Remuneration Committee governance and firm performance in UK financial firms

Peter Agyemang-Mintah

doi:10.21511/imfi.13(1-1).2016.05

Peter Agyemang-Mintah

Open Access

https://doi.org/10.21511/imfi.13(1-1).2016.05

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Abstract

This paper investigates the association between the Remuneration Committee (RC) on firm performance. The research uses a data span of 63 financial institutions for a period of 12 years. Ordinary Least Square (OLS) and Random Effects (RE) regression estimations are used. The ascertained empirical results indicate that the establishment of remuneration committee by the board is positively correlated to its performance, as measured by its Return on Assets (ROA), and is also statistically significant on the Market Value (MV) of the firm. Subsequent tests conducted show that presence of an RC had a positive and statistically significant correlation during the pre/post global financial crisis on the ROA of the firm. The MV measure during the pre-crisis indicates a positive and statistically significant impact, but only positive during the post-crisis. The findings are robust across econometric models that control for different types of endogeneity. The outcome indicates that the establishment of an RC by the board assisted in achieving a positive impact on the profitability of UK financial institutions

Highlights

The outcome indicates that the establishment of an Remuneration Committee (RC) by the board assisted in achieving a positive impact on the profitability of UK financial institutions
The entire outcome indicates that the establishment of an RC by the board helped to have a positive impact on the profitability of UK financial institutions
This result is in line with research by Mintah (2015), which reiterates that a positive Return on Assets (ROA) during the pre/post global financial crisis can imply that investors and shareholders have accepted the adoption of corporate governance policies by the firms

Summary

Literature review

Gregg et al (2010) studied large UK firms and found that CEO pay has a negative or weak impact on the performance of a firm Following their research, their data were split into two time periods, namely, 1983-1988 and 1989-1991. Klein (1998) used a sample of 486 US firms over the period 1992 to 1993 to examine the association between the presence of audit, remuneration, and nomination committees and financial performance, but found no statistically significant relationship. Following the above prior empirical studies, the following hypotheses are developed to help answer the research questions: H1: Ceteris paribus, there is a positive association between the Remuneration Committee on Return on Assets (ROA) as a measure of performance of financial institutions. H4: Ceteris paribus, there is a positive association between the Remuneration Committee on MV during the pre/post financial crisis period

Research method

Analysis and discussions

Findings

Conclusion