Academy of Accounting and Financial Studies Journal (Print ISSN: 1096-3685; Online ISSN: 1528-2635)


Board of Directors' Compensation Based on Evaluation Measure of Relative Accounting Performance

Author(s): Balal Abbasi, Mahdi Salehi, Mohammadreza Abdoli

 Purpose – The main objective is to examine the relationship between prediction models of the board of directors' compensation based on an evaluation measure of relative accounting performance in peer firms. The separation of ownership from management and its related problems, if compensation is not consistent with managers' actual performance, is not only not willing to increase the firm's value but also is willing to be a tool for transferring the wealth. Thus, to guarantee the rights and benefits and efficient monitoring of managers' performance, stockholders might create a controlling mechanism that grants managers compensation due to their performance.

Design/methodology/approach – This paper examines the effect of accounting measures' relative performance on board of directors' compensation for a sample population of 723 listed firms on the Tehran Stock Exchange during 1122-1122. The statistical methodology implemented for testing the research hypotheses is panel data analysis.

Findings – The results suggest a significant and positive relationship between the return on asset ratio and the compensation of the board of directors. Moreover, the board of directors' compensation is negatively associated with the return on equity. Finally, the research findings indicate that the return on asset ratio and return on equity of peer firms positively and significantly impact the compensation of the board of directors.

Originality/value – This paper examines different accounting performance measures on the board of directors' compensation, which has not been implemented in developing countries. Furthermore, previous studies mostly concentrate on CEO compensation, whereas the current study investigates the compensation of the board of directors. The implications could be efficient and useful for all developing countries.

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