Family directors, independent directors, remuneration committee and executive remuneration in Malaysian listed family firms

Abstract

Purpose

The purpose of this paper is to examine the influence of family directors and independent directors on executive remuneration of listed family firms in Malaysia, and their involvement in remuneration committee on executive remuneration.

Design/methodology/approach

Fixed effect estimation is employed to examine 1,395 firm-year observations from 2010 to 2014.

Findings

Family and independent directors do not have statistically significant influence on executive remuneration. Rather, family ownership exerts a significant positive influence on executive remuneration. This study also reveals that the interaction of family CEOs with the family directors on remuneration committee exerts a significant positive influence on executive remuneration.

Research limitations/implications

The measurement of executive remuneration excludes the share options due to the non-disclosure of this information in the annual reports.

Practical implications

The findings would be useful to the policy-makers and regulators in appraising the governance measures of remuneration arrangement.

Originality/value

This study premises on the Type II agency conflict between controlling shareholders and minority shareholders. Independent directors could not mitigate the Type II agency conflict via the governance of executive remuneration. They are not the effective governance mechanism that the minority shareholders can rely on. The additional analyses provide theoretical implication that the pervasive Type II agency conflict is ameliorated when the CEOs do not have family relationships with the controlling family shareholders.

Citation

Jong, L. and Ho, P.-L. (2020), "Family directors, independent directors, remuneration committee and executive remuneration in Malaysian listed family firms", Asian Review of Accounting, Vol. 28 No. 1, pp. 24-47. https://doi.org/10.1108/ARA-04-2019-0099