1054129
SGOXXX10.1177/21582440211054129SAGE OpenAlarussi
research-article20212021
Research Paper
Effectiveness, Efficiency and Executive
Directors’ Compensation Among Listed
Companies in Malaysia
SAGE Open
October-December 2021: 1–14
© The Author(s) 2021
https://doi.org/10.1177/21582440211054129
DOI: 10.1177/21582440211054129
journals.sagepub.com/home/sgo
Ali Saleh Ahmed Alarussi1
Abstract
This paper examines whether or not there is any relationship between executive directors’ compensation and the effectiveness
and efficiency ratios of non-financial companies in Malaysia. Two variables are used in this study as independent variables
(IVs), that is, company effectiveness ratio (return on equity) and company efficiency ratio (asset turnover); and six control
variables, that is, firm visibility, liquidity, profitability, working capital, firm net-worth, and leverage. The executive directors’
compensation is the dependent variable (DV). Data are collected from 360 observations (120 companies’ annual reports for
3 years). STATA software analysis is used to examine the collected data. The results show that company effectiveness is one
of the determinants of executive directors’ compensation but not company efficiency. Firm visibility, firm net-worth, and
profitability also have strong relationships with executive directors’ compensation. However, liquidity and leverage do not
show any significant relationship with executive directors’ compensation in Malaysian listed companies. This study focuses
on Malaysia during the period of 2012 to 2014 because Malaysia is one of the developing countries in Asia, and in 2010, the
Malaysian economy exhibited strong signs of recovery from the global financial crisis. However, the period between 2012
and 2014 was a critical period for the Malaysian economy; the Ringgit experienced depreciation and was devalued by more
than 40%, which negatively affected the Malaysian economy as a whole. In addition, this study examines new variables in the
Malaysian context, that is, firm efficiency, firm visibility, and firm net-worth.
Keywords
executive directors’ compensation, effectiveness, efficiency, Malaysia
Introduction
Of late, the continuous rise in the compensation of executive
directors has become a matter of concern for not only the
shareholders but also the stakeholders. This increasing board
compensation is attracting the interest of researchers to
investigate the factors associated with this phenomenon in
countries, such as the United States (US) (Hong et al., 2015);
the United Kingdom (UK) (McKnight & Tomkins, 1999);
Japan (Kato & Kubo, 2006); Brazil (Pinto & Leal, 2013);
Germany (Andreas et al., 2012); China (Adithipyangkul
et al., 2011); Malaysia (Amin et al., 2014); Indonesia,
Malaysia, and Thailand (Murugiah et al., 2013); and Kenya
(Ruparelia & Njuguna, 2016). Previous studies have used
different theoretical bases to explain their arguments, such as
the managerial power theory (Pinto & Leal, 2013; Winter &
Michels, 2019); tournament theory (Chen et al., 2011); and
behavioral motivation theory (Ilies & Judge, 2005; Zhao,
2011). The agency theory is the dominant theory in the studies of Adithipyangkul et al. (2011), Ruparelia and Njuguna
(2016), Kato and Kubo (2006), Amin et al. (2014), Cieślak
(2018). However, the results of these previous studies are not
consistent even for the same factors. For example, while
Gregg et al. (1993) declared that there is no association
between company performance and executive directors’
compensation, Conyon (1997), Kato and Kubo (2006), found
a significantly positive association between the two (company performance and executive compensation). Further,
Raithathaa and Komerab (2016) who utilized the data of
21,834 observations collected from 3,100 firms for the period
between 2002 and 2012, in order to examine the relationship
between executive compensation and firm performance
among Indian firms, found a positive relationship between
the two factors. These inconsistencies extend to the outcomes of similar studies in Malaysia; for instance, Ibrahim
1
Xiamen University Malaysia, Sepang, Selangor, Malaysia
Corresponding Author:
Ali Saleh Ahmed Alarussi, Xiamen University Malaysia, Sepang, 43900,
Malaysia.
Email: alisaleh@xmu.edu.my
Creative Commons CC BY: This article is distributed under the terms of the Creative Commons Attribution 4.0 License
(https://creativecommons.org/licenses/by/4.0/) which permits any use, reproduction and distribution of
the work without further permission provided the original work is attributed as specified on the SAGE and Open Access pages
(https://us.sagepub.com/en-us/nam/open-access-at-sage).
2
et al. (2005) found no association between firm performance
and board compensation, using the data of Malaysian companies between 1998 and 2001. Similar results were found
by Ghasemi and Ab Razak (2020), who analyzed the data of
267 companies between the period of 2006 to 2014, to examine the association between firm profitability (measured by
Return on Assets (ROA) and Return on Equity (ROE) and
executive directors’ compensation. The results show that
firm profitability has no relationship with executives’ remuneration. They concluded that there is a weak governance
structure among listed companies in the Malaysian market.
Hassan et al. (2003) found a weak but positive relationship
between firm performance and board compensation when
they analyzed the data of 100 companies during the period
from 1996 to 1998; while Razali et al. (2018) found a strong
and positive association between firm performance and
board compensation, when they examined the data of 120
companies. Thus, inconsistencies make generalizing the
findings across studies difficult.
Effectiveness and efficiency are subjective and depend on
evaluations. Such evaluations are based on an individual’s
knowledge, understanding, and interpretation of a specific
context. It has been argued that efficiency means doing
things right, while effectiveness means getting things done.
Based on this understanding, a manager who uses the firm’s
assets without wastage to produce more outputs (revenue), is
using the firm’s assets efficiently; while a manager who uses
shareholders’ equity to generate desired returns, is effectively using shareholders’ equity. The behavioral motivation
theory proposes that positive feedback (i.e., rewards) leads to
higher performance (Gray, 1990). Based on this theory, when
the executive directors are being paid well, they will motivate employees in the organization to increase their productivity and firm efficiency. Previous studies have examined
the impact of efficiency on different aspects, such as organizational performance, firm characteristics, capital structure,
managerial ability, etc. These studies have used different perceptions of efficiency (e.g., evaluating efficiency, economic
efficiency, profit efficiency, cost efficiency, technical efficiency, productive efficiency, etc.), and different analyses
methods of the data collected, such as data envelopment
analysis and financial analysis, in different countries around
the world, such as in the European Union (Mihaiu et al.,
2010); Turkey (Aktaş & Ünal, 2015); Czech Republic
(Řepkováa, 2015); Malaysia (Chuweni, 2019); Mohd Noor
& Siang, 2014); the US (Baik et al., 2013; Barr et al., 2002;
Greene & Segal, 2004); the UK (Rashid, 2018); Italy
(Santosuosso, 2014); and Gaganis et al. (2013). All these
researchers have examined the relationship between efficiency news and stock market performance in listed insurance firms in 52 countries. In addition, different measurements
have been used to measure the effectiveness and efficiency
of companies. For example, Khatekhate (1988) measured
efficiency as the incremental output-capital ratio (IOCR);
Trofimov et al. (2018) measured cost efficiency as the ratio
SAGE Open
of operating cost to operating income; and Alarussi and
Alhaderi (2018) measured efficiency as asset turnover ratio.
Therefore, having the same understanding of a context
(which the measurements are relative to), is fundamental
when defining effectiveness and efficiency measurements in
non-financial companies.
Moreover, most of the previous studies have focused on
developed countries and very little is known about developing countries compared to developed countries, especially
the Asian countries. Thus, due to the inconsistent results on
board compensation studies in Malaysia and lack of studies
on the impact of efficiency and effectiveness ratios in Asian
countries, this study attempts to fill this gap by examining
the relationship between efficiency and effectiveness and
executive directors’ compensation in Malaysian companies.
Malaysia is widely recognized as an emerging market. The
Malaysian economy showed strong signs of recovery from
the global economic crisis in 2010 (Datamonitor, 2010).
Malaysian firms have been showing continuous growth
amongst seven Asian developing nations (Glen et al., 2003).
This has placed Malaysian companies in a competitive environment with others, that has led to more challenges that
have to be faced. However, currently, achieving stability,
sustainability, and competitiveness are the main challenges
faced by Malaysian companies. Nonetheless, it is crucial and
necessary that companies continuously strive to be more efficient and effective in their operations. In order to achieve
this, it is important that efficiency and effectiveness are
linked to directors’ compensation as a way to successfully
achieve the companies’ goals. This is very essential for
Malaysian firms if they wish to continuously play a significant role in the emerging market.
