Executive Compensation, Firm Performance and Corporate Governance: Evidence from Thai Listed Companies

Abstract

This dissertation addresses the association between executive compensation, firm performance and corporate governance in Thai listed firms. It concentrates on the relationship between corporate governance and firm performance, as well as simultaneous relationship among executive compensation, firm performance and corporate governance. These relationships have been researched around the world and reported upon in the literature, but there is limited and inconclusive evidence for how these relationships operate in Thailand. This study uses Stock Exchange of Thailand (SET) data for corporate listed firms from 2000 to 2011 to investigate and clarify the nature of these relationships in Thailand. Advanced econometric method (System GMM) is used to analyse the data. The System GMM findings on the relationship between corporate governance and firm performance show expected significant effect of board of directors' characteristics (i.e. board size, independence, meeting and CEO duality) and board subcommittees' characteristics (i.e. audit committee meeting) on performance of Thai firms, consistent with the findings of prior studies. However, ownership structures appear to have no effect on firm performance except for managerial ownership on Tobin's Q. The System GMM results on the executive compensation, firm performance and corporate governance relationships reveal a simultaneous positive significant relationship between performance and compensation, and performance and corporate governance. However, simultaneous relationship is not found between corporate governance and compensation, which shows a uni-directional significant relationship running from corporate governance to compensation. These findings from Thailand do not show significant differences from that found in previous studies in developed economies. It also confirms recommendations made by the Stock Exchange of Thailand (SET) for encouraging good corporate governance practices in Thai listed firms.The findings of this study show that the relationships between executive compensation, firm performance and corporate governance in an emerging market - Thailand - have similarities with those of developed economies, even though there is dissimilarity in the executive compensation system.