *** (0.360) -1.3698 (2.444) 0.8518 (0.563) ADV_MISSING -0.0278 *** 0.4840 *** (0.054) 0.0229 ** -0.0044 (0.060) 0.0072 LRD_EXP/AT -0.1783 (0.102) 1.4825 (0.765) -0.0849 (0.125) 3.4235 *** (0.849) 1.1082 *** (0.196) RD_MISSING -0.0171 ** 0.0710 (0.045) -0.0029-0.2309 *** (0.050) -0.0486 *** LINVEST_EXP/AT 0.0200 (0.075) 2.5391 *** (0.566) 0.0813 (0.092) 2.8289 *** (0.627) 0.2534 (0.145) LLEVERAGE 0.0142 0.3502 *** (0.078) 0.0615 *** -0.3989 *** (0.087) -0.0440 * LDIV_YIELD -0.0318 *** -0.2056 *** (0.034) -0.0591 *** 0.1339 *** (0.037) -0.0758 *** EXE AGE 0.5561 *** -0.7009 *** (0.131) 0.5192 *** -1.7358 *** (0.145) 0.2682 *** DUALITY -0.0286 *** 1.2457 *** 0.0700 *** 0.0315 (0.039) 0.0686 *** EXE_DIR 0.3552 *** -0.0816 * (0.039) 0.3465 *** 1.3733 *** (0.044) 0.5899 *** FEMALE 0.0184-0.4182 *** (0.100) -0.0225 0.3063 ** (0.111) -0.0078 TURNOVER -0.2827 *** 0.2881 *** (0.047) -0.2256 *** -0.6077 *** (0.052) -0.1731 *** RATE_DUM 0.0075 0.2066 *** (0.041) 0.0159 * 0.1848 *** (0.045) 0.0548 *** Industry Effects Yes Yes Yes Yes Yes Observations 31635 31635 31635 31635 31635 Adjusted R 2 0.5110 0.1585 0.4745 0.1585 0.4465 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 2011. Standard errors are reported in parentheses. The goodness-of-fit measures reported are the Adjusted R-squared. ***, **, and * denote 24

significance at less than the 1%, 5% and 10% levels, respectively. All variables are defined in Appendix A. INTERCEPT 2.1502 *** (0.086) 2.4475 *** (0.646) 2.1676 *** (0.106) 6.0342 *** (0.720) 2.9886 *** (0.169) PRES_DUM 0.1260 *** -0.2510 *** (0.032) 0.0993 *** 0.3224 *** (0.036) 0.1386 *** LTAX_RATE -0.3704 *** (0.048) 7.3479 *** (0.355) 0.2929 *** (0.058) -2.1581 *** (0.396) 0.0202 (0.093) LVOLATILITY 0.2421 (0.324) 11.5933 *** (2.420) 2.3151 *** (0.396) 24.7372 *** (2.698) 11.2380 *** (0.633) ZSCORE_DUM 0.0076-0.1013 * (0.040) -0.0125 0.1630 *** (0.044) -0.0134 LSTOCK_RTURN 0.0433 *** 1.2195 *** (0.048) 0.1695 *** 0.0013 (0.054) 0.0776 *** LROA 0.0648 (0.059) 6.9680 *** (0.439) 1.1222 *** (0.072) -1.4263 ** (0.489) 0.0592 (0.115) FIRM AGE 0.0508 *** -0.0559 0.0365 *** 0.0662 (0.034) 0.0115 LSALE 0.1712 *** 0.2226 *** 0.2187 *** 0.6770 *** 0.3710 *** LGROWTH_OPPORT 0.0826 ** (0.028) -1.0990 *** (0.209) -0.0444 (0.034) -1.0387 *** (0.233) -0.5890 *** (0.055) CASH_SHORT -0.0002 0.5559 *** (0.139) 0.0522 * -0.3441 * (0.155) -0.0636 (0.036) OPERT_LOSS -0.0558 *** 0.4144 *** (0.062) -0.0053-0.2495 *** (0.069) -0.0546 *** LADV_EXP/AT -0.3417 (0.306) 13.6861 *** (2.285) 0.5758 (0.374) -6.8520 ** (2.547) -1.9150 ** (0.597) ADV_MISSING -0.0475 *** 0.4594 *** (0.056) -0.0046-0.1360 * (0.063) -0.0457 ** LRD_EXP/AT -0.0145 (0.107) 1.4398 (0.801) 0.1064 (0.131) 4.2459 *** (0.893) 1.4543 *** (0.209) RD_MISSING -0.0141 * 0.0472 (0.047) -0.0009-0.2531 *** (0.053) -0.0540 *** LINVEST_EXP/AT -0.0783 (0.079) 2.7138 *** (0.588) -0.0002 (0.096) 2.7186 *** (0.656) 0.1169 (0.154) LLEVERAGE 0.0106 (0.011) 0.3189 *** (0.082) 0.0499 *** -0.3955 *** (0.091) -0.0380 LDIV_YIELD -0.0116 * -0.1258 *** -0.0264 *** 0.2511 *** (0.039) -0.0066 EXE AGE 0.5628 *** -0.8596 *** (0.137) 0.5148 *** (0.022) -1.7800 *** (0.152) 0.2459 *** (0.036) DUALITY -0.0468 *** 1.2282 *** (0.036) 0.0477 *** -0.0422 (0.040) 0.0264 ** EXE_DIR 0.3582 *** -0.1201 ** (0.040) 0.3481 *** 1.3618 *** (0.045) 0.5900 *** FEMALE 0.0173-0.4155 *** -0.0241 0.3103 ** -0.0093 TURNOVER -0.2989 *** (0.101) 0.2791 *** (0.047) 25-0.2448 *** (0.113) -0.6629 *** (0.053) -0.2028 ***

RATE_DUM 0.0359 *** 0.3307 *** (0.041) 0.0630 *** 0.3608 *** (0.046) 0.1501 *** (0.011) Industry Effects Yes Yes Yes Yes Yes Observations 28830 28830 28830 28830 28830 Adjusted R 2 0.5127 0.1574 0.4698 0.1552 0.4235 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 2009. 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 2.2015 *** (0.106) 3.7703 *** (0.806) 2.3329 *** (0.131) 6.3190 *** (0.883) 2.8428 *** (0.205) PRES_DUM 0.1346 *** -0.5063 *** 0.0920 *** 0.3855 *** (0.042) 0.1564 *** EINDEX 0.0116 *** (0.002) -0.2316 *** -0.0060 ** (0.002) 0.2263 *** 0.0289 *** LVOLATILITY 0.7132 (0.393) 17.9349 *** (2.995) 3.5380 *** (0.485) 31.3446 *** (3.283) 13.5451 *** (0.764) ZSCORE_DUM 0.0028 0.0467 (0.049) -0.0071 0.1472 ** (0.054) -0.0213 LSTOCK_RTURN 0.0304 *** 1.3562 *** (0.058) 0.1590 *** -0.0460 (0.064) 0.0551 *** LROA -0.1884 ** (0.071) 9.0769 *** (0.541) 1.0688 *** (0.088) -1.6182 ** (0.593) 0.0549 (0.138) FIRM AGE 0.0333 *** 0.0379 0.0274 *** -0.0235 (0.041) -0.0033 LSALE 0.1570 *** 0.3127 *** 0.2128 *** 0.6013 *** 0.3432 *** LGROWTH_OPPORT -0.1140 *** (0.034) -0.5059 (0.263) -0.1760 *** (0.043) -1.9994 *** (0.288) -0.8556 *** (0.067) CASH_SHORT 0.0204 0.6264 ** (0.195) 0.1162 *** (0.032) -0.2927 (0.214) 0.0298 (0.050) OPERT_LOSS -0.0379 *** -0.0322 (0.079) -0.0370 ** -0.0670 (0.087) -0.0569 ** LADV_EXP/AT 0.5269 (0.370) 5.8708 * (2.819) 0.5056 (0.457) -7.2758 * (3.089) -2.1734 ** (0.718) ADV_MISSING -0.0295 ** 0.2749 *** (0.071) -0.0062 (0.011) -0.1534 * (0.077) -0.0442 * LRD_EXP/AT -0.1579 (0.130) -0.5692 (0.993) -0.0471 (0.161) 2.8121 ** (1.088) 1.1391 *** (0.253) RD_MISSING -0.0161 * 0.0604 (0.056) 0.0043-0.2788 *** (0.061) -0.0573 *** LINVEST_EXP/AT 0.1218 (0.095) 2.5190 *** (0.721) 0.1773 (0.117) 3.5490 *** (0.790) 0.4056 * (0.184) LLEVERAGE 0.0418 ** -0.0366 0.0356 * -0.0545 0.0087 26