The current study differs from previous studies in a number of aspects: first, this study sheds light on the executive
directors’ compensation and its relationship with the effectiveness and efficiency of the companies’ operations, by using
financial analysis ratios. This issue is very significant in helping stakeholders and other related parties, specifically, creditors, investors, management and shareholders, in their
decision-making process; second, this study uses the salary
base (cash remuneration) to measure executive directors’
compensation, similar to Adut et al. (2003), Leone et al.
(2006), and others. It has been found that there is a negative
relationship between salary base and earnings management
(Nelson & Rahim, 2018; Xu & Chang, 2017); therefore, this
study hopes to obtain more robust results without using earnings management practices; third, this study examines new
variables in the Malaysian context, that is, firm visibility
(number of shareholders), firm effectiveness (return on
equity) and firm net-worth (total equity); and fourth, the study
focuses on the period of devaluation of the Malaysian currency. Hence, based on the above explanation, this study
answers the following question: Is there any relationship
between effectiveness and efficiency and executive directors’
compensation in non-financial listed companies in Malaysia?
3
Alarussi
In the next section, the literature review and hypotheses
development are presented, as well as the research methodology and data collection in section 3. Section 4 provides the
results of the analysis, followed by a concluding section.
Literature Review
Previous Empirical Studies
Over the last decade, it has been argued that top management
is overpaid (Martin et al., 2019); and that the compensation
package may be designed to motivate executive directors to
work in the interest of shareholders and discourage them taking any risky activities that may negatively affect the firm’s
position or performance (Malik & Shim, 2019). Many studies
have examined the association between directors’ compensation and a number of factors. Much attention has been given
to the relationship between compensation of directors and
firm performance. For example, in the UK, some studies have
concluded a positive association between company performance and directors’ compensation (Conyon, 1997; McKnight
& Tomkins, 1999). Similar results have been found in Japan
by Kaplan (1994). Gregg et al. (1993) conducted a similar
study but the results show a weak relationship between board
of directors’ compensation and companies’ financial performance. According to Gregg et al. (1993), the link between
directors’ compensation and company performance is very
weak in the US; while Kato and Rockel (1992) found no relationship between executive directors’ compensation and
shareholders’ returns. Hong et al. (2015) reported a positive
association between corporate governance and managerial
incentives for non-financial performance. A more recent
study by Patel et al. (2018) aimed to find out whether or not
there is any relationship between shareholder dividends,
financial performance and firm size and executive compensation. By collecting data of listed companies in Pakistan, they
found that market capitalization and ROA are determinants of
executive compensation but not shareholder dividends. Kato
and Kubo (2006) examined whether or not executives’ compensation is related to performance of firms listed on the
Shanghai and Shenzhen Stock Exchanges in China. They
found a positive relationship between shareholder value,
ownership structure, and sales growth and executive directors’ compensation. However, state ownership of China’s
listed firms weakens the top managers’ compensation. Kirsten
and Du Toit (2018) found no direct relationship between
executive directors’ compensation and profitability or size in
South African companies.
In the Malaysian context, a number of studies have considered board compensation. For example, Ibrahim et al.
(2005) found no relationship between firm performance and
directors’ compensation in Malaysia. Amin et al. (2014) also
empirically examined factors that influence directors’ compensation in Malaysia. They collected data from 845 companies for 3 years (2009–2011), and found that firm size and
profitability are the determining factors of board compensation but not leverage and growth level. These results are supported by the latest study by Zandi et al. (2019), that found a
positive relationship between firm performance and CEO
compensation when the data of 96 companies in Malaysia
was examined. Talha et al. (2009) found a significant relationship between ownership structure and directors’ compensation. Chu and Song (2012) investigated the inter-relationship
between executive directors’ compensation and earnings
management and over-investment. By using the data of 196
Malaysian public listed companies, they found a positive
relationship between executive directors’ compensation and
over-investment; however, earnings management does not
explain executive directors’ compensation. Razali et al.
(2018) found a positive relationship between directors’ compensation of the consumer product firms and firm performance, after controlling for board size, Chief Executive
Officer’s (CEO) duality, firm size, firm age, and leverage.
However, the current study examines the association between
company efficiency (measured by asset turnover ratio), company effectiveness (measured by ROE), and the executive
directors’ compensation. It is argued that if the asset turnover
ratio and the ROE in a company are high, this will lead to a
greater demand by executive directors for higher compensations that will be an inducement for them to stay. Other control variables also considered in this study are firm visibility
(measured by the number of shareholders), liquidity (measured by current ratio), profitability (measured by earnings
per share (EPS) ratio), working capital (measured by the difference between current Asset and current liabilities), company net-worth (measured by total equity), and leverage
(measured by the leverage ratio).
Selection of Variables and Formulation of
Hypotheses
Company effectiveness. Effectiveness is defined as the ability
to produce the desired results (Magnus et al., 2018). The
effectiveness of a company is measured by the difference
between what the company obtained as an income and the
resources that have been used (Argandoña, 2008). In other
words, it more or less refers to the returns it makes in comparison to the resources employed. Consistent with the
agency theory, O’Reilly et al. (1988) argued that since the
executive directors are responsible for the overall performance of the organization, their rewards should be congruent
with the level of performance, and the relationship between
the directors’ compensation and firm performance is apparent. Despite the logical argument of O’Reilly et al. (1988),
many empirical studies have found mixed and inconclusive
results. The majority of the existing studies have reported a
positive relationship between performance and directors’
compensation; however, the strength of the association varies. For instance, in the US, while Abowd (1990) reported a
4
SAGE Open
weak but positive relationship between firm performance
and directors’ remuneration, Mehran (1995) reported a
strong and positive relationship. In Spain, Crespi-Cladera
and Gispert (2003) reported a strong and positive relationship between board remuneration and company performance;
they also reported that the positive association is only with
changes in performance of Spanish listed companies. In Australia, Matolcsy (2000) and Merhebi et al. (2006) reported a
significant relationship between performance and directors’
compensation; while others have reported conflicting results
(Izan et al., 1998; O’Neill & Iob, 1999). In Malaysia, Ibrahim et al. (2005), Amin et al. (2014), Razali et al. (2018),
reported mixed results. In this study, ROE is the measurement of management’s effectiveness as a firm’s management
invests its owner’s capital (Herciu et al., 2011). It includes
the earnings from invested equity capital, or alternatively,
the percentage returns to owners on their investment in the
firm (Jacek, 2010; Lesáková, 2007; Singh & Yadav, 2013). It
has been argued that higher ROE is considered as a good
achievement for executive directors, who in this case,
deserve more compensation and vice versa. Therefore, this
study examines whether or not there is a relationship between
company effectiveness and directors’ compensation. Thus,
based on this discussion, the first hypothesis is stated as
follows:
H1. There is a positive relationship between company
effectiveness ratio and executive directors’ compensation.
Company efficiency. Magnus et al. (2018) defined efficiency
as the ability to do something or produce something without
wasting materials, time or energy, that is, the quality or
degree of being efficient (technical). Efficiency in business
means to make the best use of resources to generate more
income. There is no doubt that efficiency is the key to achieving better performance. Efficiency has not typically been
used in compensation research for large publicly traded companies, but total asset turnover has been used to measure how
efficiently a firm uses its assets to get sales revenue. Shahwan and Hassan (2013) argued that the higher the profitability, the higher the efficiency in the firm and its management
team as they must have exerted sufficient effort to efficiently
manage the firm’s assets. Ang et al. (2000) argued that managers may increase the agency cost by making poor investment decisions, and/or exert insufficient effort that leads to
lower revenues due to lower efficiency in handling the firm’s
assets. Very few studies have discussed the association
between company efficiency and other variables, although
increasing the efficiency in companies has been of the greatest concern in academic studies. One of these studies is by
Kumbhakar et al. (2012), which examined the relationship
between corporate research and development (R & D) and
firm efficiency. The researchers reported a positive relationship between the two variables. Lin et al. (2009) collected
data from 461 publicly listed manufacturing companies in
China between 1999 and 2002; they examined the association between corporate governance and firm efficiency, and
found that firm efficiency is adversely associated with state
ownership and positively to public and employees’ share
ownership. They also found that board independence is positively linked to firm efficiency. In other words, corporate
governance reforms have improved firm efficiency. Based
on Gray’s (1990) behavioral motivation theory, the management has the power to motivate and demotivate a firm’s
employees, and if the executive directors are being paid well,
this will push them to encourage employees in the organization to increase their productivity and maintain higher efficiency. Farrell and Winters (2008) reported a positive
relationship between executives’ remuneration and total
asset turnover. They argued that by establishing a relationship between efficiency ratio and compensation, owners may
be able to mitigate some agency costs. In an earlier study,
Ang et al. (2000) argued that the differences in total asset
turnover among companies are due to the variations in
agency costs that result from the loss in revenues attributable
to inefficient asset utilization. This study examines the association between efficiency ratio (total assets turnover) and
executive directors’ compensation. Thus, the second hypothesis is presented as follows:
H2. There is a positive association between efficiency
ratio and executive directors’ compensation.
