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Board remuneration, directors’ ownership and corporate performance: the South African evidence

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  • Tesfaye T. Lemma
  • Mthokozisi Mlilo
  • Tendai Gwatidzo

Abstract

Excessive directors’ remuneration is usually cited as one of the drivers of the massive income inequality prevalent in South Africa. We draw insights from agency and board power theories to establish whether board remuneration, directors’ shareholding and the interaction between the two factors influences an entity's financial performance. Based on the examination of 1,736 company-year observations obtained from entities traded on the Johannesburg Stock Exchange, for the period 2005–2018, we find direct (no) relationship between remuneration of directors (directors’ shareholding) and an entity's financial performance. Our findings suggest that firms that provide higher, or even excessive, incentives to their directors tend to post superior financial performance; firms can employ directors’ remuneration as a governance tool to induce board effectiveness.

Suggested Citation

  • Tesfaye T. Lemma & Mthokozisi Mlilo & Tendai Gwatidzo, 2020. "Board remuneration, directors’ ownership and corporate performance: the South African evidence," International Review of Applied Economics, Taylor & Francis Journals, vol. 34(4), pages 491-511, July.
    • Handle: RePEc:taf:irapec:v:34:y:2020:i:4:p:491-511
    DOI: 10.1080/02692171.2020.1773654
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    Cited by:

    1. Ipik Permana & Haryo Bharoto, 2021. "Remuneration to improve employee performance at waled regional hospital, Cirebon regency," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 10(7), pages 163-169, October.
    2. Komath, Muhammed Aslam Chelery & Doğan, Murat & Sayılır, Özlem, 2023. "Impact of corporate governance and related controversies on the market value of banks," Research in International Business and Finance, Elsevier, vol. 65(C).
    3. Tesfaye T. Lemma & Tendai Gwatidzo & Mthokozisi Mlilo, 2023. "Gender differences in business performance: evidence from Kenya and South Africa," Small Business Economics, Springer, vol. 60(2), pages 591-614, February.
    4. Agata Wieczorek, 2022. "The transparency of remuneration policy in financial holding companies based on the example of the UniCredit Group," Journal of Banking Regulation, Palgrave Macmillan, vol. 23(2), pages 173-198, June.

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