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Simultaneous relationship between performance and executive compensation of Thai non-financial firms

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  • Wonlop Buachoom

Abstract

Purpose - The purpose of this paper is to determine the two-direction relationship between financial firm performance and executive compensation in Thai listed companies; that is, effect of firm performance on executive compensation and the effect of executive compensation on subsequent firm performance. In investigating the relationship, governance, firm-specific and human capital characteristics, which should influence on the pay-performance system, are also considered. This study helps to shape an understanding of the effectiveness of the incentive system in the Thai context. Design/methodology/approach - The System GMM, with concern about the endogeneity problem of the simultaneous relationship, is applied to examine the relationship between firm performance and executive compensation. The samples to investigate this relationship composed of 5,139 firm-years observations for 15 years from the years 2000 to 2014 of 432 non-financial firms in the Thai stock market. Findings - The empirical evidence reveals simultaneous relationship between performance and executive compensation in Thai stock market. It shows that compensation of executives in Thai firms corresponds to firm performance, and compensation of executives leads to an improvement in subsequent performance of Thai listed firms. Moreover, some corporate governance mechanisms and human capital of executives also revealed their particular effects on setting of the pay for performance system in Thailand. Originality/value - This study confirms that the pay for performance system is applicable in Thailand. Furthermore, the empirical results of this study highlight effects of some governance and human capital characteristics on setting of the pay-performance system. Thus, this study should be a part of the growing body of literature in this area.

Suggested Citation

  • Wonlop Buachoom, 2017. "Simultaneous relationship between performance and executive compensation of Thai non-financial firms," Asian Review of Accounting, Emerald Group Publishing Limited, vol. 25(3), pages 404-423, September.
    • Handle: RePEc:eme:arapps:ara-02-2016-0020
    DOI: 10.1108/ARA-02-2016-0020
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    Citations

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    Cited by:

    1. Omar Farooque & Wonlop Buachoom & Nam Hoang, 2019. "Interactive effects of executive compensation, firm performance and corporate governance: Evidence from an Asian market," Asia Pacific Journal of Management, Springer, vol. 36(4), pages 1111-1164, December.
    2. Clement Olalekan Olaniyi & Olaolu Richard Olayeni, 2020. "A new perspective into the relationship between CEO pay and firm performance: evidence from Nigeria’s listed firms," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 22(2), pages 250-277, December.
    3. Malek Hamed Alshirah & Faraj Salman Alfawareh & Ahmad Farhan Alshira’h & Ghaith Al-Eitan & Tareq Bani-Khalid & Moh’d Alsqour, 2022. "Do Corporate Governance and Gender Diversity Matter in Firm Performance (ROE)? Empirical Evidence from Jordan," Economies, MDPI, vol. 10(4), pages 1-21, April.
    4. Idris Idris & Khofifatu Rohmah Adi & Budi Eko Soetjipto & Achmad Sani Supriyanto, 2020. "The mediating role of job satisfaction on compensation, work environment, and employee performance: Evidence from Indonesia," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 8(2), pages 735-750, December.

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