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.
UK combined code, corporate governance, corporate governance disclosure index, corporate performance, executive pay
121-152
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
1 March 2020
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
(2020)
Corporate governance disclosure index–executive pay nexus: the moderating effect of governance mechanisms.
European Management Review, 17 (1), .
(doi:10.1111/emre.12329).
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.
Text
Accepted_Full_Manuscript_EMRJ_13_August_2018
- Accepted Manuscript
More information
Accepted/In Press date: 13 August 2018
e-pub ahead of print date: 14 October 2018
Published date: 1 March 2020
Additional Information:
Funding Information:
We would like to thank the editor in chief Prof Yehuda Baruch, the assigned associate editor Dr Vinh Sum Chau and two anonymous reviewers for their invaluable comments on this paper
Publisher Copyright:
© 2018 European Academy of Management
Keywords:
UK combined code, corporate governance, corporate governance disclosure index, corporate performance, executive pay
Identifiers
Local EPrints ID: 424735
URI: http://eprints.soton.ac.uk/id/eprint/424735
ISSN: 1740-4754
PURE UUID: d36adc40-a302-45d9-aeeb-1ddd2a1cdac5
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Date deposited: 05 Oct 2018 11:41
Last modified: 16 Mar 2024 07:00
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Contributors
Author:
Mohamed H. Elmagrhi
Author:
Yan Wang
Author:
Hussein A. Abdou
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