The Economic Consequences of Perk Disclosure

In December 2006 the SEC issued rules that require enhanced disclosure of perquisites to managers of public U.S. firms. We find that the new disclosures had a significant effect of on shareholder value and perk practices. Firms that disclose perks for the first time in response to the rules experience significantly negative returns around the disclosure date. These firms respond to the negative returns by decreasing perk levels in the subsequent year. Firms that were already disclosing perks before the rule ratchet-up the level of perks in the subsequent year. Further, using data collected under the new disclosure regime, the level of perks is higher in firms that have fewer growth opportunities, larger amounts of free cash flow, managers with more power over the board of directors, and in firms that operate in more concentrated industries.