CEO pay disparity, chaebol affiliations, and implied cost of equity capital

This paper examines CEO pay disparity and its effect on the implied cost of equity capital (ICOE). Existing empirical results suggest that a higher CEO pay disparity increases the ICOE. Thus, a chaebol-affiliated firm with a high CEO pay disparity could be a possible factor contributing to the risk premium. As a result, in Korea, a higher CEO pay disparity represents a risk premium closely related to the management power perspective (Chen et al., 2013). Further, this positive association is more pronounced in a chaebol with low internal monitoring (low outside director ratio) firms.