IDEAS home Printed from https://ideas.repec.org/a/eee/jocaae/v12y2016i2p159-175.html
   My bibliography  Save this article

Corporate governance and CEO compensation in Indian firms

Author

Listed:
  • Jaiswall, Sudhir Shiv Kumar
  • Bhattacharyya, Asish Kumar

Abstract

We examine the role of the board, ownership, and CEO characteristics in CEO compensation in Indian firms. Contrary to the evidence documented in prior studies, we find that CEO compensation is not associated with board characteristics. Instead, compensation is associated with firm's ownership attributes and its CEO's tenure. We also document that leaving out CEO fixed effects in a longitudinal compensation study can lead to potentially erroneous conclusions about the role of several governance attributes in CEO compensation contracting. Finally, we find that CEO compensation attributed to ownership characteristics in the private sector is positively related to future firm performance, whereas remuneration attributed to board and CEO characteristics in both private and public sectors are not. Our evidence is consistent with efficient CEO compensation contracting, rather than CEO rent extraction, in Indian firms.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:jocaae:v:12:y:2016:i:2:p:159-175
    DOI: 10.1016/j.jcae.2016.06.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1815566916300121
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jcae.2016.06.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Basu, Debarati & Sen, Kaustav, 2015. "Financial decisions by business groups in India: Is it “fair and square”?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 11(2), pages 121-137.
    2. Suwina Cheng & Michael Firth, 2005. "Ownership, Corporate Governance and Top Management Pay in Hong Kong," Corporate Governance: An International Review, Wiley Blackwell, vol. 13(2), pages 291-302, March.
    3. Nancy L. Rose & Andrea Shepard, 1997. "Firm Diversification and CEO Compensation: Managerial Ability or Executive Entrenchment?," RAND Journal of Economics, The RAND Corporation, vol. 28(3), pages 489-514, Autumn.
    4. repec:bla:jfinan:v:43:y:1988:i:3:p:593-616 is not listed on IDEAS
    5. Smith, Clifford Jr. & Watts, Ross L., 1992. "The investment opportunity set and corporate financing, dividend, and compensation policies," Journal of Financial Economics, Elsevier, vol. 32(3), pages 263-292, December.
    6. Bebchuk, Lucian Arye & Fried, Jesse & Walker, David I, 2002. "Managerial Power and Rent Extraction in the Design of Executive Compensation," CEPR Discussion Papers 3558, C.E.P.R. Discussion Papers.
    7. Tarun Khanna & Krishna Palepu, 2000. "Is Group Affiliation Profitable in Emerging Markets? An Analysis of Diversified Indian Business Groups," Journal of Finance, American Finance Association, vol. 55(2), pages 867-891, April.
    8. Canarella, Giorgio & Miller, Stephen M. & Nourayi, Mahmoud M., 2013. "Firm profitability: Mean-reverting or random-walk behavior?," Journal of Economics and Business, Elsevier, vol. 66(C), pages 76-97.
    9. Jayati Sarkar & Subrata Sarkar, 2000. "Large Shareholder Activism in Corporate Governance in Developing Countries: Evidence from India," International Review of Finance, International Review of Finance Ltd., vol. 1(3), pages 161-194, September.
    10. Rajesh Chakrabarti & William Megginson & Pradeep K. Yadav, 2008. "Corporate Governance in India," Journal of Applied Corporate Finance, Morgan Stanley, vol. 20(1), pages 59-72, December.
    11. Kato, Takao & Long, Cheryl, 2006. "Executive Compensation, Firm Performance, and Corporate Governance in China: Evidence from Firms Listed in the Shanghai and Shenzhen Stock Exchanges," Economic Development and Cultural Change, University of Chicago Press, vol. 54(4), pages 945-983, July.
    12. 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.
    13. Arijit Ghosh, 2006. "Determination of Executive Compensation in an Emerging Economy. Evidence from India," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 42(3), pages 66-90, May.
