Loose risk management mechanisms of corporate governance of Greek firms; rewards to board from earnings that are not based on performance incentive plans

摘要

Following the Greek commercial law, a number of listed firms in the Athens Stock Exchange (ASE) offer to members of the board of directors tax-free annual remuneration from distributed earnings. Rewards from the earnings might exist even if the firms do not have explicit bonus plans and, therefore, this type of compensation looks similar to a hybrid between bonus and standard annual salary. Moreover, given that the final approval in the granting of this remuneration is taken in annual shareholder meetings, one can regard rewards to board from the earnings as a loose mechanism of motivation. Using a sample of 696 firm-year observations for the period 1993-2002, we provide evidence consistent with the argument that either shareholders view this type of compensation as a bonus rather as expense per se or that the board signals information to the shareholders. Moreover, we provide evidence in favour of the higher quality of earnings for firm-year observations, in which the board is rewarded from earnings. This suggests that this loose mechanism of motivation can work as well as long-term incentive plans.