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How director remuneration impacts firm performance: An empirical analysis of executive director remuneration in Pakistan

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  • Ejaz Aslam
  • Razali Haron
  • Muhammad Naveed Tahir

Abstract

This study empirically investigates the interrelationship between pay and performance of CEOs/board of directors in an emerging market, Pakistan. The study uses GMM approach to account for the problem of potential endogeneity and unobserved heterogeneity that arises due to the potential reverse causality (pay and performance) for a sample of non-financial firms listed in the KSE over the period of 2009–2016. This study provides evidence that the pay-performance framework supports the agency theory whereby CEOs/board of directors are compensated for their prior level of market-based performance. In addition, it weakly supports the notion of the steward/tournament theory. Thus, CEOs/board director's remuneration is highly persistent and takes time to adjust to long-run equilibrium.

Suggested Citation

  • Ejaz Aslam & Razali Haron & Muhammad Naveed Tahir, 2019. "How director remuneration impacts firm performance: An empirical analysis of executive director remuneration in Pakistan," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 19(2), pages 186-196, June.
    • Handle: RePEc:bor:bistre:v:19:y:2019:i:2:p:186-196
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