Executive compensation disclosure in emerging markets with weak shareholder enforcement: A multi-level analysis

Abstract

Using a quasi-experimental approach, this study examines the effect of the mandatory disclosure of executive compensation on the performance and liquidity of firms in emerging markets with weak legal protection such as Argentina, Belgium, Brazil, Italy, and Spain. The results of the multi-level generalized linear models suggest that executive compensation disclosure positively impacts the accounting performance of firms in countries with weak legal protection. The findings also indicate that regulating such disclosure can help reduce agency problems. However, stricter executive compensation disclosure requirements do not impact market performance, as measured by the market-to-book ratio and Tobin's Q. In addition, there is a negative relationship between the regulation of executive compensation disclosure and the amount of cash retained by firms in countries with legal origins in French civil law.