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Firm performance, corporate governance and executive compensation in Pakistan
Sheikh, M.F. Shah, S.Z.A.
Sheikh, M.F.
Shah, S.Z.A.
Publication Date
2018
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© 2017 Taylor & Francis. This is an Author's Original Manuscript of an article published by Taylor & Francis in Applied Economics in 2017 available online at https://doi.org/10.1080/00036846.2017.1386277
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Abstract
This study examines the effects of firm performance and corporate governance on chief executive
officer (CEO) compensation in an emerging market, Pakistan. Using a more robust Generalized
Method of Moments (GMM) estimation approach for a sample of non-financial firms listed at
Karachi Stock Exchange (KSE) over the period 2005 to 2012, we find that both current and
previous year accounting performance has positive influence on CEO compensation. However,
stock market performance does not appear to have a positive impact on executive compensation.
We further find that ownership concentration is positively related with CEO compensation,
indicating some kind of collusion between management and largest shareholder to get personal
benefits. Inconsistent with agency theory, CEO duality appears to have a negative influence, while
board size and board independence have no convincing relationship with CEO compensation,
indicating board ineffectiveness in reducing CEO entrenchment. The results of dynamic GMM
model suggest that CEO pay is highly persistent and takes time to adjust to long-run equilibrium.
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Citation
Sheikh MF, Shah SZA and Akbar S (2018) Firm performance, corporate governance and executive compensation in Pakistan. Applied Economics. 50 (18):2012-2027.
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