A tremendous amount of research has been devoted to exploring the relationship between executive compensation and firm performance, which is known as pay-performance sensitivity. The essential theoretical linkage between firm performance and executive compensation is proposed in the principal-agent model as developed by Jensen and Meckling (1976), Holmstrom (1979), Shavell (1979) and Fama (1980). This model emphasizes that managers are self-serving and that formal mechanisms, such as monitoring and reward structures, are meant to align the incentives of top managers with the interests of shareholders. Prior studies have implied that accounting and finance regulation can influence pay-performance sensitivity. Perry and Zenner (2001) suggest that pay-performance sensitivity, as measured by total annual compensation or firm-related CEO wealth, has increased for firms that are likely to be affected by section 162(m) of the Internal Revenue Code. Consistent with the rent-extraction hypothesis, Paligorova (2008) shows that pay-performance sensitivity strengthened after the adoption of the Sarbanes–Oxley Act (SOX) in firms whose corporate boards were less independent prior to SOX