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Corporate Governance, Leadership Structure and CEO Compensation: evidence from Taiwan

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  • Ying‐Fen Lin

Abstract

Agency theorists have put forth a number of internal control mechanisms that can reduce agency problems. These different mechanisms are substitutive and thus it is thought that both the board of directors and large external shareholders can influence CEO compensation. Stewardship theory challenges the presumption of self‐interest of agency theory, holding that managers view themselves as stewards of their organisation. The first objective of this paper is to study the influence of the control of the board of directors and large external shareholders on CEO compensation. The second objective is to utilise both stewardship and agency theory to analyse the relationship between control mechanisms and compensation, and to see which theory is more applicable. This paper uses the LISREL model to study the influence that the control of the board of directors and external large shareholders has upon CEO compensation, with data drawn from samples of listed manufacturing companies between the years 1997 and 1999 in Taiwan. The following conclusions are reached: (1) the paper supports the viewpoint of stewardship theory whereby the CEO acts as a steward of his/her company when he/she also holds the position of chairman of the company. (2) The findings show that CEO compensation will be high when the board's control is relatively ineffective. (3) The shareholdings of the board of directors can reinforce the degree of control from the board.

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  • Ying‐Fen Lin, 2005. "Corporate Governance, Leadership Structure and CEO Compensation: evidence from Taiwan," Corporate Governance: An International Review, Wiley Blackwell, vol. 13(6), pages 824-835, November.
    • Handle: RePEc:bla:corgov:v:13:y:2005:i:6:p:824-835
    DOI: 10.1111/j.1467-8683.2005.00473.x
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    1. Brickley, James A. & Coles, Jeffrey L. & Jarrell, Gregg, 1997. "Leadership structure: Separating the CEO and Chairman of the Board," Journal of Corporate Finance, Elsevier, vol. 3(3), pages 189-220, June.
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    2. Gloria Cuevas-Rodríguez & Jaime Guerrero-Villegas & Ramón Valle-Cabrera, 2019. "Privatization and organizational changes: Evidence from Spain," Working Papers 19.04, Universidad Pablo de Olavide, Department of Business Organization and Marketing (former Department of Business Administration), revised Jun 2019.
    3. Lee, Janet, 2009. "Executive performance-based remuneration, performance change and board structures," The International Journal of Accounting, Elsevier, vol. 44(2), pages 138-162, June.
    4. Manika Kohli, 2018. "Impact of Ownership Type and Board Characteristics on the Pay–Performance Relationship: Evidence from India," Indian Journal of Corporate Governance, , vol. 11(1), pages 1-34, June.
    5. Wen-Ting Lin & Kuei-Yang Cheng, 2013. "The effect of upper echelons’ compensation on firm internationalization," Asia Pacific Journal of Management, Springer, vol. 30(1), pages 73-90, March.
    6. Shujun Ding & Zhenyu Wu & Yuanshun Li & Chunxin Jia, 2009. "Can the Chinese Two-Tier-Board system Control the Board Chair Pay?," Asian Journal of Finance & Accounting, Macrothink Institute, vol. 1(1), pages 122-122, December.
    7. Khaled Elsayed, 2007. "Does CEO Duality Really Affect Corporate Performance?," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(6), pages 1203-1214, November.
    8. Mohammad I Azim, 2012. "Corporate governance mechanisms and their impact on company performance: A structural equation model analysis," Australian Journal of Management, Australian School of Business, vol. 37(3), pages 481-505, December.
    9. Cho, Kang Rae & Huang, Chia-Hsing & Padmanabhan, Prasad, 2014. "Foreign ownership mode, executive compensation structure, and corporate governance: Has the literature missed an important link? Evidence from Taiwanese firms," International Business Review, Elsevier, vol. 23(2), pages 371-380.
    10. Suveera Gill & Manika Kohli, 2018. "Perceptual Determinants of Executive Compensation: Survey-Based Evidence from India," Indian Journal of Corporate Governance, , vol. 11(2), pages 159-184, December.
    11. Tutun Mukherjee & Som Sankar Sen, 2022. "Impact of CEO attributes on corporate reputation, financial performance, and corporate sustainable growth: evidence from India," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-50, December.
    12. Manika Kohli, 2017. "How Responsive Executive Compensation is to Corporate Performance? An Indian Perspective," Indian Journal of Commerce and Management Studies, Educational Research Multimedia & Publications,India, vol. 8(2), pages 07-18, May.
    13. Elena Merino & Montserrat Manzaneque-Lizano & Jesus Sanchez-Araque, 2019. "Sustainability and Corporate Governance: Transparency and Excessive Directors’ Remuneration in Listed Companies during the Global Financial Crisis," Sustainability, MDPI, vol. 12(1), pages 1-19, December.
    14. Jaiswall, Sudhir Shiv Kumar & Bhattacharyya, Asish Kumar, 2016. "Corporate governance and CEO compensation in Indian firms," Journal of Contemporary Accounting and Economics, Elsevier, vol. 12(2), pages 159-175.
    15. Jebreel Mohammad Al-Al-Msiedeen & Fawzi A. Al Sawalqa, 2021. "Ownership Structure and CEO Compensation: Evidence from Jordan," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 11(5), pages 365-383, May.
    16. Isabel-María García-Sánchez, 2010. "The effectiveness of corporate governance: board structure and business technical efficiency in Spain," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 18(3), pages 311-339, September.
    17. Sunny Sun & Xia Zhao & Haibin Yang, 2010. "Executive compensation in Asia: A critical review and outlook," Asia Pacific Journal of Management, Springer, vol. 27(4), pages 775-802, December.

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