Do institutional framework and its threshold matter in the sensitivity of CEO pay to firm performance? Fresh insights from an emerging market economy

This study examines the role of institutional quality and its threshold in the sensitivity of CEO pay to firm performance in an emerging market economy, using a generalized method of moments, Driscoll and Kraay's nonparametric covariance matrix estimator, and robust dynamic panel threshold. Bur...

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Published in:Managerial and decision economics 2022-12, Vol.43 (8), p.3386-3403
Main Authors: Olaniyi, Clement Olalekan, Young, Ademola Obafemi, Vo, Xuan Vinh, Al‐Faryan, Mamdouh Abdulaziz Saleh
Format: Article
Language:English
Subjects:
Bureaucracy
Chief executives
Compensation
Corruption
Emerging markets
Law enforcement
Organizational performance
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description This study examines the role of institutional quality and its threshold in the sensitivity of CEO pay to firm performance in an emerging market economy, using a generalized method of moments, Driscoll and Kraay's nonparametric covariance matrix estimator, and robust dynamic panel threshold. Bureaucratic quality and corruption control weaken performance‐based pay for CEOs, while law and order strengthen it. The overall institutions allow boardroom backscratching which biases executive compensation contracts. The study shows that the country operates below the institutional quality threshold values required to spur performance‐based pay for CEOs. The study concludes that institutions matter in CEO pay‐firm performance nexus.
doi_str_mv 10.1002/mde.3603
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source EBSCOhost Business Source Ultimate; International Bibliography of the Social Sciences (IBSS); Wiley
subjects Bureaucracy
Chief executives
Compensation
Corruption
Emerging markets
Law enforcement
Organizational performance
title Do institutional framework and its threshold matter in the sensitivity of CEO pay to firm performance? Fresh insights from an emerging market economy
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