Board Compensation and Disclosure Quality: Does Ownership Really Matter in an Emerging Market?

This paper investigates the effect of disclosure quality of financial information on board compensation in various ownership structures in an emerging market called Iran. We use a unique data set from a sample of 176 Iranian listed firms over the period 2010-2016 in order to answer the following questions: is there any relationship between the use of compensation as an incentive mechanism for managers and the disclosure quality of financial information in family firms? And how do institutional ownership can affect the relationship between compensation and disclosure quality? Along with these questions, we investigate whether inside ownership has an effect on the mentioned relationship. We find that disclosure quality is not associated with board compensation in family firms. This lends support to the conjecture that managers neglect the quality of information they provide in family firms, and consequently, adjust their rewards through other ways. Our findings illustrate that there is no relationship between board compensation and disclosure quality in firms with institutional ownership, but at a ten percent error level, the correlation is positive and significant. We also find that applying inside managers is not a reward-enhancing method by which high-quality information would be divulged. The current study is almost the first one on the subject which is conducted in Iran. The results of this research seem to be a bridge between studies in this field between developing and developed countries.

Keywords: Board Compensation, Disclosure Quality, Family Ownership, Institutional Ownership, Managerial Ownership, and Iran.