Control Variables
Firm visibility. Visibility shows how a firm is observed by
investors. Firm visibility has been involved in a number of
studies, such as Kadlec and McConnell (1994), Henriques
and Sadorsky (1996), Baker et al. (2002). Firm visibility has
been measured in prior studies by different measurements;
however, this study uses the number of shareholders, consistent with other study measurements, such as Baker et al.
(2002), Kadlec and McConnell (1994), Beneish and Gardner (1995). Generally, the number of shareholders has rarely
been included in academic studies although the results have
shown significant relationships with different aspects. For
example, in Japan, Amihud et al. (1999) examined the relationship between number of shareholders and stock price,
and found a positive and significant association between the
two. Mukherji et al. (1997) in the US, found a positive relationship between number of shareholders and stock splits. In
Malaysia, Alarussi et al. (2009) examined the association
between number of shareholders and the extent of internet
financial disclosure (IFD) and internet environmental disclosure (IED), and reported a significantly positive association between number of shareholders and both IFD and IED.
In relation to directors’ compensation, Dyl (1988) who studied US companies, found that the level of executive directors’ compensation is generally related to the number of
shareholders. It has been argued that as the number of
Alarussi
shareholders increases, different individuals’ interests
comes to the surface. These lead to higher agency cost
(Hope, 2013), which in turn, lead to the increased burden on
directors, who will then claim for more compensation. In
addition, as the ultimate goal of any business organization is
to increase its shareholders’ wealth, the existence of a large
number of shareholders may add more pressure on the executive directors to achieve the organization’s goals. This type
of pressure has to be compensated with higher rewards and
remuneration provided to them (Prowse, 1994). Ertimur
et al. (2011) found that shareholders are in favor of being
involved in determining the CEO’s compensation process.
Several studies have considered the number of shareholders
as a proxy for firm visibility (Faulkender & Petersen, 2006;
Kadlec & McConnell, 1994; Santos & Winton, 2006). This
study controls for firm visibility (measured by the number
of shareholders) to examine the determinants of executive
directors’ compensation.
Profitability. Many studies have tried to link directors’ compensation and profitability, but the results have been inconsistent (Bruce et al., 2005; Bussin & Blair, 2015; Bussin &
Modau, 2015; Duffhues & Kabir, 2008), which has paved the
way for more studies to investigate this relationship. The
profitability of a firm depends on the firm’s investment
opportunities. Firms can invest using total debt, equity or a
combination of debt and equity. Profitability is measured in
this paper by EPS ratio. Profitability is the top priority of any
company and Malaysian companies are not the exception.
Many studies conducted in Malaysia have used profitability
to examine its relationship with other factors, such as liquidity, firm size, capital structure, and effectiveness and efficiency of the firm’s operations (Alarussi & Alhaderi, 2018;
Narware, 2010; Ramasamy, 2005; Salim & Yadav, 2012; San
& Heng, 2011; Zaid et al., 2014). This study examines
whether or not there is a relationship between profitability
and directors’ compensation; it is expected that higher EPS is
a good achievement for the executive directors, who under
such circumstances, deserve more compensation and vice
versa.
Firm net-worth. Shareholders’ equity is defined as the balance
between total assets and total liabilities. Shareholders’ equity
is the total amount that shareholders contribute to finance a
firm’s assets. In other words, it mostly represents the firm’s
net-worth, which includes the share capital retained in the
firm, in addition to the retained earnings minus treasury shares
(Armenter & Hnatkovska, 2012). Total equity has been examined by many studies to see the impact of capital structure on
firm performance (Basit & Irwan, 2017; Amraoui et al., 2017;
Vătavu, 2015). It has been argued that the more the equity that
the executive directors manage, the higher the agency cost
(Ang et al., 2000); and the more the burden for the directors,
the higher the directors’ compensation (Bebchuk & Fried,
5
2003). This study controls this variable to examine the directors’ compensation determinants.
Working capital. Working capital refers to the balance
between short-term assets and short-term liabilities. It is a
measure of both a firm’s operational efficiency and its shortterm financial health (Sagan, 1955). Grinyer and McKiernan
(1991) argued that working capital is a major player in
explaining corporate profitability. This argument is supported by the findings of Chowdhury and Amin (2007),
Alarussi and Alhaderi (2018). Based on that, every company
should have appropriate arrangements for adequate funds to
meet the day-to-day expenditure. However, in most of the
cases, due to poor planning, working capital is often insufficient for meeting all needs or exceeds the needs (Ismail,
2017). In addition, it is not always advisable for firm owners
or entrepreneurs to mobilize funds from their personal
resources, and in this case, managers have to seek other
external resource options (Gupta & Sharma, 2003). This will
increase the burden on the executives, who will demand
more compensation equivalent to this responsibility. In addition, it has been argued that based on the agency theory, if the
working capital is large, it will lead to more conflict between
management and shareholders, which in turn, will lead to
higher agency cost (Alarussi et al., 2013; Alarussi and Selamat, 2009; Boshkoska, 2014; Hall, 1998). The more the burden on the directors, the more the compensation that is
awarded (Liu et al., 2012). In this study, working capital is a
control variable.
Liquidity. Liquidity ratio represents a firm’s ability to quickly
convert a property of asset into cash and pay off its current
financial obligations (Šarlija & Harc, 2012). Liquidity is
essential to run the business appropriately and smoothly. A
number of ratios have been used to measure liquidity, such as
current ratio, quick ratio, and cash ratio. Many studies have
also examined the relationships between liquidity and different aspects of the firm, such as stock returns (Akram, 2014);
profitability (Alarussi & Alhaderi, 2018); and capital structure (Ghasemi & Ab Razak, 2016; Šarlija & Harc, 2012).
Rarely have studies examined the relationship between
liquidity and board compensation. Mehran (1995) found a
negative relationship between liquidity and cash compensation. He argued that the firm is more likely to shift to stock
compensation if it suffers liquidity problems. In this study,
liquidity (measured by current ratio) is a control variable.
Financial leverage. Financial leverage is one of the capital
structure components which is a result of management’s
decision that balancing between cost and benefit of financial risk (Yazdanfar, 2013). A number of empirical studies
examined leverage and board compensation however,
they reported conflicting results, from a positive relationship (Bryan et al., 2000; Coles et al., 2006; Lewellen,
6
SAGE Open
Table 1. Variables’ Measurements.
No.
Variable
Dependent variable
1
Executive director’s
compensation
Explanatory variables
1
Company effectiveness
2
Company efficiency
Control variables
1
Firm visibility
2
Profitability
3
4
5
6
Company net-worth
Working capital
Liquidity
Financial leverage
Measurements
Supported studies
Total cash remunerations (salary, fees, bonuses)
Hassen (2014), Xu and Chang
(2017)
Return of Equity = Net Income/Shareholder’s Equity
De Wet and Du Toit (2007),
Herciu et al. (2011)
Alarussi and Alhaderi (2018)
Asset Turnover ratio = Net Sales/Average Total Asset
No of shareholders
Earnings Per Share (EPS) = Net Income-preferred
dividends/ weighted average common shares outstanding
Total shareholders’ Equity
Working capital = Current asset − Current liability
Current Ratio = Current asset/Current liability
Total Debt ratio = Total liability/Total asset
2006); to a negative relationship (Berger et al., 1997;
Wiwattanakantang, 1999). Dahiya et al. (2018) tried to
explain these conflicting relationships; they argued that
the relationship between leverage and fixed-compensation
is positive in companies with low idiosyncratic uncertainty, as the CEOs are rewarded with more stock shares
to motivate them to exert more effort, as firms with low
risk can get more low cost credit supply from banks. However, the increased stock shares can discourage the CEOs
from borrowing because they are concerned with the
increased default loss associated with their stockholding.
In this way, the shareholders in the companies with low
uncertainty would also pay more fixed pay, to make the
CEOs less risk-averse and borrow more low cost debt
from the lenders. This study considers leverage as a control variable to examine the executive directors’ compensation determinants.
