Online from: 1975
Subject Area: Accounting and Finance
Options: To add Favourites and Table of Contents Alerts please take a Emerald profile
|Title:||Outside director experience, compensation, and performance|
|Author(s):||Shin-Rong Shiah-Hou, (Department of Finance, Yuan Ze University, Chung-Li, Taiwan), Chin-Wei Cheng, (Department of Finance, Yuan Ze University, Chung-Li, Taiwan)|
|Citation:||Shin-Rong Shiah-Hou, Chin-Wei Cheng, (2012) "Outside director experience, compensation, and performance", Managerial Finance, Vol. 38 Iss: 10, pp.914 - 938|
|Keywords:||Director compensation, Director experience, Directors, Organizational performance, Outside director, Remuneration|
|Article type:||Research paper|
|DOI:||10.1108/03074351211255146 (Permanent URL)|
|Publisher:||Emerald Group Publishing Limited|
Purpose – The purpose of this paper is to explore how outside directors' experience and their compensation affect firm performance through the quality of their monitoring and advising, when traditional board structure devices do not seem to work well.
Design/methodology/approach – First, the authors use a two-way fixed effects (FE) regression model to explore the effects of outside director experience and compensation on firm performance. Second, in order to address the potential endogeneity problem of outside director compensation, the authors adopt two-stage least squares regression (2SLS).
Findings – Controlling for other potentially influential variables, it is found that outside director experience and outside director compensation have an economically positive impact on a firm's accounting and market performance. Even when taking into account the endogeneity problem of outside director compensation, outside director compensation and experience still have positive effects on firm performance, consistent with the authors' predictions.
Practical implications – It is inferred that regulators are able to ask publicly owned firms to provide outside director's experience and compensation in detail. In addition, future research should investigate the social relationships between outside directors, which also affect the functions of monitoring and advising.
Originality/value – First, this paper contributes to this area of the extant literature by simultaneously considering the direct impacts arising from the outside director's experience and compensation. Second, the paper highlights the importance of considering multiple dimensions of director's experience in assessing its effects on firm performance.
To purchase this item please login or register.
Complete and print this form to request this document from your librarian