Perks and Excess: Evidence from the New Executive Compensation Disclosure Rules*

In December 2006, the Securities and Exchange Commission issued rules requiring enhanced disclosure of perquisites to managers in public U.S. firms. We use this ruling to shed light on the role of perquisites in executive compensation. In a sample of 361 public firms that were subject to the rule, we find that firms responded to the rule by disclosing significantly larger amounts of perks. The level of disclosed perks under the new rule is higher in firms that have fewer growth opportunities and larger amounts of free cash flow. Further, the market reacts negatively to the announcement of these perks, especially in firms that disclose large amounts of perks for the first time. Our results are in line with the argument that perks are an excess that reduces shareholder value.