CEO Duality and Compensation in the Market for Corporate Control: Evidence from Malaysia

Abstract

Corporate governance has drawn world as well as public attention and become an important issue after East Asia financial crisis in the year 1997-1998 that hit several countries in Southeast Asia. There are serious weaknesses in corporate governance practices like weak financial structure, lack of transparency and accountability and over leverage of the companies. Weak governance structure can implicates as one of the reason for excessive rewards to CEOs in spite of poor performance. The current research was conducted in order to examine CEO duality and compensation in the market for corporate control. Therefore, the purpose of this study is to examine whether one of the proxy corporate governance structure which is CEO duality is further exacerbates CEO's motivation of self-interest to engage in mergers and acquisition in order to increase their compensation. This study used various sub-samples of the firm, which are those that merge and those that have CEO duality in the regression test. The findings indicated the companies that having CEO duality (independent variable) has positive relationship with compensation scheme (dependent variable). Besides, engagement in merger and acquisition (independent variable) also has positive relationship with compensation scheme. Therefore, further regression test are conducted to examine whether the companies that engage in merger and acquisition and at the same time having CEO duality position are positively related with compensation scheme. The findings showed that there is a positive relationship between engagement in merger/acquisition and CEO duality with compensation scheme.