Data Collection and Model
Specifications
Data Description
This study focuses on Malaysia as the Malaysian economy is
ranked the sixth largest in Southeast Asia (International
Monetary Fund, 2020). The data is secondary data based on
360 observations extracted from the annual reports of 120
non-financial companies on Bursa Malaysia (www.bursamalaysia.com) for the period of 3 years from 2012 to 2014. This
period is selected because it was a critical period for Malaysia;
in 2013, the gross domestic product (GDP) growth rate
declined to 4.7% from 5.5% in 2012, which is the lowest since
the global financial crises in 2008. In addition, the inflation
rate also increased to 3.1% in 2014 from 1.7% in 2012, and the
unemployment rate increased to 3.3% in 2013 from 2.9% in
2012 (International Monetary Fund, 2018). All these affected
Baker et al. (2002)
Awad (2015), Alarussi et al. (2009)
Armenter and Hnatkovska (2012)
Sagan (1955), Alarussi (2021)
Doina and Mircea (2008).
Wiwattanakantang (1999)
the value of the currency (Ringgit), and therefore, negatively
affected the economic situation for the whole of Malaysia. The
study examines the most important elements that theoretically
play a role in determining the executive directors’ compensation, as have commonly been utilized in previous studies. In
this study, cash remuneration (short-term remuneration) is
used to measure the executive directors’ compensation, which
excludes the long-term remuneration (executive stocks/share
options; pension contributions, etc.). This study uses this measurement because a negative relationship between monetary
remuneration and earnings management has been found (Xu
& Chang, 2017), therefore allowing us to get robust results
without the influence of earnings management. The variables
and their measurements used in this study are listed in Table 1.
Pooled ordinary least squares (OLS) regression was utilized to examine the data and get the results. The model of
the study that describes the executive directors’ compensation is as follows:
EXDCOM=α +β1ROE+βOEASTRNRTO
+S3NOSHR+β4EPS++β5TOTEQU+β6
WRCAPT+R7CURRITO+β8LEVRTO+ε.
where:
the dependent variable is Executive Directors’ Compensation
(EXDCOM); α and β1–β2 are coefficients; Return on Equity
(ROE) and Asset Turnover Ratio (ASTRNRTO) are explanatory variables; Number of Shareholders (NOSHR), Earnings
per Share (EPS), Total Equity (TOTEQU), Working Capital
(WRCAPT), Current Ratio (CURRITO), and Leverage Ratio
(LEVRTO) are control variables; and ε is the residual error
term.
Table 2 displays the descriptive statistics of the sample. The
mean (median) of absolute value for EXDCOM is 4549669
(1599033); the Table shows there is a variance amongst the
7
Alarussi
Table 2. Descriptive Statistics.
Variable
EXDCOM
ROE
ASTRNRTO
NOSHR
EPS
TOTEQU
WRCAPT
CURRITO
LEVRTO
Median
Mean
Minimum
Maximum
1,599,033
6.64
0.5726904
3,857
8.305
2.52e+08
1.01e+08
1.858931
0.3894299
4,549,669
6.733361
0.6826701
7644.631
12.51217
1.95e+09
4.60e+08
3.368575
0.4734264
88,788
−40.3
0.0078316
506
−128.61
13.1e+06
−1.13e+10
−2.204296
0.0054159
SD
1.55e+08
66.32
3.863519
62,483
145.3
5.31e+10
2.24e+10
64.15189
13.14801
1.47e+07
12.60104
0.5502576
10065.35
26.22051
6.01e+09
2.47e+09
6.557546
0.81939
Table 3. Correlation between DV and IVs.
Variable
EXDCOM
ROE
ASTRNRTO
NOSHR
EPS
TOTEQU
CURRITO
WRCAPT
LEVRTO
EXDCOM
ROE
ASTRNRTO
NOSHR
EPS
TOTEQU
CURRITO
WRCAPT
LEVRTO
1.0000
.1401***
.0503**
.4048***
.2426***
.7093***
−.0256
.6917***
−.0216
1.0000
.2772***
−.0338
.6069***
.0999***
−.0409**
.0818**
−.0777**
1.0000
−.2444***
.1180***
−.1264***
−.1667***
−.0436**
.0385**
1.0000
.1068***
.5178***
−.0464**
.2547***
−.0121
1.0000
.3940***
−.0453**
.2951***
−.2149***
1.0000
−.0374**
.7494***
−.0060
1.0000
.0203
−.1481***
1.0000
−.0408**
1.0000
**,*** Significant in less than 5%, and 1%, respectively.
executives’ compensations in the selected Malaysian companies; the maximum amount is RM 155,900,000, and the minimum is RM 88,788 during the 3 years (2012–2014).
ASTRNRTO is 0.6826701 (0.5726904); ROE is 6.733361
(6.64); and NOSHR varies between 506 to 62483 shareholders, with the mean (median) at 7645 (3857). In addition, EPS
is 12.61772 (8.305); however, the minimum value is negative
RM 128.61, which shows the loss of companies during the
years of study (2012–2014), which is a very high loss. In terms
of TOTEQU, the maximum amount is RM 53,058,700,000,
the minimum is RM 13,184,912, and the mean (median) is
1.95 (2.52). The mean (median) of CURRITO is 3.368575
(1.858931); for WRCAPT, the maximum amount is RM
22,414,800,000, the minimum amount is −11,287,002,000
and the mean (median) is 4.60 (1.01); and, lastly, the mean
(median) of LEVRTO is 0.4734264 (0.3894299).
Table 3 displays the independent variables (IVs) and
dependent variable (DV) correlations. It shows ROE,
ASTRNRTO, NOSHR, EPS, TOTEQU, and WRCAPT, are
positively and significantly correlated to EXDCOM.
However, CURRITO and LEVRTO are negatively but not
significantly related to EXDCOM. These results are similar
to the studies of Jacek (2010), Farrell and Winters (2008),
Ertimur et al. (2011), Bebchuk and Fried (2003), Liu et al.
(2012), Mehran (1995), and Berger et al. (1997). For any
econometric problem related to serial correlation, multicollinearity and heteroscedasticity, it can be noticed that within
the IVs, TOTEQU and WRCAPT show the maximum correlation is 0.7494, but it is less than 9. However, this is very
important to treat before going further for regression analysis. Based on recommendations of researchers, individual
heterogeneity and multicollinearity should be controlled in
empirical analysis that uses panel data (Kyereboah-Coleman,
2007). Myers (1990) stated that if the value of the variance
inflation factor (VIF) is greater than 10, it is a concern.
However, the VIF values in this study are well below 10 at
1.83. Consequently, multicollinearity is not a problematic
issue or concern in this study. The Breush-Pagan/CookWeiberg test was used to test homoscedasticity (the test
results are displayed in Table 4). After ensuring that the data
and model are free from any analytical problems, pooled
OLS regression was utilized to examine and analyze the
data. Pooled OLS regression is broadly applied and recommended for panel studies since it produces unbiased and
steady estimates of parameters regardless of time-constant
attributes (Zariyawati et al., 2009; Zhang, 2013). Furthermore,
pooled OLS regression is preferred for data that does not
have dummy variables, which is the case in this study.
Additionally, besides the results of pooled OLS regression,
this study presents the results of random-effects model and
fixed-effects model in order to ensure the robustness of the
results.
Table 4 displays the outcomes of pooled OLS regression
regarding the significant determining factors. Table 4 also
8
SAGE Open
Table 4. The Analysis of PLS, REM and FEM between DV and IVs.
PLS
Variable
ROE
ASTRNRTO
NOSHR
EPS
TOTEQU
CURRITO
WRCAPT
LEVRTO
Cons
F (8, 351)
Prob > F
R2
Adj-R2
N
Main VIF
Heteroskedasticity test
Breusch-Pagan
Cook-Weisberg
Expected sign
+
+
+
+
+
+
+
+
Random-effect model
Fixed-effect t-Statistics
Model
coefficient
t-Statistics
Model
coefficient
t-Statistics
175490.4
549696.8
185.8142
−78664.1
.0009482
−30354.01
.0023721
−407806.1
87364.13
3.32***
0.55
3.00***
−2.85***
6.05***
−0.38
7.45***
−0.63
0.08
130284.9
632650.8
151.6911
−49191.01
.00112
−45858.77
.0011873
−17108.51
113220.8
2.53**
0.42
1.55
−1.74*
5.45***
−0.39
2.78***
−0.03
0.07
129768.2
2,292,061
94.73994
−86302.01
.0014566
−14804.82
.0027413
−400119.2
9,556,951
F(8,232)
2.25**
0.80
0.33
−2.43**
3.04***
−0.07
3.98***
−0.71
2.91***
3.91
0.0000
overall
0.5741
overall
0.5232
62.75
0.0000
0.5885
0.5791
360
1.83
Model
coefficient
t-Statistics
χ2(1) = 1586.31
Prob > χ2 = 0.1833
*, **,*** Significant in less than 10%, 5%, and 1%, respectively.
presents the outcomes of the random-effects model and
fixed-effects model. Interestingly, the results are almost similar between the two models as well as with the pooled OLS
model, except that NOSHR is insignificantly related to
EXDCOM. According to Lazăr (2016), the main advantage
of using the fixed-effects estimator is that it can minimize
endogeneity by controlling firm characteristics which are not
observable or measurable, but are likely to be correlated with
regression. Table 4 also shows the relationship between the
efficiency and effectiveness ratios (IVs) and executives’
compensation (DV). The results show ROE has a positive
and significant relationship with EXDCOM; the coefficient
is 175490 at the 1% significance level, thus showing a strong
relationship. However, ASTRNRTO does not show any significant relationship with EXDCOM. NOSHR has a significantly positive relationship with EXDCOM (as the coefficient
is 185.8 and significant at the 1% level). This result shows the
importance of the number of shareholders to executive directors in Malaysian companies. In other words, as the firm’s
visibility expands, the amount of compensation increases,
which reflects the agency problem.
