Compensate or monitor executives?
DOI:
https://doi.org/10.18593/race.20740Keywords:
Agency’s Theory, Monitoring, CompensationAbstract
The literature predicts two main ways to mitigate agency conflicts arising from the separation of control and ownership, but does not indicate which would be most appropriate. Thus, the present study sought to identify the efficiency of corporate governance mechanisms, when it comes to executive compensation (explicit and implicit incentives) and monitoring (board of directors, in resolving agency conflicts between the chief executives and shareholders of Brazilian publicly traded companies. Methodologically, dynamic multiple linear regression models, estimated by the Systemic Generalized Moments Method (GMM-Sys), were applied to an unbalanced data panel for 42 companies, from 1999 to 2016. It was identified that monitoring is the most appropriate method efficient to mitigate agency issues, in which directors are active agents in the process of verifying executive actions, positively affecting performance. This study puts to the test the prerogative that the board of directors is “figurative” in Brazil, performing significantly in monitoring.
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