Directors’ Remuneration in Listed Small and Medium Scale Firms: Does Corporate Governance Matter?
DOI:
https://doi.org/10.31436/ijema.v32i2.1161Keywords:
Directors’ remuneration, Corporate governance, Agency conflict, MalaysiaAbstract
The study examines the relationship between corporate governance mechanisms on directors’ remuneration of listed small and medium scale firms in Malaysia. It was conducted over the period 2014 to 2017 on the 274 listed small and medium enterprises on Bursa Malaysia. Six potential corporate governance mechanisms were utilized as surrogates including size, executive ownership, CEO duality, family relationship, independent non-executive directors on the remuneration committee, and board meetings; amount of remuneration package of all the directors was used as dependent variables. By controlling for potential endogeneity among the variables, the study estimates the data with system dynamic generalised method of moment. The results from this estimate reveal that five out of six corporate governance mechanisms significantly affect the directors’ remuneration among listed small and medium enterprises in Malaysia. The study concludes that CEO duality, board size, directors’ ownership, the presence of independent directors on the remuneration committee and board meetings have a significant impact on directors’ remuneration among listed small and medium enterprises in Malaysia. The study provides insights into the relevance of agency theory in the context of corporate governance research. The use of GMM as an estimator made the results from the study align closely with this theory which ordinary would have been rejected. Also, the current study fills the gap identified in the literature regarding corporate governance and directors’ remuneration among small and medium enterprises in a majority-world economy.
References
Baltagi, Badi Hani. Econometric Analysis of Panel Data (3rd Edition). England: John Wiley & Sons, 2005.
______. Econometric Analysis of Panel Data (Vol. 1). England: John Wiley & Sons, 2008.
Basu, S., L. Hwang, T. Mitsudome, and J. Weintrop. “Corporate Governance, Top Executive Compensation and Firm Performance in Japan.” Pacific-Basin Finance Journal 15, no. 1 (2007): 56-79.
Bertrand, M., and S. Mullainathan. “Are CEOS Rewarded for Luck? The Ones without Principals Are.” The Quarterly Journal of Economics 116, no. 3 (2001): 901-32.
Boyd, B.K., M. Franco Santos, and W. Shen. “International Developments in Executive Compensation.” Corporate Governance: An International Review 20, no. 6 (2012): 511-18.
Chen, M., and K. Lee. “Compensation, Corporate Governance, and Owner Shareholding: Theory and Evidence from Family Ownership.” International Research Journal of Finance and Economics 1450/2887, no. 22 (2008): 144-61.
Cheng, S., and M. Firth. “Family Ownership, Corporate Governance, and Top Executive Compensation.” Managerial and Decision Economics 27, no. 7 (2006): 549-61.
Cheung, Y., A. Stouraitis, and A.W.S. Wong. “Ownership Concentration and Executive Compensation in Closely Held Firms: Evidence from Hong Kong.” Journal of Empirical Finance 12, no. 4 (2005): 511-32.
Claessens, S., S. Djankov, and L.H. Lang. “The Separation of Ownership and Control in East Asian Corporations.” Journal of Financial Economics 58, no. 1 (2000): 81-112.
Daily, C.M., J.L. Johnson, and D.R. Dalton. “On the Measurement of Board Composition: Poor Consistency and a Serious Mismatch of Theory and Operationalization.” Decision Sciences 30, no. 1 (1999): 83-106.
Elsayed, K. “Does CEO Duality Really Affect Corporate Performance?” Corporate Governance: An International Review 15, no. 6 (2007): 1203-224.
Fahlenbrach, R. and R.M. .Stulz. “Bank CEO Incentives and the Credit Crisis.” Journal of Financial Economics 99, no. 1 (2010): 11-26.
Field, Andy. Discovering Statistics using IBM SPSS Statistics (3rd Edition). London: Sage, 2013.
Graham, J.R., S. Li, and J. Qiu. “Managerial Attributes and Executive Compensation.” Review of Financial Studies 25, no. 1 (2013): 144-86.
Greckhamer, T. “CEO Compensation in Relation to Worker Compensation Across Countries: The Configurational Impact of Country-Level Institutions.” Strategic Management Journal 37, no. 4 (2016): 793-815.
Hermalin, B. and M.S.Weisbach. “Boards of Directors as an Endogenously Determined Institution: A Survey of the Economic Literature.” Economic Policy Review 9 (2003): 7-26.
Hill, R. Carter, William E. Griffiths, and Guay C. Lim. Principles of Econometrics (4th Edition). USA: John Wiley & Sons, Inc., 2011.
James, P.C. “A Review of the Current Literature on Executive Compensation: New Insights and Understandings.” Journal of Economic & Financial Studies, 2 (2014): 45-54.
Krause, R., M. Semadeni, and A.A. Cannella. “CEO Duality: A Review and Research Agenda.” Journal of Management 40, no. 1 (2014): 256-86.
Kumar, P., and A. Zattoni. “Executive Compensation, Board Functioning, and Corporate Governance.” Corporate Governance: An International Review 24, no. 1 (2016): 2-4.
Lee, J., “Executive Performance-Based Remuneration, Performance Change, and Board Structures.” The International Journal of Accounting 44, no. 2 (2009): 138-62.
MCCG, Malaysian Code on Corporate Governance, Securities Commission of Malaysia, 2012. https://www.sc.com.my/regulation/regulatory-faqs/malaysian-code-on-corporate-governance-2012
MCCG, Malaysian Code on Corporate Governance, Securities Commission of Malaysia, 2017.
https://www.sc.com.my/regulation/corporate-governance
Minhat, M., and M. Abdullah. “Executive Compensation in Government-Linked Companies: Evidence from Malaysia.” Applied Economics 46, no. 16 (2014): 1861-872.
Ozkan, N. “Do Corporate Governance Mechanisms Influence CEO Compensation? An Empirical Investigation of UK Companies.” Journal of Multinational Financial Management 17, no. 5 (2007): 349-64.
Pereira, I. N., and J.P. Esperança. “Top Executive Compensation in Less Developed Capital Markets.” Corporate Governance: The International Journal of Business in Society 15, no. 1 (2015): 122-33.
Sapp, S.G. “The Impact of Corporate Governance on Executive Compensation.” European Financial Management 14, no. 4 (2008): 710-46.
Stroh, L.K., J.M. Brett, J.P. Baumann, and A.H. Reilly. “Agency Theory and Variable Pay Compensation Strategies.” Academy of Management Journal 3, no. 3 (1996): 751-67.
Vafeas, N. “Length of Board Tenure And Outside Director Independence.” Journal of Business Finance and Accounting, 30 (2003): 1043-064.
Wooldridge, Jeffrey .M. Econometric Analysis of Cross Section and Panel Data (2nd Edition). USA: The MIT Press, 2010.
Downloads
Published
How to Cite
Issue
Section