Another control variable that shows a strong and positive
relationship with EXDCOM is TOTEQU; the coefficient is
.0009482 at the 1% significance level. Another factor that
also shows a significant relationship to executive directors’
compensation is WRCAPT; the coefficient is 0.0023721
with a significance level of 1%. However, the result shows
there is no significant relationship between CURRITO and
EXDCOM. Surprisingly, EPS has a significant but negative
association (which is contrary to expectations) with
EXDCOM; the coefficient is 78664 at the 1% significance
level. The R2 is .5885 and the Adj-R2 is .5791, which are very
good in explaining the executives’ compensation.
Discussion of Results
This study focuses on whether or not there is any relationship
between company effectiveness and efficiency and the executive directors’ compensation in Malaysian listed companies.
Firm visibility, liquidity, profitability, working capital, company net-worth, and Financial leverage are the control variables. The results of the analysis are elaborated as follows:
Independent Variables
Company effectiveness. This study examines whether or not
there is a relationship between company effectiveness and
directors’ compensation. It is expected that higher ROE is
considered as a good achievement for executive directors,
who in this case, deserve more compensation and vice versa.
It is an estimate of the earnings of invested equity capital, or
alternatively, the percentage return to owners on their investment in the firm (Jacek, 2010; Lesáková, 2007; Singh &
Yadav, 2013). The results show ROE has a positive relationship with EXDCOM. The coefficient of 175490 at the 1%
significance level, shows this strong relationship. The result
may indicate that due to economic difficulties during that
period, directors who were well paid were inclined to please
9
Alarussi
the firm’s shareholders by reducing firm’s expenditure so
that they can get higher ROE. The result also confirms that if
ROE is higher, it leads to higher EXDCOM. Similar results
were found by Sigler (2011), De Wet (2012), Amin et al.
(2014). Hence, the first hypothesis is accepted.
words, executive directors may give more consideration to
increasing shareholders’ wealth and not be overly concerned
with EPS percentage. These results are consistent with previous studies, such as Nulla (2013), Sheikh and Khursheed
(2016).
Company efficiency. ASTRNRTO was used to measure firm
efficiency, but the result is contrary to expectations. There is
no significant relationship between ASTRNRTO and EXDCOM. The reason behind this result may be that executives
give more consideration to increasing the shareholders’
wealth (Doucouliagos et al., 2007), and not to efficiently utilizing the available assets to generate revenue. The result
may also indicate that due to the economic turbulence during
that period, it was so hard for executives to increase companies’ sales and consequently maintain higher efficiency rate.
Similar results have been found by scholars (e.g., Jensen &
Murphy, 1990). Hence, the second hypothesis is not accepted.
Total equity. Total equity is a proxy for firm net-worth, which
includes the share capital retained in the company in addition
to the retained earnings minus the treasury shares The finding of the current study displays a significant and positive
association between TOTEQU (firm net-worth measurement) and EXDCOM. The coefficient t-value = 0.0009482
and p < .001, indicate this positive and significant association. The results confirm that in companies with a large
equity amount, the agency problem between shareholders
and management increases, in turn, increasing the agency
cost (Ang et al., 2000). This situation adds more burden on
directors’ shoulders, resulting in their requesting higher compensation for their efforts. A similar result was found by Bebchuk and Fried (2003).
Control Variables
Firm visibility. It is known that as the firm expands its business
and becomes more reputable and known by the people and
investors, the pressure on the executive directors becomes
more onerous. In other words, as the number of shareholders in
a company increases, it leads to more agency costs. This leads
to more pressure on the executive directors. To alleviate this
burden, they request more compensation. The result of the current study shows a significantly positive correlation between
number of shareholders (as a measurement for firm visibility)
and executive directors’ compensation. The coefficient
t-value = 185.8 and p < .001, indicating this positive and significant relationship. However, the random-effects and fixedeffects models show a positive but insignificant correlation
between firm visibility (number of shareholders) and executive
directors’ compensation. Overall, this outcome supports the
conclusion that when the visibility of the firm increases, and
the firm gets more shareholders, executive directors will
request more compensation as both the responsibilities and
agency cost increase. This result supports the agency theory.
Company liquidity. In the case of company liquidity, the findings are unexpected; a positive connection between liquidity
and EXDCOM was predicted but the result shows a negative
but not significant relationship between CURRITO and
EXDCOM. The interpretation of this result is that liquidity
ratio may have a direct impact on company performance but
not on executive directors’ compensation. Similar results
were reported by Mehran (1995).
Profitability. Profitability means the ability of a company to
reward its shareholders with high returns on their investment.
Companies want to achieve steady profit and must have hardworking directors who can identify potential business opportunities to increase profit. This means executive directors
must spend more time and exert more efforts to achieve this
goal, which is definitely related to executive directors’ compensation. In this study, EPS was used to measure profitability. The results show a significant but negative relationship
between EPS and EXDCOM in Malaysian listed companies;
the coefficient t-value = −78664.1 and p < .001, which indicate this relationship between them. This result supports the
significantly positive relationship between company effectiveness ratio and executive directors’ compensation. In other
Financial leverage. Table 4 revealed a negative and insignificant association between LEVRTO (financial leverage measurement) and EXDCOM (executive directors’ compensation
measurement). This result may be explained that during the
period of Ringgit devaluation, the managements’ concern is
to satisfy companies’ shareholders regardless whether or not
using financial leverage. Similar findings reported by Sun
and Cahan (2009).
Working capital. Working capital is a very important factor
that can play a role in board compensation. The results of the
current study present a positive and significant correlation
between WRCAPT and EXDCOM as the coefficient
t-value = 0023721 and p < .001. The logical reason behind
this correlation may be that more amount of working capital
(whether debt or equity) leads to more executive directors’
compensation as directors are dealing with more financial
resources, and therefore, more responsibilities. Similar
results were found by Liu et al. (2012).
Conclusion, Limitations and
Applications
This study empirically examines whether or not there is a
relationship between company effectiveness and company
10
SAGE Open
efficiency and executive directors’ compensation in
Malaysian listed companies. Six control variables are
included in this study, namely, firm visibility (measured by
number of shareholders), liquidity (current ratio), profitability (earnings per share), working capital, firm net-worth
(total equity), and leverage. Data of 120 listed firms for the
year 2012 to 2014 were extracted from their financial reports.
The results of pooled OLS regression are supported by the
results of random-effects model and fixed-effects model. The
results show that company effectiveness is one of the determinants of executive directors’ compensation but not company efficiency. In other words, well-paid directors are
willing to please the firm’s shareholders by increasing the
returns on their equity. Firm visibility, firm net-worth and
profitability also have strong relationships with executive
directors’ compensation. However, liquidity and leverage do
not show any significant relationship with executive directors’ compensation in Malaysian companies. The study uses
both agency and behavioral motivation theories. Like any
other study, this study has limitations. The database is not so
large and is limited to 120 companies. Also, the period of
3 years which is considered as a short period. Nevertheless,
the outcomes of this study benefit regulators and management. They can be aware of the determinants that affected
executive director’s compensation in the companies during
the devaluation of the Malaysian currency. The outcomes
may help other parties, such as external users, to make the
right decisions. In addition, the current study provides empirical proof that supports the agency theory. Lastly, future
studies may consider more factors and longer periods or conduct a comparative study between different countries to find
out whether board compensation has similar determinants in
different business environments.
