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SALIM DARMADI
Indonesian Capital Market and Financial Institution Supervisory Agency (Bapepam-LK) Indonesian State College of Accounting (STAN)
Economics, Econometrics & Finance

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The Determinants of Board Compensations: Evidence from Indonesia SALIM DARMADI
The Indonesian Journal of Accounting Research Vol 14, No 2 (2011): IJAR May 2011
Publisher : The Indonesian Journal of Accounting Research

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.33312/ijar.240

Abstract

This paper examines the determinants of board compensation in a developing economy that adopts a twotier board structure system. Corporate governance structure, firm-specific characteristics, and firm performance are hypothesized as significant determinants. The sample consists of 442 firm-year observations, comprising 255 listed firms on the Indonesian Stock Exchange (IDX) in the financial years 2006 and 2007. I provide empirical evidence that profitability, firm size, and the number of board members are positively associated with the compensation level. Family-controlled firms are found to spend a higher proportion of their financial resources on compensating their board members, leading to a higher probability of agency problems in such firms. Further, this study investigates pay-performance sensitivity and reveals that changes in firm value are positively associated with changes in board compensation.
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