Directors Compensation and Firm Value: A Critical Literature Review and Agenda

Publication Date : 01/01/2020

Author(s) :

Grace Edesiri ABUYE (Mrs.) , Joy Okhomina OSEMWENGIE.

Volume/Issue :

Volume 1

Issue 1

(01 - 2020)

Abstract :

The issue of firm value has attracted considerable attention among academic researchers in accounting and finance. Improving firm value is very crucial for the sustainability of the firm and at the same time maximization of shareholders wealth. Enhancing firm value necessitated the need and strategy of compensating directors of firms. Directors’ compensation takes form of salaries and wages, benefits in kind, bonuses, allowances and varied forms of non-financial payments. The basic idea is to reward directors according to their level of performance and motivate them to do more. Directors who are improperly compensated may not have the incentive to perform in the best interest of shareholders. Agency theory has showed that there exist problem between managers and shareholders because of the separation of ownership from control. The broad objective of this study was to investigate directors’ compensation and firm value, while the specific objective was to conceptually examine abnormal directors’ compensation on firm value. It is a library type of research. This was employed by conceptual review of literature. Secondary source of information is used and these include information obtained from text book, Journal articles publications, conferences and seminars papers. Following outcomes of various related review, this study found that abnormal directors’ compensation could have influence which is either negatively or positively related with firm value. By implication, abnormal directors’ compensation could be critical or weak influencing factor of firm value. It therefore recommended that abnormal directors’ compensation in form of share bonuses, benefits in kinds and allowances should be increased and improved whenever the firm disclose good news. Also good corporate governance mechanism in relation to directors’ compensation should be improved upon by companies in order to enhance firm value.