Relationship between CEO Pay and Firm Performance: Evidences from Malaysia Listed Firms

Ismail, Shakerin; Yabai, Natalie Vivienne; Hahn, Low Joe

doi:10.9790/5933-0361431

Cited by 14 publications

(19 citation statements)

References 81 publications

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“…The results of the studies that followed this line of thought are mixed and inconclusive. Some of the studies obtained positive results (Murphy, ; Kim and Gu, ; Ghosh, ; Scholtz and Smit, ; Brookman and Thistle, ; Hearn, ; Ismail et al , ) while some others established a negative relationship (Gregg et al , ; Brick et al , ; Duffhues and Kabir, ; Bebchuk et al , ; Sigler, ; Zhou et al , ; Khan and Vieito, ; Faria et al , ). Also, others still found no relationship between them (Sigler, ; Kim and Gu, ; Yusuf and Abubakar, ).…”

Section: Literature Reviewmentioning

confidence: 99%

Analysis of the Nexus between CEO Pay and Performance of Non-Financial Listed Firms in Nigeria

Olaniyi¹,

Obembe²,

Oni³

2017

African Development Review

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This study examines the causal relationship between CEO pay and firm performance in Nigeria for the period 1998-2010, using annual data of 63 non-financial listed firms. We adopt a two-step dynamic generalized method of moments to explore the causal relationship. The study establishes a bi-directional relationship between CEO pay and firm performance. While CEO pay Granger-causes firm performance, firm performance also Granger-causes CEO pay. It implies that CEO pay acts both as a reward and a performance motivator. This study therefore suggests that CEO pay effectively aligns shareholders' interests with those of CEOs; hence stakeholders should focus more on CEO pay as a corporate governance mechanism to reduce agency problem in non-financial listed firms in Nigeria. 429Moreover, following the two modelling strategies, empirical studies on the relationship between CEO pay and firm performance occupy a substantial portion of economic literature, most especially in advanced countries and emerging economies with limited attention from developing countries and sub-Saharan Africa in particular. Meanwhile, previous empirical investigations have continued to yield conflicting results. Some of these studies have obtained a weak or negative relationship or none at all (Jensen and Murphy, ). Results continue to differ depending on the environment, methodology and the measures of firm performance adopted in various studies.Apart from the inconclusiveness of previous studies, the bulk of these studies ignored the effect of executive pay on firm performance, despite the fact that motivation is the main rationale for executive pay packages. This was hinted at by Jensen and Murphy (1990) who stated that executive pay is 'designed to give manager incentives to select and implement actions that increase shareholders' wealth'. Moreover, Buck et al. (2008) and Tosi et al. (2000) contended that all studies surveyed, most especially in Europe, used pay as the dependent variable which means firm performance is considered a determinant of executive pay, neglecting the possibility of feedback effect from pay to performance. The prevalence of long-term incentives (equity incentives), such as stock awards and options, for managers in Europe has made it extremely difficult to separate reward from motivation (Buck et al., 2008;Jegede, 2012;Olaniyi and Obembe, 2015;Liang et al., 2016;Omoregie and Kelikume, 2017). Hence, the majority of empirical studies from advanced countries focused on the effect of firm performance on directors' compensation (performance-based pay) without exploring the possibility of feedback. Meanwhile, executive directors of publicly traded firms in developing countries, most especially sub-Saharan Africa, are usually paid in cash, not in the form of long-term incentives such as equity-based pay. This gives ample opportunity to examine CEO pay as a factor that determines firm performance (Buck et al., 2008). Globally, only few studies (Choo and Tan, 2004;Buck et al., 2008;Omoregie and Kelikume, 2017; Amdouni, 2016) h...

