Remuneration committee and corporate failure
Abstract
Purpose
This study aims to examine the role the structure of corporate boards plays in the failure of the firm. Specifically, it examines whether the remuneration committee is related to corporate failure in the UK.
Design/methodology/approach
The study uses 1,835 firm-year observations for 98 failed and 269 non-failed UK-listed non-financial firms between the periods of 1994 and 2011. This study used pooled cross-sectional, fixed and random effects LOGIT models to estimate whether corporate failure is related to remuneration committee in the UK.
Findings
The findings indicate that corporate failure is negatively related to the independence of the remuneration committee chairman and remuneration committee’s effectiveness but not remuneration committee’s presence, size and meetings. However, a positive and significant relationship was observed between corporate failure and remuneration committee independence.
Practical implications
The findings of the study provide support for the appropriateness of agency theory as analytical lens through which to study the efficacy of remuneration committee, especially the independence of the remuneration committee chairperson, as a board monitoring device, in the context of corporate failure.
Originality/value
The paper adds to existing literature on corporate governance by establishing the likely causes of corporate failure in the UK.
Keywords
Acknowledgements
The authors are extremely grateful to the guest editors and the two anonymous reviewers of this journal whose comments and helpful suggestions immeasurably improved this article. The authors received financial support for the research from Loughborough University.
Citation
Appiah, K.O. and Chizema, A. (2015), "Remuneration committee and corporate failure", Corporate Governance, Vol. 15 No. 5, pp. 623-640. https://doi.org/10.1108/CG-11-2014-0129
Publisher
:Emerald Group Publishing Limited
Copyright © 2015, Emerald Group Publishing Limited