CEO Compensation, firm profitability and risk-taking: Evidence from selected non-financial listed Tunisian companies

Abstract

This paper examines the impact of CEO compensation on both firm profitability and risk-taking, from a sample of 61 Tunisian non-financial listed companies, during the period 2010-2018. For robustness, we have used three different firm profitability measures; which are the ROA, the ROE, and Tobin’s Q. Besides, we have investigated the impact of executive compensation on the firm returns volatility. Moreover, we have controlled for the sector interaction to obtain more pertinent results. Consistent with the agency theory, evidence suggests that an increase in CEO remuneration would improve the firm return on equity, but affects the firm Tobin’s Q and increases the firm's risk-taking. Moreover, findings suggest that when we control for the sector, an increase in CEO remuneration would improvThis paper examines the impact of CEO compensation on both firm profitability and risk-taking, from a sample of 61 Tunisian non-financial listed companies, during the period 2010-2018. For robustness, we have used three different firm profitability measures; which are the ROA, the ROE, and Tobin’s Q. Besides, we have investigated the impact of executive compensation on the firm returns volatility. Moreover, we have controlled for the sector interaction to obtain more pertinent results. Consistent with the agency theory, evidence suggests that an increase in CEO remuneration would improve the firm return on equity, but affects the firm Tobin’s Q and increases the firm's risk-taking. Moreover, findings suggest that when we control for the sector, an increase in CEO remuneration would improve the firm ROE, but amends the firm ROA, Tobin’s Q, and the risk-taking level. Finding would be useful for the listed Tunisian companies to develop thinking about the most effective governance practices able to ensure a more transparent executive compensation policy, reassure investors, and improve the firm stock-market value. e the firm ROE, but amends the firm ROA, Tobin’s Q, and the risk-taking level. Finding would be useful for the listed Tunisian companies to develop thinking about the most effective governance practices able to ensure a more transparent executive compensation policy, reassure investors, and improve the firm stock-market value.