Declaration of Conflicting Interests
The author declared no potential conflicts of interest with respect to
the research, authorship, and/or publication of this article.
Funding
The author received no financial support for the research, authorship, and/or publication of this article.
ORCID iD
Ali Saleh Ahmed Alarussi
https://orcid.org/0000-0002-8871-6497
References
Abowd, J. M. (1990). Does performance-based managerial compensation affect corporate performance? Industrial and Labor
Relations Review, 43, 52S–573.
Adithipyangkul, P., Alon, I., & Zhang, T. (2011). Executive perks:
Compensation and corporate performance in China. Asia
Pacific Journal of Management, 28(2), 401–425. https://doi.
org/10.1007/s10490-009-9162-3
Adut, D., Cready, W. H., & Lopez, T. J. (2003). Restructuring
charges and CEO cash compensation: A re-examination. The
Accounting Review, 78(1), 169–192.
Akram, N. (2014). The effect of liquidity on stock returns: An evidence from Pakistan. IOSR Journal of Business and Management,
16(2), 66–69. https://doi.org/10.9790/487x-16216669
Aktaş, R., & Ünal, S. (2015). The relationship between financial
efficiency ratios and stock prices: An empirical investigation
On insurance companies listed in Borsa Istanbul. Journal of
Financial Studies & Research, 7(12), 1–16.
Alarussi, A.S.A. (2021), Financial ratios and efficiency in
Malaysian listed companies. Asian Journal of Economics and
Banking, 5(2), 116–135.
Alarussi, A. S. A., Hanefah, M. M., & Selamat, M. H. (2013).
The association between environmental disclosure and financial disclosure on the internet by Malaysian listed companies.
International Journal of Critical Accounting, 5(2), 156–172.
Alarussi, A. S., & Selamat, M. H. (2009). Dominant personalities
in board committees, company characteristics, and internet
environmental disclosure by Malaysian Listed Companies.
Malaysian Management Journal, 13(1 and 2), 51–67.
Alarussi, A. S., & Alhaderi, S. M. (2018). Factors affecting profitability in Malaysia. Journal of Economic Studies, 45(3),
442–458.
Alarussi, A. S., Hanefah, M. M., & Selamat, M. H. (2009). Internet
financial and environmental disclosures by Malaysian companies. Issues in Social and Environmental Accounting, 3(1),
3–25.
Amihud, Y., Mendelson, H., & Uno, J. (1999). Number of shareholders and stock prices: Evidence from Japan. The Journal of
Finance, 54(3), 1169–1184.
Amin, J. M., Kamarudin, K. A., & Ismail, W. A. W. (2014). “What
determines directors’ remuneration in Malaysia?” In F. Lumban
Gaol, S. Kadry, M. Taylor, & P. Shen Li (Eds.), Recent trends
in social and behavioral science (pp. 49–473). Taylor & Francis
Group.
Amraoui, M., Jianmu, Y., Havidz, S. A. H., & Ali, H. (2017).
The impact of capital structure on Firms performance in
Morocco. International Journal of Application or Innovation
in Engineering and Management, 6(10), 11–16.
Andreas, J. M., Rapp, M. S., & Wolff, M. (2012). Determinants
of director compensation in two-tier systems: Evidence from
German panel data. Review of Managerial Science, 6(1),
33–79.
Ang, J. S., Cole, R. A., & Lin, J. W. (2000). Agency costs and ownership structure. The Journal of Finance, 55, 81–106.
Argandoña, A. (2008, 30 June–2 July). Consistency in decision making in companies [Paper presented to the Workshop
“Humanizing the Firm and the Management Profession]. IESE.
Armenter, R., & Hnatkovska, V. (2012, August). The macroeconomics of firms’ saving. Working Paper.
Awad, B. (2015). Determinants of dividend policy in Kuwait stock
exchange. International Journal of Business and Management
Review, 3(7), 72–78.
Baik, B., Chae, J., Choi, S., & Farber, D. B. (2013). Changes in
operational efficiency and firm performance: A Frontier analysis approach. Contemporary Accounting Research, 30(3),
996–1026.
Baker, H. K., Nofsinger, J. R., & Weaver, D. G. (2002).
International cross-listing and visibility. Journal of Financial
and Quantitative Analysis, 37, 495–521.
Barr, R. S., Killgo, K. A., Siems, T. F., & Zimmel, S. (2002).
Evaluating the productive efficiency and performance of U.S.
Commercial banks. Managerial Finance, 28(8), 3–25.
Alarussi
Basit, A., & Irwan, N. F. (2017). The impact of capital structure on
firm’s performance: Evidence from Malaysian industrial sector- a case based approach. International Journal of Accounting
and Business Management, 5(2), 131–148.
Bebchuk, L. A., & Fried, J. M. (2003). Executive compensation as
an agency problem. Journal of Economic Perspectives, 17(3),
71–92.
Beneish, M. D., & Gardner, J. C. (1995). Information costs and
liquidity effects from changes in the Dow Jones industrial average list. Journal of Financial and Quantitative Analysis, 30,
135–157.
Berger, P. G., Ofek, E., & Yermack, D. L. (1997). Managerial
entrenchment and capital structure decisions. The Journal of
Finance, 52(4), 1411–1438.
Boshkoska, M. (2014). The agency problem: Measures for its overcoming. International Journal of Business and Management,
10(1), 204–209.
Bruce, A., Buck, T., & Main, B. G. M. (2005). Top executive
remuneration: A view from Europe*. Journal of Management
Studies, 42(7), 1493–1506.
Bryan, S., Hwang, L., & Lilien, S. (2000). CEO stock-based compensation: An empirical analysis of incentive-intensity, relative mix, and economic determinants. Journal of Business, 73,
661–693.
Bussin, M., & Blair, C. (2015). Financial indicators of company
performance in different industries that affect CEO remuneration in South Africa. Journal of Economic and Management
Sciences, 18(4), 534–550. https://doi.org/10.4102/sajems.
v18i4.1249
Bussin, M., & Modau, M. F. (2015). The relationship between chief
executive officer remuneration and financial performance in
South Africa between 2006 and 2012. SA Journal of Human
Resource Management, 13(1), 1–18.
Chen, J., Ezzamel, M., & Cai, Z. (2011). Managerial power theory,
tournament theory, and executive pay in China. Journal of
Corporate Finance, 17(4), 1176–1199.
Chowdhury, A., & Amin, M. M. (2007). Working capital management practiced in pharmaceutical companies listed in Dhaka
stock exchange. BRAC University Journal, 4(2), 75–86.
Chu, E. Y., & Song, S. I. (2012). Executive compensation, earnings
management and over investment in Malaysia. Asian Academy
of Management Journal of Accounting and Finance, 8(Supp.
1), 13–37.
Chuweni, N. N. (2019). Measuring technical efficiency of
Malaysian real estate investment trusts: A data envelopment analysis approach. Journal of the Malaysian institute of
Planners, 17, 319–327.
Cieślak, K. (2018). Agency conflicts, executive compensation regulations and CEO pay-performance sensitivity: Evidence from
Sweden. Journal of Management & Governance, 22, 535–563.
https://doi.org/10.1007/s10997-018-9410-3
Coles, J., Daniel, N., & Naveen, L. (2006). Managerial incentives
and risk-taking☆. Journal of Financial Economics, 79(2),
431–468.
Conyon, M. J. (1997). Corporate governance and executive compensation. International Journal of Industrial Organization,
15(4), 493–509.
Crespi-Cladera, R., & Gispert, C. (2003). Total board compensation, governance and performance of Spanish listed companies.
Labour, 17(1), 103–126.
11
Dahiya, S., Ge, L., & Gete, P. (2018). A model of managerial compensation, firm leverage and credit stimulus. Georgetown
McDonough School of Business Research Paper No. 3083563.
http://dx.doi.org/10.2139/ssrn.3083563
Datamonitor. (2010). Malaysia: Country analysis report – in-depth
PESTLE insights. Author.
De Wet, J. H., & Du Toit, E. (2007). Return on equity: A popular,
but flawed measure of corporate financial performance. South
Africa Journal of Business Management, 38(1), 59–69.
De Wet, J. H. (2012). Executive compensation and the EVA
and MVA performance of South African listed companies.
Southern African Business Review, 16(3), 57–80.
Doina, P., & Mircea, M. (2008). Analysis of a company’s liquidity
based on its financial statements. Annals of the University of
Oradea, Economic Science Series, 17(3), 1366–1371.
