CEO Compensation and Firms Performance: An Empirical Investigation of India Panel Data

Abstract: Diversification is not a new phenomenon in emerging economies like India. However, in the contemporary environment, it has become more important for a firm to go for intensive market research and take a calculated risk before diversifying, to sustain itself in the competitive market scenario. Several corporate failures in the Indian market have given reason to think about the structure of corporate governance in focussed and diversified firms. Hence the link between the firm’s corporate governance mechanisms and the value of diversification is yet to be established in the Indian context. The level of CEO compensation in diversified firms is greater than focused firms (Martinez and Alvarez, 2019), but the gap still exists in the Indian context, that whether sensitivity to CEO pay does increase firm market performance (Utami and Kusuma, 2019) which also required to study. This paper presents the results of the empirical analysis on the relationship between CEO compensation, firm’s performance, and agency costs in focussed and diversified firms listed in BSE 500. Keywords: Corporate governance, BSE 500, CEO, Compensation, Panel data, diversification, performance. JEL Classification Number: G34, L2