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Corporate governance disclosure index–executive pay nexus: The moderating effect of governance mechanisms

Corporate governance disclosure index–executive pay nexus: The moderating effect of governance mechanisms
Corporate governance disclosure index–executive pay nexus: The moderating effect of governance mechanisms
This paper first employs principal component analysis technique to develop and introduce an alternative UK corporate governance disclosure index to the US-centric ones. Second, we then investigate whether this new corporate governance disclosure index can determine the level of executive pay (including CEOs, CFOs, and all executive directors) in UK listed firms, and consequently ascertain whether the governance mechanisms can moderate the pay-for-performance sensitivity. Employing data on corporate governance, executive pay and performance from 2008 to 2013, we find that, on average, better-governed firms, tend to pay their executives lower compared with their poorly-governed counterparts. Additionally, our findings suggest that the pay-for-performance sensitivity is generally positive, but improves in firms with high corporate governance quality, implying that the pay-for-performance sensitivity is contingent on the quality of internal governance structures. We interpret our findings within the predictions of optimal contracting theory and managerial power hypothesis.
corporate governance, corporate governance disclosure index, corporate performance, executive pay, UK combined code
1740-4754
Elmagrhi, Mohamed H.
4961f329-8a2d-47c5-83ee-34fc058030fe
Ntim, Collins
1f344edc-8005-4e96-8972-d56c4dade46b
Wang, Yan
2240068a-12e7-4ebb-9f2b-e1236d83ea5e
Abdou, Hussein A.
c5679c57-2de9-452f-8434-1a0452563e0a
Zalata, Alaa
0fc2c56d-97ad-44ce-ab31-63ca335dcef6
Elmagrhi, Mohamed H.
4961f329-8a2d-47c5-83ee-34fc058030fe
Ntim, Collins
1f344edc-8005-4e96-8972-d56c4dade46b
Wang, Yan
2240068a-12e7-4ebb-9f2b-e1236d83ea5e
Abdou, Hussein A.
c5679c57-2de9-452f-8434-1a0452563e0a
Zalata, Alaa
0fc2c56d-97ad-44ce-ab31-63ca335dcef6

Elmagrhi, Mohamed H., Ntim, Collins, Wang, Yan, Abdou, Hussein A. and Zalata, Alaa (2018) Corporate governance disclosure index–executive pay nexus: The moderating effect of governance mechanisms. European Management Review. (doi:10.1111/emre.12329).

Record type: Article

Abstract

This paper first employs principal component analysis technique to develop and introduce an alternative UK corporate governance disclosure index to the US-centric ones. Second, we then investigate whether this new corporate governance disclosure index can determine the level of executive pay (including CEOs, CFOs, and all executive directors) in UK listed firms, and consequently ascertain whether the governance mechanisms can moderate the pay-for-performance sensitivity. Employing data on corporate governance, executive pay and performance from 2008 to 2013, we find that, on average, better-governed firms, tend to pay their executives lower compared with their poorly-governed counterparts. Additionally, our findings suggest that the pay-for-performance sensitivity is generally positive, but improves in firms with high corporate governance quality, implying that the pay-for-performance sensitivity is contingent on the quality of internal governance structures. We interpret our findings within the predictions of optimal contracting theory and managerial power hypothesis.

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Accepted_Full_Manuscript_EMRJ_13_August_2018 - Accepted Manuscript
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Accepted/In Press date: 13 August 2018
e-pub ahead of print date: 14 October 2018
Keywords: corporate governance, corporate governance disclosure index, corporate performance, executive pay, UK combined code

Identifiers

Local EPrints ID: 424735
URI: https://eprints.soton.ac.uk/id/eprint/424735
ISSN: 1740-4754
PURE UUID: d36adc40-a302-45d9-aeeb-1ddd2a1cdac5
ORCID for Collins Ntim: ORCID iD orcid.org/0000-0002-1042-4056
ORCID for Alaa Zalata: ORCID iD orcid.org/0000-0003-2018-4313

Catalogue record

Date deposited: 05 Oct 2018 11:41
Last modified: 03 Dec 2019 05:14

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Contributors

Author: Mohamed H. Elmagrhi
Author: Collins Ntim ORCID iD
Author: Yan Wang
Author: Hussein A. Abdou
Author: Alaa Zalata ORCID iD

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