Internal corporate governance mechanism, family involvement in management and executive compensation of Singapore manufacturing firms

Abstract

Corporate governance mechanism is strongly related to the financial department of the corporation to facilitate resources allocation and budget management. Governance mechanism produces a strong linkage between firm performance and return on investment. This makes governance mechanism stands as a top prioritized area to avoid unnecessary breakout in the firm. There are still a lot of unresolved issues in the corporate governance mechanism that happening around the world. In general, the core areas in the governance system are the board setting and executive compensation. Recently, scholars refer to socioemotional wealth (SEW) theory to describe the implementation by the owner of a family firm that impose the policy solely for their personal objective, such as utilizing the company resource without taking into consideration the view from majority shareholders. Due to internal governance mechanism which mainly managed by the firm owners, shareholders were usually concern about the rationale of the investment and handling of corporate policy. Based on principal-principal (PP) conflict theory, it depicts that firm owners expropriate the benefit of the minority shareholder due to the reason on conflict of interest between the related parties. The problem gets worse when the firm owner holds the top management position at the same time. Furthermore, executive compensation remains as a sensitive matter that being questioned until today. The primary research objective has been drafted to tackle the aforementioned issues. Selected manufacturing companies in Singapore were chosen in this research to provide better research output. Sample size of 96 manufacturing companies had been used as the primary data source for the entire work of data analysis. The research period has been set between years 2013 to 2016. Such respective setting has been formulated to strengthen the entire research. All the significant financial data has been extracted from the Datastream database and corporate annual reports. Panel regression analysis was used to analyse and eliminate the issues of autocorrelation and heteroscedasticity. Research instruments of SPSS and Stata has been used in this research to conduct the analysis by producing the statistical output. The respective financial data has been filtered accordingly based on the prescribed requirement. Particular data was utilised in the entire research for the subsequent regression analysis to generate the statistical output. The finding shows direct family involvement is able to provide the antagonistic effect towards the negative relationship between control contestability by the non-dominant shareholders, towards the setting of executive compensation in family firms. Finally, the research output provides a decent theoretical contribution and industrial application in the area of financial management, specifically in the area of governance mechanism. Significant theoretical implications can be accessed via the impact that exerted by the protocol in the family firm that implemented by the family owners. Moreover, this research also aims to provide insights to the independent consultant regarding the compensation setting where they can leverage the research finding to apply in their routine advisory task.