Board Compensation and Future Financial Distress with Emphasis on Firm Life Cycle Stages

Document Type : Research Paper

Authors

1 Assistant Professor of Accounting, Bu-Ali Sina University

2 M.Sc. in Accounting, Department of Accounting, Faculty of Economics and Social Sciences, Bu-Ali Sina University, Hamadan, Iran

Abstract

Abstract

This study aims to examine the relationship between the compensation of the board of directors and future financial distress, taking into account the moderating influence of life cycle stages. The research analyzed data from 174 companies listed on the Tehran Stock Exchange between 2012 and 2023, totaling 2088 firm-year observations. Multiple regression analysis was conducted using a static panel approach with a least squares estimator as the primary approach and a dynamic panel approach with generalized methods of moments estimator as the complementary method. The study results indicate a significant and positive association between the board of director's compensation in the current year and the likelihood of financial distress in the coming year. Additionally, the research showed that life cycle stages (introduction, growth, and decline) significantly moderate the relationship between the board of director's compensation and the probability of financial distress in the subsequent years. However, this relationship is not statistically significant in the maturity stage. The findings of the complementary method also confirmed the results of the primary approach. Overall, the study contributes to life cycle theory and financial bankruptcy literature. Based on the findings, it is recommended that the compensation contract of the board of directors be adjusted according to the optimal contract theory to reduce the financial distress of distressed companies.

Keywords

Main Subjects

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Journal of Accounting Advances
Volume 16, Issue 2
February 2024
Pages 67-102

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History

  • Receive Date: 13 May 2024
  • Revise Date: 02 January 2025
  • Accept Date: 29 January 2025

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