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Director compensation and related party transactions

  • Ole-Kristian HopeEmail author
  • Haihao Lu
  • Sasan Saiy
Article
  • 64 Downloads

Abstract

This paper examines whether independent directors’ compensation is associated with related party transactions. We focus both on directors’ total compensation and their equity-based compensation. Employing hand-collected data for S&P 1500 firms, we find that independent directors’ compensation is significantly associated with related party transactions. Specifically, we find that the level of compensation is positively related to these transactions, but we do not find equity-based compensation to be associated with them. Next, we decompose the compensation measures into “market” (i.e., predicted) level and “excessive” components and find that the results are driven by the excessive components. This association between related party transactions and director compensation is moderated by corporate governance mechanisms, suggesting that the association between the two reflects a conflict of interest between insiders and shareholders.

Keywords

Related party transactions Director compensation Board monitoring Corporate governance Disclosure Audit committees SFAS 57 Regulation S-X 

JEL classification

G30 G31 G32 M10 M41 

Notes

Acknowledgements

We appreciate valuable comments from Russel Lundholm (the Editor), an anonymous reviewer, Gus De Franco, Mark Kohlbeck, Shibin Tang, Baohua Xin, Ping Zhang, and seminar participants at the Rotman School of Management, the EAA conference, AAA conference, CFEA conference, and the CAAA conference. Hope gratefully acknowledges funding from the Deloitte Professorship.

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Rotman School of ManagementUniversity of TorontoTorontoCanada
  2. 2.BI Norwegian Business SchoolOsloNorway
  3. 3.School of Accounting and FinanceUniversity of WaterlooWaterlooCanada

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