It Pays to Be an Executive in Malaysia

Zahiruddin Ghazali and Fauziah Md. Taib ()
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Fauziah Md. Taib: School of Economics, Finance and Banking, Universiti Utara Malaysia

Journal of Developing Areas, 2015, vol. 49, issue 5, 225-237

Abstract: Malaysian corporate sector is characterized by an insider system of corporate governance and induced the alignment problems between majority shareholders and the minority group. This paper investigates if there is an evidence of moral hazard behaviour being practiced in the executive remuneration decision. A match pair methodology is employed to isolate the effect of ESOS adoption from the usual motivations when deciding executive remunerations. Results suggest that while the amount of remuneration is directly linked to size of firms suggesting efficient and rational decision rather than on performance (profitability). The moral hazard behaviour is more evident when firms reward their executives even more in times of lower profitability or more losses over a longer period. The practice is more apparent among family owned firms not adopting ESOS. Though there is evidence of weak monitoring by government, it is not enough to ward off the insider pressures for personal gains.

Keywords: Corporate Governance; Executive Remuneration; Employee Shares Option Scheme and Interest Alignment (search for similar items in EconPapers)
JEL-codes: G32 G39 J33 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:jda:journl:vol.49:year:2015:issue5:pp:225-237

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