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How does directors’ remuneration affect SMEs’ performance?

Author

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  • Godfred Adjappong Afrifa
  • Oluseyi Oluseun Adesina

Abstract

Purpose - The purpose of this paper is to empirically explain the relationship between the remuneration levels of a sample of listed small and medium enterprise (SME) directors and firm performance. The paper also investigates whether deviations from the optimal directors’ remuneration level reduces firm performance. Design/methodology/approach - The study uses a panel data regression analysis of 802 AIM-listed SMEs over an eight-year period (2005-2012). Findings - Using a non-linear approach, the results show that an optimum director’s remuneration level is calculated by comparing the benefits and costs of director’s remuneration. Hence, the paper not only shows how directors’ remuneration level affects firm performance but it also extends the stream of knowledge by indicating how a deviation from the optimal point influences UK-listed SME performances. Moreover, the results show that the effect of directors’ remuneration on firm performance is greater during a financial crisis period. Originality/value - Compared with previous literature on directors’ remuneration, this paper focuses on AIM-listed SMEs, and the author’s finding of a concave relationship between directors’ remuneration level and performance of leads them to recommend that firms, especially SMEs, should endeavour to determine the optimal level of directors’ remuneration to maximise performance.

Suggested Citation

  • Godfred Adjappong Afrifa & Oluseyi Oluseun Adesina, 2018. "How does directors’ remuneration affect SMEs’ performance?," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 17(2), pages 238-258, May.
    • Handle: RePEc:eme:rafpps:raf-12-2016-0199
    DOI: 10.1108/RAF-12-2016-0199
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    Citations

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    Cited by:

    1. Niken Widiastutik & Mintarti Rahayu & Himmiyatul Amanah Jiwa Juwita, 2022. "Effect of remuneration and job rotation on employee performance with job satisfaction as a mediation variable," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 11(6), pages 175-183, September.
    2. Balogh, Gábor & Sipos, Norbert & Rideg, András, 2020. "A javadalmazási rendszerek hatása a magyarországi kis- és középvállalati szektorban [Relations between corporate competencies and the application of remuneration systems in Hungarys SME sector]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(12), pages 1217-1244.

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