Transparency in executive compensation and corporate governance in Brazil

Abstract

Studies regarding executive compensation are still recent in Brazil, and are predominantly focused on qualitative surveys. Usually the reason given to justify the lack of studies in this area is the absence of available data, or the level of quality and transparency when the data exist. This study analyzes the relationship between governance practices and transparency in disclosure of executive compensation data by Brazilian companies. One of the contributions of this study to existing literature is the creation of an original transparency index for executive compensation. Using the listing of ADRs in the U.S. and on the “Novo Mercado” of the Brazilian stock exchange (BM&FBovespa) as proxy variables for good governance practices, the results show that companies with ADRs tend to be more transparent regarding executive compensation. On the other hand, there is no significant relation between executive compensation transparency and listing on Novo Mercado. This conclusion makes sense, given that the U.S. law includes detailed guidelines for information on executive compensation, whereas the Novo Mercado does not contain specific rules regarding disclosure of executive compensation.