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Section: Literature Reviewmentioning

confidence: 99%

Analysis of the Nexus between CEO Pay and Performance of Non-Financial Listed Firms in Nigeria

Olaniyi¹,

Obembe²,

Oni³

2017

African Development Review

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“…To resolve these agency problems, many academics argue that attractive executive compensation may be an effective governance mechanism that would be able to align the managerinterest with those of the firm shareholders and so to improve the manager involvement in achieving the shareholders' objectives. For empirical evidence, see Lewellen, Loderer, Martin, and Blume (1992), Jensen and Murphy (1990), Hall and Leibman (1998), Finkelstein and Boyd (1998), Ntim, Lindop, Osei, and Thomas (2015), Smirnova and Zavertiaera (2017), Sheikh, Shah, and Akbar (2018), Sigler (2011), Aslam, Razali, Naveed, and Tahir (2019), Kuo, Lin, and Wang (2013), Ozkan (2011), Ismail, Yabai, and Hahn (2014), Zandi, Shafi, Mohamad, Keongc, and Ehsanullahd (2019), Farmer, Archbold, and Alexandrou (2013), and Jensen, Murphy, and Wruck (2004), among many others. 2 Besides, according to the optimal contracting theory, satisfactory executive pay may result in the highest performance level.…”

Section: Introductionmentioning

confidence: 99%

Does CEO compensation matter in boosting firm performance? Evidence from listed French firms

Zoghlami

2020

Manage Decis Econ

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The paper investigates the impact of chief executive officer (CEO) compensation on firm performance from a sample of 155 listed French companies on SBF 120, over 2009-2018. Findings suggest that an increase in CEO compensation seems to improve the accounting-based firm performance, nevertheless it hurts the firm stock market value. More pronounced results are reported when we control for sector compensation interactions. We argue that attractive compensation may improve the executive services in achieving shareholders' objectives, but investors seem to not appreciate a CEO compensation increase. Based on the agency theory, it might be argued that investors fear possible executive opportunistic behavior encouraging them to enjoy overcompensation.

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“…These profitability ratios are commonly used to measure the company's ability to generate earnings and provide returns to their shareholders. The ROA is measured by the contribution of net income over total assets (Ismail, Yabai, & Hahn, 2014). The ROA is used to measure firm performance because it is an indicator of profitability of the company and determine the management's ability in managing the corporate assets.…”

Section: Methodsmentioning

confidence: 99%

Woman On Board And Firm Performance: Evidence From Industrial Companies

Hamid¹

2018

The European Proceedings of Social and Behavioural Sciences

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This study aims to examine the effect of board gender diversity on the firm performance. This study also includes controlling variable effect to examine the relationship between gender diversity and firm performance. The ordinary least squares (OLS) regression analysis is used to investigate the relationship between gender diversity of board of directors and firm performance. This study tests the hypotheses on a sample of listed industrial companies on the Bursa Malaysia for the year 2016. The results indicate that the boards of sample companies in Malaysia are male-dominated. Moreover, this study finds that the board gender diversity did not have significant impacts on firm performance, as measured by return on assets (ROA) and return on equity (ROE). Limited empirical evidences and studies have been conducted on the relationship between board gender diversity and firm performance in emerging countries. In addition, lack of consensus on the relationship between board gender diversity and firm performance and it was based on mixed and contradictory findings in prior research. Therefore, this study extent the current literature in the context of Malaysia indicates that female directors cannot play their roles actively and effectively due to a very limited number of female representatives on the boardroom. This study contributes advanced empirical evidence on board gender diversity and board characteristics on the firm performance relationship in the context of Malaysia.

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Relationship between CEO Pay and Firm Performance: Evidences from Malaysia Listed Firms

Cited by 14 publications

References 81 publications

Analysis of the Nexus between CEO Pay and Performance of Non-Financial Listed Firms in Nigeria

Analysis of the Nexus between CEO Pay and Performance of Non-Financial Listed Firms in Nigeria

Does CEO compensation matter in boosting firm performance? Evidence from listed French firms

Woman On Board And Firm Performance: Evidence From Industrial Companies

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