Board characteristics and compensation in Brazilian listed companies

Abstract

This article suggests that larger, better-governed, and lower ownership concentration companies have less homogeneous and passive boards, but pay more to their senior managers and directors. These companies probably need better-paid professionals to cope with more complex compliance and business environments. We create two categorical variables named homogeneity (HS) and passivity (PS) scores that aggregate hand collected board member characteristics. More homogeneous and passive boards may grant larger director and senior management compensations under the managerial power hypothesis (BEBCHUK and FRIED, 2005). On the other hand, larger and value increasing companies may pay more to their senior managers (JENSEN and MURPHY, 1990). Our findings suggest that less homogeneous and passive boards grant larger compensations in univariate tests. These results, however, do not transpire in multivariate tests. More homogeneous and passive boards are more frequent in smaller and higher ownership concentration companies, with poorer corporate governance and disclosure practices. It is possible that financial disclosure practices are more important then board characteristics (LEAL and CARVALHAL-DA-SILVA, 2007). These results highlight the importance of disclosure and transparency efforts to improve investor relations and reduce the cost of capital in a high ownership concentration country.