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Directors’ compensation, ownership concentration and the value of the firm: evidence from an emerging market

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Abstract

We examine the association between directors’ compensation and firm value and investigate whether ownership concentration moderates this relationship by utilising a sample of Malaysian public-listed firms for the period from 2004 to 2014. Using fixed effect regression, we find that the remuneration of executive and non-executive directors is positively related to firm value. However, there is no conclusive evidence on the moderating effect of ownership concentration on the relationship between executive directors’ and non-executive directors’ compensation and firm value. Our findings indicate that executive and non-executive directors’ compensation packages should be linked to firm performance. The implication of this research addresses one of the key issues in corporate finance i.e., whether it is worth compensating directors in emerging markets or not.

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Notes

  1. The conflict between controlling shareholders and minority shareholders.

  2. At the end of 2018, Bursa Malaysia statistics.

  3. The 20% minimum level of ownership is used as the 76% of family firms’ controlling shareholders in the Main Market Bursa Malaysia possess at least 20% equity stakes.

  4. Real value for a particular year is calculated based upon the formula i.e. (nominal value for that year) /(1 + Inflation rate for that year)(Federal Reserve Bank of Dallas,2021).

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Authors and Affiliations

  1. Department of Accounting and Finance, Faculty of Business and Management, UCSI University, Kuala Lumpur, Malaysia

    Chee Yoong Liew

  2. Department of Accounting, Sunway Business School, Sunway University, Petaling Jaya, Malaysia

    YoungKyung Ko

  3. School of Management and Marketing, Taylor’s Business School, Taylor’s University, Subang Jaya, Malaysia

    Bee Lian Song

  4. Department of Accounting, Faculty of Business, Inti International College Subang, Subang Jaya,, Malaysia

    Saraniah Thechina Murthy

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Appendix

Appendix

See Figs. 1, 2 and 3; Tables 1, 2, 3, 4, 5,6, 7, 8, 9 and 10.

Fig. 1
figure 1

Real Total Average Directors’ Remuneration (The average directors’ remuneration is calculated on a per director basis for each company for a particular year. Total average means the summation of the average directors’ remuneration for all companies for a particular year. Real total average means the total average had been discounted by the inflation rate for that year.) For Family & Non-Family Firms

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Fig. 2
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Average remuneration by Director Type

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Fig. 3
figure 3

Average Remuneration by Director Type and Ownership Type

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Table 1 Sample statistics for all firms
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Table 2 Variables definition and measurement
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Table 3 Descriptive statistics for all firms
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Table 4 Correlation (Pre-Winsorisation) for all firms
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Table 5 Fixed Effects Model (1)
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Table 6 Fixed effects Model (2)
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Table 7 Fixed effects Model (3)
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Table 8 Fixed effects Model (4)
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Table 9 Fixed effects Model (5)
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Table 10 Fixed effects Model (6)
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Liew, C.Y., Ko, Y., Song, B.L. et al. Directors’ compensation, ownership concentration and the value of the firm: evidence from an emerging market. J. Ind. Bus. Econ. 49, 155–188 (2022). https://doi.org/10.1007/s40812-022-00210-8

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