Corporate Governance Disclosure Index–Executive Pay Nexus: The Moderating Effect of Governance Mechanisms

European Management Review Journal, Forthcoming

54 Pages Posted: 5 Sep 2018

See all articles by Mohamed Elmagrhi

Mohamed Elmagrhi

University of Huddersfield, Huddersfield Business School, Queensgate, Huddersfield, HD1 3DH; University of Huddersfield - Business School

Collins G. Ntim

University of Southampton Business School, UK; University of Southampton

Yan Wang

Leicester Business School, De Montfort University

Hussein Abdou

The Lancashire School of Business & Enterprise; Department of Management, Faculty of Commerce, Mansoura University

Alaa Zalata

University of Southampton - Southampton Business School

Date Written: August 13, 2018

Abstract

This paper first employs principal component analysis technique to develop and introduce an alternative UK corporate governance disclosure index to the US-centric ones. Second, we then investigate whether this new corporate governance disclosure index can determine the level of executive pay (including CEOs, CFOs, and all executive directors) in UK listed firms, and consequently ascertain whether the governance mechanisms can moderate the pay-for-performance sensitivity. Employing data on corporate governance, executive pay and performance from 2008 to 2013, we find that, on average, better-governed firms, tend to pay their executives lower compared with their poorly-governed counterparts. Additionally, our findings suggest that the pay-for-performance sensitivity is generally positive, but improves in firms with high corporate governance quality, implying that the pay-for-performance sensitivity is contingent on the quality of internal governance structures. We interpret our findings within the predictions of optimal contracting theory and managerial power hypothesis.

Keywords: corporate governance disclosure index; corporate performance; executive pay; endogeneity; principal component analysis, UK combined code

Suggested Citation

Elmagrhi, Mohamed and Ntim, Collins G. and Wang, Yan and Abdou, Hussein and Zalata, Alaa, Corporate Governance Disclosure Index–Executive Pay Nexus: The Moderating Effect of Governance Mechanisms (August 13, 2018). European Management Review Journal, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3239334

Mohamed Elmagrhi (Contact Author)

University of Huddersfield, Huddersfield Business School, Queensgate, Huddersfield, HD1 3DH ( email )

HD1 3DH
United Kingdom
07455392947 (Phone)

HOME PAGE: http://https://pure.hud.ac.uk/en/persons/mohamed-elmagrhi

University of Huddersfield - Business School ( email )

Queensgate
Huddersfield HD1 3DH
United Kingdom

Collins G. Ntim

University of Southampton Business School, UK ( email )

Southampton Business School
Highfield
Southampton, England SO17 IBJ
United Kingdom
+44 (0) 238059 4285 (Phone)
+44 (0) 238059 3844 (Fax)

HOME PAGE: http://www.southampton.ac.uk/business-school/about/staff/cgn1n11.page

University of Southampton ( email )

Southampton, SO17 1BJ
United Kingdom

Yan Wang

Leicester Business School, De Montfort University ( email )

The Gateway
, Leicester, LE1 9BH
United Kingdom

Hussein Abdou

The Lancashire School of Business & Enterprise ( email )

The Lancashire Law School
Corporation Street
Preston, PR1 2HE
United Kingdom
00441772894700 (Phone)

Department of Management, Faculty of Commerce, Mansoura University ( email )

Mansoura, 35516
Egypt

Alaa Zalata

University of Southampton - Southampton Business School ( email )

Southampton, SO17 1BJ
United Kingdom

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