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Corporate governance and firm value as determinants of CEO compensation in Taiwan

Author

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  • Shin‐Ping Lee
  • Hui‐Ju Chen

Abstract

Purpose - The main purpose of this paper is to examine the relationships among chief executive officer (CEO) compensation, ownership and firm value. In addition, the determining factors of CEO compensation are examined. Design/methodology/approach - This model is applied to data of the Taiwan stock market for 1995‐2004. The paper applies a two‐stage least squares regression for the panel data model and implements anF‐test, LM test and Hausman test to determine the best statistical method (that is, ordinary least squares method, fix effects model or random effects method). Findings - The results offer some important insights that show CEO compensation, CEO ownership and firm value are interdependent. Firm size, board size, firm value, institution ownership and CEO ownership are positively associated with CEO compensation while firm age, research and development expenditure rates and firm risk are negatively associated with CEO compensation. Practical implications - The on‐going expansion in the scale of the firm depends on managers having specialized knowledge. In particular, managers are responsible for the firm's entire operational conditions and future investment strategy. Providing an incentive compensation package can reduce agency costs between managers and shareholders. These findings also provide Taiwanese listed companies with a lesson, which suggests that the existence of the monitoring system can reduce the need for incentive alignment. Originality/value - The study relies on data from publicly traded Taiwan firms, covering a ten‐year period. This study uses a simultaneous equation estimation procedure to investigate the relations among CEO compensation, CEO ownership and firm value. Two proxies for effective monitoring – board size and institutional ownership – are used. The paper attempts to discuss the influence on CEO compensation from the existence of the monitoring system.

Suggested Citation

  • Shin‐Ping Lee & Hui‐Ju Chen, 2011. "Corporate governance and firm value as determinants of CEO compensation in Taiwan," Management Research Review, Emerald Group Publishing Limited, vol. 34(3), pages 252-265, March.
    • Handle: RePEc:eme:mrrpps:v:34:y:2011:i:3:p:252-265
    DOI: 10.1108/01409171111116286
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    Citations

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    Cited by:

    1. Grigoris Giannarakis & Eleni Zafeiriou & Nikolaos Sariannidis, 2017. "The Impact of Carbon Performance on Climate Change Disclosure," Business Strategy and the Environment, Wiley Blackwell, vol. 26(8), pages 1078-1094, December.
    2. Pillai, Rekha & Al-Malkawi, Husam-Aldin Nizar, 2018. "On the relationship between corporate governance and firm performance: Evidence from GCC countries," Research in International Business and Finance, Elsevier, vol. 44(C), pages 394-410.
    3. Jebreel Mohammad Al-Al-Msiedeen & Fawzi A. Al Sawalqa, 2021. "Ownership Structure and CEO Compensation: Evidence from Jordan," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 11(5), pages 365-383, May.
    4. Yu Chen & Yuandi Wang & Shan Chen, 2021. "Are Chinese Executives Rewarded or Penalized by the Operation of High-Speed Railways?," Sustainability, MDPI, vol. 13(21), pages 1-14, October.
    5. Thilini Cooray & A. D. Nuwan Gunarathne & Samanthi Senaratne, 2020. "Does Corporate Governance Affect the Quality of Integrated Reporting?," Sustainability, MDPI, vol. 12(10), pages 1-30, May.
    6. Hanen Ben Fatma & Jamel Chouaibi, 2021. "Corporate governance and CSR disclosure: evidence from European financial institutions," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 18(4), pages 346-361, December.

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