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Board of directors' independence and executive compensation disclosure transparency: Canadian evidence

Walid Ben‐Amar (Telfer School of Management, University of Ottawa, Ottawa, Canada)
Daniel Zeghal (Telfer School of Management, University of Ottawa, Ottawa, Canada)

Journal of Applied Accounting Research

ISSN: 0967-5426

Article publication date: 31 May 2011

2338

Abstract

Purpose

This paper aims to investigate the relationship between board of directors' independence and executive compensation disclosures transparency.

Design/methodology/approach

The paper examines compensation disclosure practices of a sample of 181 firms listed on the Toronto Stock Exchange. Board independence from management is assessed through an aggregate score which takes into account the proportion of independent directors, board leadership structure (i.e. CEO is the board chairperson), and the existence and independence of board committees. A cross‐sectional regression analysis is used to examine the relationship between board independence and the extent of compensation disclosure.

Findings

The paper finds that board independence from management is positively related to the transparency of executive compensation‐related information. In addition, this study documents a positive (negative) relation between firm size, US cross‐listing, growth opportunities (leverage) and the extent of executive compensation disclosure.

Research limitations/implications

The study's results provide support to the managerial opportunism hypothesis in executive compensation. These findings highlight the importance of the board of directors as an effective governance mechanism which limits managerial rent‐seeking in the design as well as the disclosure of executive compensation practices.

Originality/value

This paper extends prior disclosure studies by examining the impact of board characteristics on the transparency of executive compensation disclosures in a principles‐based governance regime. Furthermore, executive compensation disclosure provides an interesting setting in which to examine the ability of the directors to act independently from managers in a conflict of interests situation.

Keywords

Citation

Ben‐Amar, W. and Zeghal, D. (2011), "Board of directors' independence and executive compensation disclosure transparency: Canadian evidence", Journal of Applied Accounting Research, Vol. 12 No. 1, pp. 43-60. https://doi.org/10.1108/09675421111130603

Publisher

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Emerald Group Publishing Limited

Copyright © 2011, Emerald Group Publishing Limited

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