Politically Connected Boards and the Structure of CEO Compensation Packages in Taiwanese Firms
45 Pages Posted: 19 Feb 2009 Last revised: 24 Aug 2010
Date Written: April 6, 2010
This paper examines the relationship between the level of political connection of the board and CEO equity-based compensation. Using a sample of Taiwanese firms in 2001-2004, the paper provides evidence that the level of political connection of a board is negatively related to the level of CEO total compensation. It is also found that politically connected boards grant a lower proportion of equity-based compensation to CEOs and thereby reduce the alignment between the interests of CEOs and those of shareholders. The findings obtained by analysing the sample of Taiwanese firms could be useful to policy makers in emerging economies, where there is wide scope for political intervention. A government’s reluctance to relinquish control over publicly listed firms can have significantly negative consequences on the alignment between the interests of CEOs and shareholders in the firms.
Keywords: equity-based compensation, corporate governance, politically connected boards, Taiwan
JEL Classification: G32, G34, J33
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