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Directors' remuneration, firm's performance and corporate governance in Malaysia among distressed companies

Directors' remuneration, firm's performance and corporate governance in Malaysia among distressed... Purpose – The purpose of this study is to investigate the extent to which firm's performance, the structure of the board of directors and ownership determine directors' remuneration in Malaysia among distressed firms. Design/methodology/approach – The study uses publicly available data from a sample of 86 distressed firms and matched 86 non‐distressed firms for 2001 financial year. Findings – The findings for the full sample show that directors' remuneration is not associated with firm's profitability, as measured by ROA. A negative and significant association is observed between directors' remuneration and lagged ROA. With regard to corporate governance, board independence and the extent of non‐executive directors' interests are found to have negative influence on directors' remuneration. In addition, findings also reveal directors' remuneration is positively associated with firm's growth and size. In sub‐sample analyses, a strong negative relation is observed between ROA and directors' remuneration for healthy sub‐sample. Research limitations/implications – Future research on this area could examine period after the adoption of the Malaysian Code by the Bursa Malaysia in 2001. Further, interviews with directors and managers about the need to link remuneration and performance could be carried out. Practical implications – There is a need for companies to link remuneration with performance, which this paper found to be lacking in practice. Originality/value – The contribution of this paper is its examination of directors' remuneration among distressed firms. Findings of this paper would be useful to both regulatory bodies and practitioners. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Corporate Governance Emerald Publishing

Directors' remuneration, firm's performance and corporate governance in Malaysia among distressed companies

Shamsul Nahar Abdullah
Corporate Governance , Volume 6 (2): 13 – Mar 1, 2006
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References (47)

Publisher
Emerald Publishing
Copyright
Copyright © 2006 Emerald Group Publishing Limited. All rights reserved.
ISSN
1472-0701
DOI
10.1108/14720700610655169
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this study is to investigate the extent to which firm's performance, the structure of the board of directors and ownership determine directors' remuneration in Malaysia among distressed firms. Design/methodology/approach – The study uses publicly available data from a sample of 86 distressed firms and matched 86 non‐distressed firms for 2001 financial year. Findings – The findings for the full sample show that directors' remuneration is not associated with firm's profitability, as measured by ROA. A negative and significant association is observed between directors' remuneration and lagged ROA. With regard to corporate governance, board independence and the extent of non‐executive directors' interests are found to have negative influence on directors' remuneration. In addition, findings also reveal directors' remuneration is positively associated with firm's growth and size. In sub‐sample analyses, a strong negative relation is observed between ROA and directors' remuneration for healthy sub‐sample. Research limitations/implications – Future research on this area could examine period after the adoption of the Malaysian Code by the Bursa Malaysia in 2001. Further, interviews with directors and managers about the need to link remuneration and performance could be carried out. Practical implications – There is a need for companies to link remuneration with performance, which this paper found to be lacking in practice. Originality/value – The contribution of this paper is its examination of directors' remuneration among distressed firms. Findings of this paper would be useful to both regulatory bodies and practitioners.

Journal

Corporate Governance – Emerald Publishing

Published: Mar 1, 2006

Keywords: Boards of Directors; Remuneration; Profit; Corporate ownership; Malaysia

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