    14. Bizjak, John M. & Lemmon, Michael L. & Naveen, Lalitha, 2008. "Does the use of peer groups contribute to higher pay and less efficient compensation?," Journal of Financial Economics, Elsevier, vol. 90(2), pages 152-168, November.
    15. Saibal Ghosh, 2010. "Firm Performance and CEO Pay," Journal of Entrepreneurship and Innovation in Emerging Economies, Entrepreneurship Development Institute of India, vol. 19(2), pages 137-147, September.
    16. John R. Graham & Si Li & Jiaping Qiu, 2012. "Managerial Attributes and Executive Compensation," The Review of Financial Studies, Society for Financial Studies, vol. 25(1), pages 144-186.
    17. Baker, G.P. & Jensen, M.C. & Murphy, K.J., 1988. "Compensation And Incentives: Practice Vs. Theory," Papers 88-05, Rochester, Business - Managerial Economics Research Center.
    18. Kato, Takao & Kim, Woochan & Lee, Ju Ho, 2007. "Executive compensation, firm performance, and Chaebols in Korea: Evidence from new panel data," Pacific-Basin Finance Journal, Elsevier, vol. 15(1), pages 36-55, January.
    19. Sarkar, Jayati & Sarkar, Subrata, 2009. "Multiple board appointments and firm performance in emerging economies: Evidence from India," Pacific-Basin Finance Journal, Elsevier, vol. 17(2), pages 271-293, April.
    20. Manju Jaiswall & Michael Firth, 2009. "CEO pay, firm performance, and corporate governance in India's listed firms," International Journal of Corporate Governance, Inderscience Enterprises Ltd, vol. 1(3), pages 227-240.
    21. Ho, Simon S. M. & Lam, Kevin C. K. & Sami, Heibatollah, 2004. "The investment opportunity set, director ownership, and corporate policies: evidence from an emerging market," Journal of Corporate Finance, Elsevier, vol. 10(3), pages 383-408, June.
    22. Rajesh Chakrabarti & Krishnamurthy Subramanian & Pradeep K. Yadav & Yesha Yadav, 2012. "Executive Compensation in India," Chapters, in: Research Handbook on Executive Pay, chapter 21, Edward Elgar Publishing.
    23. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 2000. "Investor protection and corporate governance," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 3-27.
    24. Murphy, Kevin J. & Sandino, Tatiana, 2010. "Executive pay and "independent" compensation consultants," Journal of Accounting and Economics, Elsevier, vol. 49(3), pages 247-262, April.
    25. Marianne Bertrand & Paras Mehta & Sendhil Mullainathan, 2002. "Ferreting out Tunneling: An Application to Indian Business Groups," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 121-148.
    26. Firth, Michael & Fung, Peter M.Y. & Rui, Oliver M., 2006. "Corporate performance and CEO compensation in China," Journal of Corporate Finance, Elsevier, vol. 12(4), pages 693-714, September.
    27. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-488, June.
    28. Anil Shivdasani & David Yermack, 1999. "CEO Involvement in the Selection of New Board Members: An Empirical Analysis," Journal of Finance, American Finance Association, vol. 54(5), pages 1829-1853, October.
    29. Albuquerque, Ana, 2009. "Peer firms in relative performance evaluation," Journal of Accounting and Economics, Elsevier, vol. 48(1), pages 69-89, October.
    30. Ghosh, Saibal, 2010. "Firm performance and CEO pay: Evidence from Indian manufacturing," MPRA Paper 25451, University Library of Munich, Germany.
    31. Kaplan, Steven N, 1994. "Top Executive Rewards and Firm Performance: A Comparison of Japan and the United States," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 510-546, June.
    32. Mitchell A. Petersen, 2009. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," The Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 435-480, January.
    33. Lucian Bebchuk & Jesse Fried, 2002. "Power, rent extraction, and executive compensation," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 3(03), pages 23-28, October.