Doucouliagos, H., Haman, J., & Askary, S. (2007). Directors’ remuneration and performance in Australian banking. Corporate
Governance: An International Review, 15, 1363–1383. https://
doi.org/10.1111/j.1467-8683.2007.00651.x
Duffhues, P., & Kabir, R. (2008). Is the pay–performance relationship always positive?. Journal of Multinational Financial
Management, 18(1), 45–60.
Dyl, E. A. (1988). Corporate control and management compensation: Evidence on the agency problem. Managerial and
Decision Economics, 9(1), 21–25. https://doi.org/10.1002/
mde.4090090102
Ertimur, Y., Ferri, F., & Muslu, V. (2011). Shareholder activism
and CEO pay. Review of Financial Studies, 24(2), 535–592.
Farrell, K. A., & Winters, D. B. (2008). An analysis of executive compensation in small businesses. The Journal of
Entrepreneurial Finance, 12(3), 121.
Faulkender, M. A., & Petersen. (2006). Does the source of capital affect capital structure? Review of Financial Studies, 19,
45–79.
Gaganis, C., Hasan, I., & Pasiouras, F. (2013). Efficiency and stock
returns: Evidence from the insurance industry. Journal of
Productivity Analysis, 1(40), 429–442.
Ghasemi, M., & Ab Razak, N. H. (2020). What determines executives’ remuneration in Malaysia? Asian Journal of Accounting
and Governance, 13, 27–39. https://doi.org/10.17576/AJAG2020-13-03
Ghasemi, M., & Ab Razak, N. H. (2016). The impact of liquidity
on the capital structure: Evidence from Malaysia. International
Journal of Economics and Finance, 8(10), 130. https://doi.
org/10.5539/ijef.v8n10p130
Glen, J., Lee, K., & Singh, A. (2003). Corporate profitability and
the dynamics of competition in emerging markets: A time
series analysis. The Economic Journal, 113(491), F465–F484.
Gray, J. A. (1990). Brain systems that mediate both emotion and
cognition. Cognition & Emotion, 4, 269–288.
Greene, W. H., & Segal, D. (2004). Profitability and efficiency
in the U.S. Life insurance industry. Journal of Productivity
Analysis, 21, 229–247.
Gregg, P., Machin, S., & Symanski, S. (1993). The disappearing
relationship between directors pay and corporate performance.
British Journal of Industrial Relations, 31(1), 1–10.
Grinyer, P. H., & McKiernan, P. (1991). The determinants of
corporate profitability in the UK electrical engineering
industry. British Journal of Management, 2(1), 17–32.
https://doi.org/10.1111/j.1467-8551.1991.tb00012.x
12
Gupta, S., & Sharma, P. (2003). Financing of working capital in
the food processing industry in India. Business Analyst, 24(2),
15–33.
Hall, J. (1998). The agency problem, agency cost and proposed solutions thereto: South African perspective. Meditari Accountancy
Research, 61998, 145–161.
Hassan, S., Theo, C., & Evans, R. (2003). Directors’ remuneration and
firm performance: Malaysian evidence. Malaysian Accounting
Review, 2(1), 57–67. http://ir.uitm.edu.my/id/eprint/13689
Hassen, R. B. (2014). Executive compensation and earning management. International Journal of Accounting and Financial
Reporting, 4(1), 84–105.
Henriques, I., & Sadorsky, P. (1996). The determinants of an environmentally responsive firm: An empirical approach. Journal of
Environmental Economics and Management, 30(3), 381–395.
Herciu, M., Ogrean, C., & Belascu, L. (2011). A Du Pont analysis
of the 20 most profitable companies in the world. International
Conference on Business and Economics Research, 1(3), 45–48.
Hong, B., Li, Z., & Minor, D. (2015). Corporate governance and
executive compensation for corporate social responsibility.
Journal of Business Ethics, 1(1), 1–15.
Hope, O. (2013). Large shareholders and accounting research.
China Journal of Accounting Research, 6, 3–20.
Ibrahim, M. K., Ibrahim, N., Wan-Ismail, W. A., & Kamarudin, K.
A. (2005). Determinants of directors’ remuneration: Malaysian
evidence 1998-2001. Social and Management Research Journal,
2(1), 48–60.
Ilies, R., & Judge, T. A. (2005). Goal regulation across time: The
effects of feedback and affect. Journal of Applied Psychology,
90(3), 453–467.
International Monetary Fund. (2018). World economic outlook.
International Monetary Fund.
International Monetary Fund. (2020). World economic outlook.
International Monetary Fund.
Ismail, R. (2017). Working capital – An effective business management tool. The International Journal of Social Sciences and
Humanities Invention, 6(3), 12–23.
Izan, Y., Sidhu, B., & Taylor, S. (1998). Does CEO pay reflect performance? Some Australian evidence. Corporate Governance,
6(1), 39–47.
Jacek, K. (2010). Financial efficiency in agriculture: The
essence, measurement and perspectives. Economics of Polish
Agriculture, 1, 56–75.
Jensen, M. C., & Murphy, K. J. (1990). CEO incentives: It’s not
how much you pay, but how. Michael C. Jensen, Foundations
of organizatinal strategy, Harvard University Press, 1998;
Harvard Business Review, 3(May–June), 1990. https://ssrn.
com/abstract=146148 or http://dx.doi.org/10.2139/ssrn.146148
Kadlec, G. B., & McConnell, J. J. (1994). The effect of market
segmentation and illiquidity on asset prices: Evidence from
exchange listings. The Journal of Finance, 49, 611–636.
Kaplan, S. (1994). Top executive rewards and firm performance: A
comparison of Japan and the United States. Journal of Political
Economy, 102(3), 510–546.
Kato, T., & Kubo, K. (2006). CEO compensation and firm performance in Japan: Evidence from new panel data on individual CEO pay. Journal of the Japanese and International
Economies, 20(1), 1–19.
Kato, T., & Rockel, M. (1992). Experiences, credentials, and
compensation in the Japanese and U.S. Managerial labor
SAGE Open
markets: Evidence from new micro data. Journal of the
Japanese and International Economies, 6(1), 30–51.
Khatekhate, D. R. (1988). Assessing the impact of interest rates in
less developed countries. World Development, 16(5), 577–588.
Kirsten, E., & Du Toit, E. (2018). The relationship between remuneration and financial performance for companies listed on
the Johannesburg Stock Exchange. South African Journal of
Economic and Management Sciences, 21, 1–10.
Kumbhakar, S. C., Ortega-Argilés, R., Potters, L., Vivarelli, M., &
Voigt, P. (2012). Corporate R&D and firm efficiency: Evidence
from Europe’s top R&D investors. Journal of Productivity
Analysis, 37, 125–140. https://doi.org/10.1007/s11123-011-0223-5
Kyereboah-Coleman, A. (2007). The impact of capital structure on
the performance of microfinance institutions. The Journal of
Risk Finance, 8(1), 56–71.
Lazăr, S. (2016). Determinants of firm performance: Evidence from
Romanian listed companies. Review of Economic and Business
Studies, 9(1), 53–69.
Leone, A. J., Wu, J. S., & Zimmerman, J. L. (2006). Asymmetric
sensitivity of CEO cash compensation to stock returns. Journal
of Accounting and Economics, 42, 167–192.
Lesáková, L. (2007, June 1–2). Uses and limitations of profitability ratio analysis in managerial practice. 5th International
Conference on Management, Enterprise and Benchmarking,
Budapest.
Lewellen, K. (2006). Financing decisions when managers are risk
averse. Journal of Financial Economics, 82(3), 551–589.
Lin, C., Yue, M., & Dongwei, S. (2009). Corporate governance and
firm efficiency: Evidence from China’s publicly listed firms.
Managerial and Decision Economics, 30(3), 193–209. https://
doi.org/10.1002/mde.1447
Liu, N., Wang, L., Zhang, M., & Zhang, W. (2012). Government
intervention and executive compensation contracts of stateowned enterprises: Empirical evidence from China. Journal of
Chinese Economic and Business Studies, 10(4), 391–411.
Malik, M., & Shim, E. D. (2019). An empirical examination of
economic determinants of financial CEO compensation: A
comparative study on pre-and post-financial crisis periods. In
L. L. Burne & M. A. Malina (Eds.), Advances in management
accounting (pp. 23–53). Emerald Publishing Limited.
Magnus, W., Wnuk, K., Silvander, J., & Gorschek, T. (2018). A
literature review on the effectiveness and efficiency of business modeling. E-Informatica Software Engineering Journal,
12(1), 265–302.
Martin, G. P., Wiseman, R. M., & Gomez-Mejia, L. R. (2019). The
ethical dimension of equity incentives: A behavioral agency
examination of executive compensation and pension funding.
