Director compensation and related party transactions

Ole-Kristian Hope (), Haihao Lu () and Sasan Saiy ()
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Ole-Kristian Hope: University of Toronto
Haihao Lu: University of Waterloo
Sasan Saiy: University of Waterloo

Review of Accounting Studies, 2019, vol. 24, issue 4, No 8, 1392-1426

Abstract: Abstract This paper examines whether independent directors’ compensation is associated with related party transactions. We focus both on directors’ total compensation and their equity-based compensation. Employing hand-collected data for S&P 1500 firms, we find that independent directors’ compensation is significantly associated with related party transactions. Specifically, we find that the level of compensation is positively related to these transactions, but we do not find equity-based compensation to be associated with them. Next, we decompose the compensation measures into “market” (i.e., predicted) level and “excessive” components and find that the results are driven by the excessive components. This association between related party transactions and director compensation is moderated by corporate governance mechanisms, suggesting that the association between the two reflects a conflict of interest between insiders and shareholders.

Keywords: Related party transactions; Director compensation; Board monitoring; Corporate governance; Disclosure; Audit committees; SFAS 57; Regulation S-X (search for similar items in EconPapers)
JEL-codes: G30 G31 G32 M10 M41 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (13)

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DOI: 10.1007/s11142-019-09497-w

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