Title: CEO compensation, firm performance, board structure and financial constraints: evidence from an emerging economy

Authors: Pankaj Chaudhary

Addresses: Department of Finance and Business Economics, University of Delhi, Benito Jaurez Marg, New Delhi – 110021, India

Abstract: This paper explores the relationship between CEO compensation and firm performance. In addition, the paper analyses board structure to understand its influence on the CEO compensation. Further, it also examines how the financial constraint affects these relationships. The paper finds that the accounting-based measures of firm performance are positively related to the contemporaneous CEO compensation. The future CEO compensation is positively associated with accounting-based and market-based measures of firm performance. It indicates that the reward of market-based performances is derived in the future by the CEOs. It is interesting to note that board independence has a negative effect on the present and future CEO compensation under a financially constrained scenario. Investors need to be especially careful in a financially constrained scenario, as the CEO with dual power can extract higher compensation at the expense of the interest of the shareholders.

Keywords: CEO compensation; ROA; ROE; board structure; financial constraint.

DOI: 10.1504/AAJFA.2024.140932

Afro-Asian Journal of Finance and Accounting, 2024 Vol.14 No.5, pp.684 - 707

Received: 08 Nov 2021
Received in revised form: 16 Sep 2022
Accepted: 05 Oct 2022
Published online: 04 Sep 2024 *

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