Pay disclosure mandates are regulatory rules that grant others access to an individual’s pay information. Existing research suggests that such mandates enhance corporate transparency and benefit shareholders. However, there has been limited exploration of the subsequent responsive actions that executives would take, which can impact the overall trajectory of corporate growth. We predict that these mandates may serve as catalysts prompting CEOs to engage in qualification signaling—an effort to communicate their contribution-renumeration balance to stakeholders to avoid being recognized as overcompensated. We hypothesize that to explicitly demonstrate this balance, CEOs subsequently increase firm size after their pay is mandatorily disclosed. We tested this hypothesis using the context of the 2010 governance reform in Japan, which requires the disclosure of board members’ pay if it exceeds one hundred million JPY. Our analysis supports the prediction and shows that the effects of the mandates on firm size growth are more pronounced for firms with low pre-treatment performance and less pronounced for firms in which CEOs have greater power.
