Pain Sharing of CEOs in the Corona Pandemic: Effects of Reduction in CEOs Compensation on Firm’s Cost of Equity Capital

[Purpose]This study provides empirical analysis on the cost－saving effects achieved by companies that adjusted executive compensation during the COVID－19 period. [Methodology]This study analyzes the impact of executive compensation adjustments on the capital market’s response and examines whether these adjustments can reduce capital procurement costs in corporate financial activities. [Findings]During the COVID－19 pandemic, executive compensation increased. Companies that reduced executive compensation showed a negative relationship with cumulative abnormal returns. However, there was a statistically significant negative relationship between reduced executive compensation and the cost of equity. This suggests that reducing executive compensation sends a positive signal to the capital market, indicating shareholder－friendly cost－saving efforts. Even during expected poor performance periods, reducing executive compensation positively impacts capital procurement. [Implications]This study suggests that external environmental factors significantly influence compensation structures. It highlights the importance of designing executive compensation for cost reduction, especially in the economic recession of the post－COVID era.