Governance mechanisms, firm performance and CEO compensation: evidence from Jordan

Abstract

Purpose

This paper aims to investigate the effect of governance mechanisms and firm performance on chief executive officer (CEO) compensation in relation to the Jordanian business environment. This study also examines the moderating role of gender diversity.

Design/methodology/approach

The sample is drawn from the annual reports of 68 Jordanian firms between 2015 and 2019. This paper uses the ordinary least square regression. It also uses the generalised method of moments approach to control any endogeneity issue and analyses the data in depth. In addition, it uses a dynamic model to address concerns regarding causality in the study’s models.

Findings

The results show that governance mechanisms and firm performance have an impact on CEO compensation. Furthermore, the outcomes indicate that gender diversity significantly and positively moderates the association between firm performance and CEO compensation. These findings enhance and support agency theory in the context of Jordan.

Practical implications

The study’s results have significant implications for policymakers, shareholders, investors, academicians and the public in the developing Jordanian market. The findings also support more monitoring and inspection to prevent the occurrence of opportunistic management behaviour and ensure that CEO remuneration packages are appropriately designed.

Originality/value

This study provides a unique understanding by explaining the impact of governance and performance on CEO compensation in a developing country such as Jordan. Besides that, the current study extends prior studies in Jordan significantly.

Citation

Alfawareh, F.S., Che Johari, E.E. and Ooi, C.-A. (2023), "Governance mechanisms, firm performance and CEO compensation: evidence from Jordan", Journal of Financial Reporting and Accounting, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JFRA-01-2023-0062