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.

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Additional Information

ISSN
1548-2278
Print ISSN
0022-037X
Pages
pp. 225-237
Launched on MUSE
2015-06-21
Open Access
No
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