Corporate governance, CEO compensation, and corporate performance: evidence from India

Abstract

Purpose The purpose of this study is to examine the impact of corporate governance (CG) on chief executive officer compensation (CEO COMP) and pay–performance relationship (PPR) in Indian listed firms. Design/methodology/approach A sample of 196 companies listed on the S&P BSE 500 (Standard and Poor's Bombay Stock Exchange 500) Index has been analyzed using the panel (random effects) regression technique over the period 2010–2019. In addition, the system GMM technique was used to deal with the endogeneity issue. Findings The study found that block ownership and ownership concentration negatively impact COMP measures and PPR. Board size also had a negative direct and moderating impact on CEO COMP; however, the linkages were generally insignificant, especially for total pay. Similarly, outsider blockholders were found to be playing an insignificant role. Further, board independence positively influences COMP levels and PPR, though the results were mixed with respect to significance. Finally, CEO duality positively and significantly influences CEO COMP and PPR. A comparison before and after the new Indian Companies Act 2013 also revealed similar results, particularly in the after period. It suggests that the new legislative initiative was not effective enough in improving the CG and, hence, the alignment of pay with performance. Originality/value This study investigates the direct and moderating impact of CG on CEO COMP in the context of emerging economy India. Further, it makes a comparison before and after the introduction of the new governance reform, that is, the Indian Companies Act, 2013. Moreover, providing support to the entrenchment effect, the study reveals that large shareholders expropriate minority shareholders’ wealth by not aligning CEO pay with performance, making agency problems graver in emerging economies like India.

The impact of CEO power on corporate tax avoidance: the moderating role of institutional ownership

“…Compared with other shareholders, institutional investors are perceived as external corporate governance devices that play an important role in reducing agency costs between management and ownership (Khan et al , 2017; Bird and Karolyi, 2017; Khan et al , 2017). Moreover, according to agency theory (Jensen & Meckling, 1976), institutional investors monitor corporate strategic decisions based on their size and expertise (Jatana, 2023; Boussaidi and Hamed-Sidhom, 2021a; Jennings, 2005). This argument suggests that institutional investors tend to curb tax avoidance positions as they are commonly more risk averse.…”

Corporate governance, configurational approach and financial performance: some evidence from Indian listed SMEs

“…In India, the Desirable Corporate Governance Code by the Confederation of Indian Industry (1998), Kumar Mangalam Birla Committee (2000), and Clause 49 of the SEBI listing agreement highlights the role of the board in CG (Jatana, 2023; Prabha and Subha, 2016). The committees have predominantly focused on independent directors, the part of the board and the existence of women directors.…”

“…In India, the Companies Act 2013 prescribes a structure for CG by enhancing disclosures, reporting and transparency. In addition, the Narayana Murthy Committee (2003) by SEBI provided commendations on the disclosures of listed firms, among other CG dimensions (Jatana, 2023; Prabha and Subha, 2016). Information asymmetry fosters the need for reliable information discourses ( DISC ).…”

“…In Indian-listed SMEs, the financial disclosures are obligated by capital markets and exchange-specific obligations. However, SMEs’ non-financial DISC is voluntary (say a separate CG report may not be mandatory for listed SMEs who list their specified securities on SME exchanges), as per the Securities and Exchange Board of India (SEBI) Listing Obligations and Disclosure Requirements, 2015, Regulation 15(2) (Jatana, 2023; Prabha and Subha, 2016). It can be safely assumed that the disclosure practices for listed SMEs in emerging countries like India are unstructured to a considerable extent.…”

Do the same executive compensation strategies and policies fit all the firms in the banking industry? New empirical insights from the CEO pay–firm performance causal nexus

“…Meanwhile, the theoretical perspective and research outcomes have remained contentious and inconclusive. Some scholars view CEO pay as a reward for performance by stressing performance‐based pay for CEOs (Adeusi, 2021; Bhuyan et al, 2022; Buck et al, 2008; Edem et al, 2021; Fama, 1980; Jatana, 2023; Kurawa & Kabiru, 2014; Obembe et al, 2016; Olaniyi & Obembe, 2017; Olaniyi, Obembe, & Oni, 2017; Olaniyi & Olayeni, 2020; Saidu & Alkhawlani, 2017; Soni & Singh, 2020; Umobong & Bele–Egberi, 2019). The principle underlies performance as a major determinant of CEO pay (Khursheed & Sheikh, 2022; Kweh et al, 2022).…”