Lim Boon-Leong (Tunku Abdul Rahman · University College) · Foong Swee-Sim ·International Journal of Economics and Management ·2020 ·JEL: G32, G34
We examine whether managerial ability is an essential factor that determine CEO remuneration, and as means in resolving both Type I and Type II agency conflicts. Our sample is based on Malaysian family listed companies over 2009-2015, and our results show that, apart from being a crucial determinant of professional CEO remuneration, managerial ability also plays an important role in enhancing the pay-performance sensitivity of outsider manager of Malaysian family firms. Our results also show that the positive association between managerial ability and remuneration of family CEO only helps to mitigate the risk of Type II agency conflict. This agency risk is further heightened by the existence of a significant negative effect of managerial ability on CEO payperformance sensitivity in firms which appoint family CEO as board chairman; and firms with CEO who serves on the remuneration committee. These results are robust to alternative measures of firm performance as well as tests of endogeneity