Directors’ remuneration in listed small and medium scale firms: does corporate governance matter?

The study examines the relationship between corporate governance mechanisms on directors’ remuneration of listed small and medium-scale firms in Malaysia. It was conducted over the period 2014 to 2017 on the 274 listed small and medium enterprises on Bursa Malaysia. Six potential corporate governance mechanisms were utilised as surrogates, including size, executive ownership, CEO duality, family relationships, independent non-executive directors on the remuneration committee, and board meetings; amount of remuneration package of all the directors was used as dependent variables. By controlling for potential endogeneity among the variables, the study estimates the data with a system-dynamic generalised method of moment. The results from this estimate reveal that five out of six corporate governance mechanisms significantly affect the directors’ remuneration among listed small and medium enterprises in Malaysia. The study concludes that CEO duality, board size, directors’ ownership, the presence of independent directors on the remuneration committee and board meetings have a significant impact on directors’ remuneration among listed small and medium enterprises in Malaysia. The study provides insights into the relevance of agency theory in the context of corporate governance research. The use of GMM as an estimator made the results from the study align closely with this theory which ordinary would have been rejected. Also, the current study fills the gap identified in the literature regarding corporate governance and directors’ remuneration among small and medium enterprises in a majority world economy.