The Effect of Corporate Governance Mechanisms on Firm Perfomance: Malaysian Perspective

Numerous studies have looked at the implications of corporate governance structures on company performance. Although the literature is not unanimous in its conclusions,the weight of opinion is that there is a significant relationship between governance mechanisms and structures and firm performance. The aim of this research is to study the effect,if any of corporate governance mechanisms, particularly corporate ownership structure, corporate board,and compensation packages,on the performance of Malaysian public listed companies.The literature on these multidimensional governance parameters on firm performance in the context of Malaysia is lacking. Using sample of large publicly traded Malaysian companies, in particular in the properties and plantations sectors, this research examine the effect of institutional investor monitoring,board size and independence,and executive compensation on firm performance as measured by Tobin’s Q, return on assets (ROA) and return on equity (ROE).Results show that there is significant but weak relationship between corporate governance mechanisms in particular corporate board structure and executive compensation, with company performance.These findings suggest that there are other factors which have larger influence on the profitability and performance of companies. Nevertheless, the level of compliance with the Malaysian Code of Corporate Governance is high among the public listed companies

The Effect of Increased Regulation on Option Use Within the Information Technology Industry

Exorbitant executive compensation packages have drawn large criticism from the public eye and with the recent financial crisis and the previous tech bubble opinion on executive incentives has forced government institutions to respond. Over the past two decades the SEC and FASB have aimed to respond to the public and with three large regulation changes in the 2000s, pay for performance compensation has gone through many changes. In this study I build on previous work in an attempt to answer whether or not executives within the Information Technology industry have seen a larger decline in option compensation when compared to executives outside of the industry. Previous studies have indicated that option use has been consistently higher in the IT industry and in addition another study has showed that option use across all companies has decreased dramatically due to regulation changes. In this study I find that option use has dramatically decreased over the past decade due to regulation and that option use in the IT industry has remained consistently higher than others. I find that there is little significant evidence suggesting regulation changes have affected the IT industry at a larger rate than others. I would argue that the industry is less sensitive to regulation changes regarding option use but I do find significant evidence that the industry has seen larger decreases in option use in 2013 when compared to other industries

Executive Compensation Consultants and CEO Pay

This Article surveys recent empirical studies on the relation between compensation consultants and CEO pay. The economic rationale for using executive compensation consultants is that they supply valuable data, information, and professional expertise to client firms. However, critics argue that the consultant’s independence might be compromised because of conflicts of interest arising from the cross selling of business services or because of the consultant’s desire to obtain repeat business. The emergent empirical evidence suggests that pay consultants are important in explaining executive compensation, although the findings are sometimes mixed and the precise effects of consultants on pay are yet to be fully understood. In addition, this Article provides some new evidence on the correlation between CEO pay and consultants using U.S. and U.K. data. Adopting a slightly different approach to prior studies, I show that there is a positive cross-section correlation between executive pay and compensation consultants. Conditional on the estimation strategy, the existing evidence supports the hypothesis that CEOs of U.K. firms using consultants receive higher pay than those that do not use compensation consultants. There is less evidence that firms facing conflicts of interest, such as supplying other business services, are associated with higher levels of CEO pay. However, the findings may be sensitive to the type of estimation methods employed, and addressing this concern is a challenge for future research. I also find little support for the hypothesis that firms switch consultants as a mechanism of increasing CEO pay. Again, interpreting the data is fraught with difficulties because of selection effects and the possibility of reverse causation. Finally, the recent Dodd-Frank Act significantly upgrades disclosure about executive compensation and compensation advisors. Future research on the efficacy of compensation consultants will undoubtedly take advantage of these new provisions. At present, it is difficult to unambiguously conclude that pay consultants simply promote executive interests at the expense of shareholders, or that pay outcomes and contracts are not optimal

Optimal Executive Compensation vs. Managerial Power: A Review of Lucian Bebchuk and Jesse Fried's "Pay without Performance: The Unfulfilled Promise of Executive Compensation"

This essay reviews Bebchuk and Fried's "Pay without Performance: The Unfulfilled Promise of Executive Compensation". Bebchuk and Fried criticize the standard view of executive compensation, in which executives negotiate contracts with shareholders that provide incentives that motivate them to maximize the shareholders' welfare. In contrast, Bebchuk and Fried argue that executive compensation is more consistent with executives who control their own boards, and who maximize their own compensation subject to an "outrage constraint". They provide a host of evidence consistent with this alternative viewpoint. The book can be evaluated from both a positive and a normative perspective. From a positive perspective, much of the evidence they present, especially about the camouflage and risk-taking aspects of executive compensation systems, is fairly persuasive. However, from a normative perspective, the book conveys the idea that policy changes can dramatically improve executive compensation systems and consequently overall corporate performance. It is unclear to me how effective in practice are potential reforms designed to achieve such changes likely to be.

Assessing Nonprofit CEO Compensation: Does the Media Provide a Fair Perspective?

The media plays an active role in forming external stakeholders’ perception of business matters. When it comes to nonprofit business, the media is a source of information that, in theory, works to bridge the gap between external stakeholders’ unfamiliarity with nonprofit regulation and what is actually required of the nonprofit sector. This concept is especially present regarding the topic of nonprofit CEO compensation. The goal of this paper is to discuss how media addresses nonprofit CEO compensation and to determine whether or not the media fairly portrays the entire story by assessing current data along with trends in historical data, namely of two organizations, the American Red Cross and Goodwill Industries, Inc. This study will enter into the discussion of nonprofit CEO compensation and discuss the nature of nonprofits, the requirements of nonprofit CEO compensation, and CEO compensation as it is portrayed by the media and therefore likely perceived by society. The purpose of the analysis is to determine whether nonprofits actually compensate their CEOs as the media suggests. With this information, external stakeholders will be better equipped to answer the above questions themselve

Using Archival Data Sources to Conduct Nonprofit Accounting Research

Research in nonprofit accounting is steadily increasing as more data is available. In an effort to broaden the awareness of the data sources and ensure the quality of nonprofit research, we discuss archival data sources available to nonprofit researchers, data issues, and potential resolutions to those problems. Overall, our paper should raise awareness of data sources in the nonprofit area, increase production, and enhance the quality of nonprofit research

Addressing Agency Costs through Private Litigation in the U.S: Tensions, Disappointments, and Substitutes

Many scholars argue that over the past seventy years, shareholder representative litigation has acted as an important policing mechanism of managerial abuses at U.S. public companies. Different types of representative litigation have had their moment in the sun – derivative suits early on, followed by federal securities class actions, and most recently merger litigation – often producing benefits for shareholders, but posing difficult challenges as well. In particular, the benefits are qualified by another concern, the litigation agency costs that surround shareholder suits. This form of agency costs arises since the suits are invariably representative with no requirement that the named plaintiffs have a substantial ownership interest in the corporation, so that their prosecution could be easily seen as lawyer-driven. And that perception is further underscored in the U.S. where the “American Rule,” in contrast to the “Loser Pays Rule,” provides no governor on the suit’s initiation and prosecution. In this article, we assess the interactions of shareholder suits and governance mechanisms. Our thesis is straightforward: we claim that the recent rise of some important governance developments is a natural consequence of both the ineffectiveness and inefficiency of private suits to address certain genre of managerial agency costs. That is, just as one part of a balloon expands when another part contracts, we find that governance responses evolve to fill voids caused by the decompression of shareholder monitoring once supplied by private suits. In other words, as representative shareholder litigation comes under increasing attack, greater attention needs to be devoted to governance and market mechanisms as alternative means to address managerial agency costs