    34. Caylor, Marcus L. & Lopez, Thomas J., 2013. "Cost behavior and executive bonus compensation," Advances in accounting, Elsevier, vol. 29(2), pages 232-242.
    35. Core, John E. & Holthausen, Robert W. & Larcker, David F., 1999. "Corporate governance, chief executive officer compensation, and firm performance," Journal of Financial Economics, Elsevier, vol. 51(3), pages 371-406, March.
    36. Clarkson, Peter M. & Walker, Julie & Nicholls, Shannon, 2011. "Disclosure, shareholder oversight and the pay–performance link," Journal of Contemporary Accounting and Economics, Elsevier, vol. 7(2), pages 47-64.
    37. Balasubramanian, N. & Black, Bernard S. & Khanna, Vikramaditya, 2010. "The relation between firm-level corporate governance and market value: A case study of India," Emerging Markets Review, Elsevier, vol. 11(4), pages 319-340, December.
    38. Suwina Cheng & Michael Firth, 2006. "Family ownership, corporate governance, and top executive compensation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 27(7), pages 549-561.
    39. Brian K. Boyd, 1994. "Board control and ceo compensation," Strategic Management Journal, Wiley Blackwell, vol. 15(5), pages 335-344, June.
    40. Guy D. Fernando & Qiao Xu, 2012. "CEO compensation and strategic expenses: penalizing, shielding or rewarding?," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 11(3), pages 279-297, August.
    41. Booth, James R. & Cornett, Marcia Millon & Tehranian, Hassan, 2002. "Boards of directors, ownership, and regulation," Journal of Banking & Finance, Elsevier, vol. 26(10), pages 1973-1996, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Taruntej Singh Arora, 2020. "Impact of Corporate Governance on Credit Ratings: An Empirical Study in the Indian Context," Indian Journal of Corporate Governance, , vol. 13(2), pages 140-164, December.
    2. 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.
    3. Sudhir Kumar Jaiswal & Asish Kumar Bhattacharyya, 2016. "The role of operating efficiency and asset productivity in relative performance evaluation and CEO compensation in Indian firms," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 43(3), pages 201-221, September.
    4. Bansal, Manish & Kumar, Ashish & Bhattacharyya, Asit & Bashir, Hajam Abid, 2023. "Predictors of revenue shifting and expense shifting: Evidence from an emerging economy," Journal of Contemporary Accounting and Economics, Elsevier, vol. 19(1).
    5. Chenxi Wang & Xincai Deng & Susana Álvarez-Otero & Muhammad Safdar Sial & Ubaldo Comite & Jacob Cherian & Judit Oláh, 2021. "Impact of Women and Independent Directors on Corporate Social Responsibility and Financial Performance: Empirical Evidence from an Emerging Economy," Sustainability, MDPI, vol. 13(11), pages 1-16, May.
    6. Lawrence, Edward R. & Raithatha, Mehul, 2023. "Gender bias, board diversity, and firm value: Evidence from a natural experiment," Journal of Corporate Finance, Elsevier, vol. 78(C).
    7. Ibrahim, Salma & Li, Hao & Yan, Yan & Zhao, Jinsha, 2021. "Pay me a single figure! Assessing the impact of single figure regulation on CEO pay," International Review of Financial Analysis, Elsevier, vol. 73(C).
    8. 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.
    9. Chandan Sharma & Archana Singh & Rajan Yadav, 2023. "Impact of Competition in Credit Rating Industry: Evidence From India," SAGE Open, , vol. 13(1), pages 21582440221, January.
    10. Faozi A. Almaqtari & Hamood Mohd. Al-Hattami & Khalid M. E. Al-Nuzaili & Mohammed A. Al-Bukhrani, 2020. "Corporate governance in India: A systematic review and synthesis for future research," Cogent Business & Management, Taylor & Francis Journals, vol. 7(1), pages 1803579-180, January.
