• KDI Journal of Economic Policy
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• 제38권3호
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• pp.17-35
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• 2016

In many advanced countries, most outside directors are executives, active or retired, at other firms; in other words, executives from other companies make executive compensation decisions. This situation may hinder the board of directors (BOD) in their efforts to optimize executive compensation levels objectively. Using a panel data analysis of the S&P 1500 companies, we provide supplemental evidence of whether, and to what extent, the concurrent executive employment of outside directors distorts the executive pay decisions at a given company. An unbiased fixed-effect estimation confirms that a $1.00 increase in CEO pay at outside directors' primary companies results in an approximate increase of $0.22 in CEO pay at the given company. From a policy perspective, this added agency problem - caused by the BOD and not by management - is noted as difficult to control; although a firm may establish board independence, the inherent concurrent employment of directors on a board continues to exist.

• 아태비즈니스연구
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• 제12권3호
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• pp.213-233
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• 2021

Purpose - Our study examines the determinant factors of corporate financial fraud and whether the characteristics of outside directors tend to decrease the fraud in China. Design/methodology/approach - The data come from the enforcement actions of the Chinese Securities Regulatory Commission (CSRC). The multiple regression analysis were hired in order to analyze the data. Findings - Firms that have smaller size, higher debt ratio, or lower return of assets are associated with the incidence of fraud. However, the firms that have a high proportion of outside directors on the board or whose outside directors have a high compensation are less likely to engage in fraud. Our results show that outside directors monitor the actions of managers and thus help deter fraudulent acts. On the other hand, fraud is more associated with the local outside directors rather than outside directors who are from other locations. Since local outside directors tend to be more related with managers of firms, they can lose their independence. Research implications or Originality - Our findings have implications for the design of appropriate outside directors systems for China-listed firms. Moreover, our results imply that recruiting outside directors from other regions can improve the expertise and independence of outside directors in China. Our study contributes to provide more useful information about investors' investment decisions or management oversight and regulators' decisions on audit activities by disclosing information relating to the characteristics of outside directors.