Journal of Business Ethics, 166, 595–610.
Matolcsy, Z. P. (2000). Executive cash compensation and corporate
performance during different economic cycles. Contemporary
Accounting Research, 17(4), 6671–6692.
McKnight, P. J., & Tomkins, C. (1999). Top executive pay in the
United Kingdom: A corporate governance dilemma. International
Journal of the Economics of Business, 6(2), 223–243.
Mehran, H. (1995). Executive compensation structure, ownership,
and firm performance. Journal of Financial Economics, 38(2),
163–184.
Merhebi, R., Pattenden, K., Swan, P. L., & Zhou, X. (2006).
Australian chief executive officer remuneration: Pay and performance. Accounting and Finance, 46, 481–497.
Alarussi
Mihaiu, D. M., Opreana, A., & Cristescu, M. P. (2010). Efficiency,
effectiveness and performance of the public sector. Romanian
Journal of Economic Forecastin, 4, 132–147.
Mohd Noor, Z., & Siang, L. C., (2014). Technical efficiency of
Malaysian manufacturing small and medium enterprises. prosiding perkem, 9, 676–688.
Mukherji, S., Kim, Y. H., & Walker, M. C. (1997). The effects of
stock splits on the ownership structure of firms. Journal of
Corporate Finance, 3(2), 167–188.
Murugiah, L., Hayati, N., & Saha, A. (2013). Determinants of compensation of the Board of directors in banks of the Growth
Triangle countries (Indonesia, Malaysia and Thailand): Fresh
evidence. International Journal of Arts and Sciences, 6(3),
703–711.
Myers, R. (1990). Classical and modern regression with applications (2nd ed.). Duxbury.
Narware, P. C. (2010). Working capital management: The effect of
market valuation and profitability in Malaysia. International
Journal of Business and Management, 5(11), 140–147.
Nelson, S. P., & Rahim, S. A. (2018). Directors’ influence on
pay-based performance. Asian Journal of Accounting and
Governance, 9, 11–25.
Nulla, Y. M. (2013). The effect of earnings Per share and cash flow
Per share on CEO cash compensation: An empirical study
of TSX/Sand P and NYSE indexes companies. Review of
Contemporary Business Research, 2(1), 20–29.
O’Neill, G. L., & Iob, M. (1999). Determinants of executive
remuneration in Australian organizations: An exploratory
study. Asia Pacific Journal of Human Resources, 37(1),
65–75.
O’Reilly, C. A., Main, B. G. M., & Crystal, G. S. (1988). CEO
compensation as tournament and social comparison: A tale of
two theories. Administrative Science Quarterly, 33, 257–274.
https://doi.org/10.1111/j.1467-6486.2005.00553.x
Patel, M. A., Shamsi, A. F., & Asim, M. (2018). Chief executive
compensation part and parcel of the agency problem: Empirical
evidence from Pakistan. Asia-Pacific Management Accounting
Journal, 13(1), 153–165.
Pinto, M. B., & Leal, R. P. C. (2013). Ownership concentration, top
management and board compensation. Revista de Administração
Contemporânea, 17(3), 304–324. https://doi.org/10.1590/S141565552013000300004
Prowse, S. (1994). Corporate governance in an international perspective: A survey of corporate control mechanisms among
large firms in the United States, the United Kingdom, Japan and
Germany (BIS Economic Papers no. 41). Bank for International
Settlements Publishing.
Raithathaa, M., & Komerab, S. (2016). Executive compensation
and firm performance: Evidence from Indian firms. IIMB
Management Review, 28(3), 160–169.
Ramasamy, B. (2005). Firm size, ownership and performance in the
Malaysian palm oil industry. Asian Academy of Management
Journal of Accounting and Finance, 1, 81–104.
Rashid, C. A. (2018). Efficiency of financial ratios analysis for
evaluating companies’ liquidity. International Journal of
Social Sciences and Educational Studies, 4(4), 110–123.
Razali, M. W. M., Yee, N. S., Hwang, J., Tak, Y. T. J., & Kadri,
A. H. N., (2018). Directors’ remuneration and firm’s performance: A study on Malaysian listed firm under consumer
13
product industry. International Business Research, 11(5),
102–109.
Řepkováa, I. (2015). Banking efficiency determinants in the Czech
banking sector. Procedia Economics and Finance, 23, 191–196.
Ruparelia, R., & Njuguna, A. (2016). The evolution of corporate governance and consequent domestication in Kenya. International
Journal of Business and Social Science, 7(5), 153.
Sagan, J. (1955). Toward a theory of working capital management.
The Journal of Finance, 1(2), 9–121.
Salim, M., & Yadav, R. (2012). Capital structure and firm performance: Evidence from Malaysian listed companies. Procedia
– Social and Behavioral Sciences, 65, 156–166.
San, T. O., & Heng, B. T. (2011). Capital structure and corporate
performance of Malaysian construction sector. International
Journal of Humanities and Social Science, 1(2), 28–36.
Santos, J. A. C., & Winton, A. (2006). Bank loans, bonds, and
information monopolies across the business cycle. The Journal
of Finance, 5(3), 1315–1330.
Santosuosso, P. (2014). Do efficiency ratios help investors to
explore firm performances? Evidence from Italian listed firms.
International Business Research, 7(12), 111–119.
Šarlija, N., & Harc, M. (2012). The impact of liquidity on the capital structure: a case study of Croatian firms. Business Systems
Research, 3(1), 30–36.
Shahwan, T. M., & Hassan, Y. M. (2013). Efficiency analysis
of UAE banks using data envelopment analysis. Journal of
Economic and Administrative Sciences, 29(1), 4–20.
Sheikh, D. N., & Khursheed, A. (2016). Impact of CEO and executive compensation on performance of takaful: Evidence from
Pakistan. Pakistan Journal of Islamic Research, 17, 103–109.
Sigler, K. J. (2011). CEO compensation and company performance.
Business and Economics Journal, 31, 1–8.
Singh, J., & Yadav, P. (2013). Return on capital employed: A tool
for analyzing profitability of companies. International Journal
of Techno-Management Research, 1(1), 1–13.
Sun, J., & Cahan, S. (2009). The effect of compensation committee quality on the association between CEO cash compensation and accounting performance. Corporate Governance: An
International Review, 17(2), 193–207. http://scholar.uwindsor.
ca/odettepub/35
Talha, M., Abdullah, S., Salim, A., & Masoud, S. (2009). A study
on directors’ remuneration and board committee in Malaysia.
Journal of Modern Accounting and Auditing, 5(1), 34–44.
Trofimov, I., Md Aris, N., & Kho Ying, J. (2018). Determinants of
commercial banks’ profitability in Malaysia. Management and
Economics Review, 3, 85–101.
Vătavu, S. (2015). The impact of capital structure on financial performance in Romanian listed companies. Procedia Economics
and Finance, 32, 1314–1322.
Winter, S., & Michels, P. (2019). The managerial power approach: Is
it testable? Journal of Management & Governance, 23, 637–668.
https://doi.org/10.1007/s10997-018-9434-8
Wiwattanakantang, Y. (1999). An empirical study on the determinants of the capital structure of Thai firms. Pacific-Basin
Finance Journal, 7, 371–403.
Xu, Y. J., & Chang, Y. X. (2017). Executive compensation and
real earnings management: Perspective of managerial power.
International Journal of Advances in Management and
Economics, 6(2), 19–37.
14
Yazdanfar, D. (2013). Profitability determinants among micro
firms: Evidence from Swedish data. International Journal of
Managerial Finance, 9(2), 151–160.
Zaid, N. A. M., Ibrahim, W. M. F. W., & Zulqernain, N. S. (2014,
February 17–18). The determinants of profitability: Evidence
from Malaysian construction companies. Proceedings of 5th
Asia-Pacific Business Research Conference, Kuala Lumpur.
Zandi, G., Mohamad, S., Keong, O. C., & Ehsanullah, S. (2019).
CEO compensation and firm performance. International
Journal of Innovation, Creativity and Change, 7(7), 316–327.
SAGE Open
Zariyawati, M. A., Annuar, M. N., Taufiq, H., & Rahim, A. S. A.
(2009). “Working capital management and corporate performance: case of Malaysia”. Journal of Modern Accounting and
Auditing, 5(11), 47–54.
Zhang, L. (2013). The impact of ownership structure on capital
structure: Evidence from listed firms in China. University of
Twente.
Zhao, B. (2011). Learning from errors: The role of context, emotion, and personality. Journal of Organizational Behavior,
32(3), 435–463. https://doi.org/10.1002/job.696