Directors' remuneration, firm's performance and corporate governance in Malaysia among distressed companies

Abstract

PurposeThe purpose of this study is to investigate the extent to which firm's performance, the structure of the board of directors and ownership determine directors' remuneration in Malaysia among distressed firms.Design/methodology/approachThe study uses publicly available data from a sample of 86 distressed firms and matched 86 non‐distressed firms for 2001 financial year.FindingsThe findings for the full sample show that directors' remuneration is not associated with firm's profitability, as measured by ROA. A negative and significant association is observed between directors' remuneration and lagged ROA. With regard to corporate governance, board independence and the extent of non‐executive directors' interests are found to have negative influence on directors' remuneration. In addition, findings also reveal directors' remuneration is positively associated with firm's growth and size. In sub‐sample analyses, a strong negative relation is observed between ROA and directors' remuneration for healthy sub‐sample.Research limitations/implicationsFuture research on this area could examine period after the adoption of the Malaysian Code by the Bursa Malaysia in 2001. Further, interviews with directors and managers about the need to link remuneration and performance could be carried out.Practical implicationsThere is a need for companies to link remuneration with performance, which this paper found to be lacking in practice.Originality/valueThe contribution of this paper is its examination of directors' remuneration among distressed firms. Findings of this paper would be useful to both regulatory bodies and practitioners.