The effect of board composition and managerial pay on Saudi firm performance

Using five empirical methodologies to account for endogeneity issues, this study investigates the effects of board independence and managerial pay on the performance of 169 Saudi listed firms between 2007 and the end of 2014. Studying board independence and managerial pay utilises the main internal governance mechanism in relation to firm performance; therefore, the effect of the 2009 exogenous regulatory shock on board independence was also examined to learn whether it impacted firm performance. The empirical results show that the board composition–performance relationship is endogenous. Strong evidence is found through the dynamic generalised method of moments estimation, which indicates that board composition has a positive relationship with return on assets, and poor past performance of listed firms has a negative impact on the current level of performance. The difference-in-differences approach results show a positive relationship between board composition, stock returns, and Tobin’s Q. The findings also reveal that managerial pay has a positive relationship with firm performance, although when endogeneity is considered, there is a smaller positive relationship and a decrease in significance levels. Thus, pay-for-performance in Saudi Arabia matters, and firms are not simply controlled by the government. The results of this study have implications for both policy makers and investors. In particular, policy makers and Saudi regulators can evaluate the impact of Saudi corporate governance arrangements and, in so doing, highlight changes in corporate governance arrangements that need to be made to achieve their economic objectives, such as Vision 2030. This study also contributes to the literature by showing the importance of considering endogeneity in studies.

Product Market Competition and Managerial Pay

ABSTRACT In this study I find that product substitutability has a negative relation with pay-earnings but no relation with pay-stock return sensitivity, whereas market size and ease of entry have no relation with pay-earnings but a positive relation with pay-stock return sensitivity. These findings collectively imply that firms in more competitive industries place less reliance on earnings-based and greater reliance on stock-based measures to determine managerial compensation than firms in less competitive industries. I also find that product substitutability has a positive relation whereas market size and ease of entry have negative relations with managerial pay levels, suggesting different dimensions of product market competition may have independent influences on managerial pay design. Finally, I find that industry regulation has a positive relation with pay-earnings but a negative relation with pay-stock return sensitivity. This study's findings suggest a contextual approach to examining the relation between industry attributes and managerial pay. JEL Classifications: D4; G34; J33; L1; M40; M41; M46. Data Availability: Data are available from the public sources cited in the text.

National Board Quotas and the Gender Pay Gap among European Managers

As European countries have mandated quotas for women’s representation on boards, and as women have increasingly entered the ranks of management, a persistent gender gap in managerial pay remains. Drawing a sample of managers in the 2010 European Social Survey, the gender gap in pay was decomposed, finding that employer devaluation of women accounted for the majority of the gender gap in pay. This was especially true in countries without mandated quotas, but in countries that had adopted quotas for female representation on boards, results were consistent with the proposition that quotas moderated the labour market for managers (i.e. the gender gap in managerial pay was smaller as was the portion of the gap attributable to discrimination). As board quotas have increasingly been adopted across Europe, more research is needed on their ameliorative effects on gender inequality in the wider labour market.

Incentive Pay and Systemic Risk

We show that, in the presence of correlated investment opportunities across firms, risk sharing between firm shareholders and firm managers leads to compensation contracts that include relative performance evaluation. These contracts bias investment choices toward correlated investment opportunities, and thus create systemic risk. Furthermore, we show that leverage amplifies all such effects. In the context of the banking industry, we analyze recent policy recommendations for firm managerial pay and show how shareholders optimally undo the policies’ intended effects.Received October 31, 2017; editorial decision August 21, 2018 by Editor Wei Jiang. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Managerial Compensation and Corporate Bond Yield with Active Shareholders

In this paper we show how a greater pay-for-performance in managerial compensation may reduce the cost of corporate debt. The model points to the relation between the bonus and the monitoring effort by shareholders as key to reduce the cost of debt and hence increase the value of the company. Incentivizing the manager with a bonus related to the company’s performance, provided that the information is disclosed to investors, not only reduces the moral hazard between managers and share-holders, but more importantly between shareholders and bond-holders. The model predicts i) a lower corporate bond yield when there is disclosure of managerial pay-performance to financial markets, and ii) an increasing degree of managerial pay-for-performance with company’s leverage.

PENGARUH STRUKTUR MODAL DAN LIKUIDITAS TERHADAP PROFITABILITAS

This object of this study is analyze the impact of capital structure and liquidity<br />on profitability. The sample used in this study is the beverages, food, and tobacco<br />sector companies listed in Indonesia Stock Exchange between 2009 and 2013. The<br />independent variables are the capital structure and liquidity, while the dependent<br />variable is profitability. Total sample is 19 companies. The results of this study indicate that the capital structure and liquidity together have significant effect on profitability. Based on these results, the expected managerial pay more attention to the structure of capital and liquidity in order to increase the profitability of the companies.