How Director Remuneration Impacts Firm Performance: An Empirical Analysis of Executive Director Remuneration in Pakistan

Borsa Istanbul Review, Vol 19(2), 186-196, 2019

11 Pages Posted: 28 Feb 2020

See all articles by Ejaz Aslam

Ejaz Aslam

University of Management and Technology (UMT), Pakistan, Students; IIUM Institute of Islamic Banking and Finance

Razali Haron

International Islamic University of Malaysia (IIUM) - Faculty of Economic and Management Sciences

Muhammad Naveed Tahir

University of Lyon 2

Date Written: August 15, 2019

Abstract

This study empirically investigates the interrelationship between pay and performance of CEOs/board of directors in an emerging market, Pakistan. The study uses GMM approach to account for the problem of potential endogeneity and unobserved heterogeneity that arises due to the potential reverse causality (pay and performance) for a sample of non-financial firms listed in the KSE over the period of 2009e2016. This study provides evidence that the pay-performance framework supports the agency theory whereby CEOs/board of directors are compensated for their prior level of market-based performance. In addition, it weakly supports the notion of the steward/tournament theory. Thus, CEOs/board director's remuneration is highly persistent and takes time to adjust to long-run equilibrium.

Keywords: Executive Remuneration; Firm Performance; Corporate Governance; Emerging Market; GMM

JEL Classification: G30; M12; P17; C39

Suggested Citation

Aslam, Ejaz and Haron, Razali and Tahir, Muhammad Naveed, How Director Remuneration Impacts Firm Performance: An Empirical Analysis of Executive Director Remuneration in Pakistan (August 15, 2019). Borsa Istanbul Review, Vol 19(2), 186-196, 2019, Available at SSRN: https://ssrn.com/abstract=3526192

Ejaz Aslam (Contact Author)

University of Management and Technology (UMT), Pakistan, Students ( email )

Pakistan

IIUM Institute of Islamic Banking and Finance ( email )

Jalan Gombak
Gombak, Selengor 53100
Malaysia
0149443305 (Phone)
47500 (Fax)

Razali Haron

International Islamic University of Malaysia (IIUM) - Faculty of Economic and Management Sciences ( email )

P.O. Box 10
Kuala Lumpur, 53100
Malaysia

Muhammad Naveed Tahir

University of Lyon 2 ( email )

93 Chemin des Mouilles
Ecully, 69009
France

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