Director’s remuneration and correlation on firm’s performance: A study from the Indian corporate

Abstract

Purpose

The purpose of this paper is to explore the impact of directors’ remuneration on the firm’s intrinsic and extrinsic value.

Design/methodology/approach

The paper provides a brief review of the literature on directors’ remuneration and identifies the current knowledge on the relationship between profit sharing or directors’ remuneration and the firm’s performance. In addition, correlation analysis between the directors’ compensation and various parameters measuring the firm’s performance is done.

Findings

From an investor’s viewpoint, the performance indicators indicated no significant relation of the increase in the firm’s performance with the increase in directors’ remuneration. But, from the accounting viewpoint, there exists a positive correlation between the two. Therefore, the directors’ remuneration adds to the intrinsic value of the firm, but does not contribute significantly to the extrinsic value of the firm.

Research limitations/implications

Future research could encompass a larger sample of companies. Also, a comparison could be done for the companies for periods before and after the modification of Clause 49 post-Satyam fiasco. The present study is done after a short period of the modification to the Clause 49.

Originality/value

The study provides a unique examination of remuneration of the board of directors and the firm’s performance. It studies the impact of the directors’ remuneration and its impact on firm’s performance. The study encompasses an exhaustive analysis for the emerging market, namely, India. The research studies 40 companies, which are unique from each other and explores the relation. It explores four parameters studying both the intrinsic and extrinsic values of the firm.

Citation

Aggarwal, R. and Ghosh, A. (2015), "Director’s remuneration and correlation on firm’s performance: A study from the Indian corporate", International Journal of Law and Management, Vol. 57 No. 5, pp. 373-399. https://doi.org/10.1108/IJLMA-08-2011-0006