    11. Sudam Shrikrushna Shingade & Shailesh Rastogi, 2019. "Shareholders’ Activism and Firm Performance: A Review of Literature," Indian Journal of Commerce and Management Studies, Educational Research Multimedia & Publications,India, vol. 10(2), pages 22-30, May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. 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.
    3. 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.
    4. Cheng, Minying & Lin, Bingxuan & Wei, Minghai, 2015. "Executive compensation in family firms: The effect of multiple family members," Journal of Corporate Finance, Elsevier, vol. 32(C), pages 238-257.
    5. Khosa,Amrinder & Ahmed,Kamran & Henry,Darren, 2019. "Ownership Structure, Related Party Transactions, and Firm Valuation," Cambridge Books, Cambridge University Press, number 9781108492195, September.
    6. Christian Engelen, 2015. "The effects of managerial discretion on moral hazard related behaviour: German evidence on agency costs," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 19(4), pages 927-960, November.
    7. Dan Lin & Lu Lin, 2014. "The Interplay between Director Compensation and CEO Compensation," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 8(2), pages 11-26.
    8. Sudhir Kumar Jaiswal & Asish Kumar Bhattacharyya, 2016. "The role of operating efficiency and asset productivity in relative performance evaluation and CEO compensation in Indian firms," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 43(3), pages 201-221, September.
    9. 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.
    10. Chen, Jie & Song, Wei & Goergen, Marc, 2019. "Passing the dividend baton: The impact of dividend policy on new CEOs' initial compensation," Journal of Corporate Finance, Elsevier, vol. 56(C), pages 458-481.
    11. Xunan Feng & Anders C. Johansson, 2017. "CEO Incentives in Chinese State-Controlled Firms," Economic Development and Cultural Change, University of Chicago Press, vol. 65(2), pages 223-264.
    12. Shujun Ding & Zhenyu Wu & Yuanshun Li & Chunxin Jia, 2010. "Executive compensation, supervisory board, and China’s governance reform: a legal approach perspective," Review of Quantitative Finance and Accounting, Springer, vol. 35(4), pages 445-471, November.
    13. Chakravarty, Sugato & Hegde, Prasad, 2019. "The joint entrance exam, overconfident directors and firm performance," Journal of Corporate Finance, Elsevier, vol. 56(C), pages 298-318.
    14. Wolfgang Drobetz & Pascal Pensa & Markus M. Schmid, 2007. "Estimating the Cost of Executive Stock Options: evidence from Switzerland," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(5), pages 798-815, September.
    15. Hanlon, Michelle & Rajgopal, Shivaram & Shevlin, Terry, 2003. "Are executive stock options associated with future earnings?," Journal of Accounting and Economics, Elsevier, vol. 36(1-3), pages 3-43, December.
    16. Tor‐Erik Bakke & Hamed Mahmudi & Ashley Newton, 2020. "Performance peer groups in CEO compensation contracts," Financial Management, Financial Management Association International, vol. 49(4), pages 997-1027, December.
    17. Eriana Kartadjumena & Waymond Rodgers, 2019. "Executive Compensation, Sustainability, Climate, Environmental Concerns, and Company Financial Performance: Evidence from Indonesian Commercial Banks," Sustainability, MDPI, vol. 11(6), pages 1-21, March.
    18. 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.
    19. Bugeja, Martin & Matolcsy, Zoltan & Spiropoulos, Helen, 2017. "The CEO pay slice: Managerial power or efficient contracting? Some indirect evidence," Journal of Contemporary Accounting and Economics, Elsevier, vol. 13(1), pages 69-87.
    20. Amon Chizema & Xiaohui Liu & Jiangyong Lu & Lan Gao, 2015. "Politically connected boards and top executive pay in Chinese listed firms," Strategic Management Journal, Wiley Blackwell, vol. 36(6), pages 890-906, June.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jocaae:v:12:y:2016:i:2:p:159-175. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/journal-of-contemporary-accounting-and-economics .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.