Voluntary disclosure, excess executive compensation, and firm value

This study refines and extends Anglo-American research exploring excess executive compensation and its effects on firm value using data from Taiwan, a country in which the board members and executives of a firm often have friendly relations with one another. We find that excess executive compensatio...

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Bibliographic Details
Published in:Journal of corporate finance (Amsterdam, Netherlands) Netherlands), 2015-06, Vol.32, p.64-90
Main Authors: Chung, Huimin, Judge, William Q., Li, Yi-Hua
Format: Article
Language:English
Subjects:
Agency conflict
Compensation
Corporate governance
Disclosure
Executive compensation
Information asymmetry
Studies
Value chain
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Summary:This study refines and extends Anglo-American research exploring excess executive compensation and its effects on firm value using data from Taiwan, a country in which the board members and executives of a firm often have friendly relations with one another. We find that excess executive compensation is negatively related to firm value but that voluntary disclosure practices moderate this relationship. Specifically, our results indicate that excess executive compensation has a positive effect on firm value when firms disclose comprehensive information voluntarily and that this effect is more pronounced in group-affiliated firms. Moreover, firms that provide comprehensive voluntary disclosure appear to alleviate agency problems more efficiently when their controlling shareholders have higher private benefit incentives or when these firms have higher quality corporate governance. •We investigate the impact of disclosure on pay-for-performance relationship.•We find a negative relationship between excess executive compensation and firm value.•Disclosure mitigates the negative effect caused by a firm with a friendly board.•Voluntary disclosure improves monitoring deficiencies of a board under group firms.•Voluntary disclosure policy enhances governance quality in emerging markets.
ISSN:0929-1199
1872-6313
DOI:10.1016/j.jcorpfin.2015.04.001