Do Directors’ Compensation, Education and Experience affect Firm Financial Performance? An Evidence from the Textile Industry of Pakistan

Abstract

Most of the prior literature has focused on the structure, independence, and gender diversity of the board. Therefore, this study aims to examine the effect of some rarely investigated characteristics of the board like compensation, education, and experience of the directors on firm financial performance measured by ROA and ROE. To estimate the hypothesized relationships, the study employed Panel Corrected Standard Errors (PCSEs) to a data collected from the annual reports of 30 Textile firms listed on the Pakistan Stock Exchange (PSX) from 2012 to 2016. The estimation revealed that the compensation and education of the directors are significant positive predictors of ROA and ROE. However, the experience of the directors has an insignificant positive relationship with ROA and ROE. The study contributes to the literature as the concept of the managerial labor market is new in Pakistan and yet to be fully scrutinized. Besides, the study also guides policy and action, especially in a developing country like Pakistan where these board characteristics have recently been addressed in the Corporate Governance (CG) code.

 

      Keywords: corporate governance, compensation, education and experience of directors on the board, firm financial performance