Exploring the Link Between Executive Compensation, Corporate Governance, and Voluntary Disclosures

A recent article published in the Journal of Applied Accounting Research by Praveen Kumar delves into the intricate relationship between executive compensation, corporate governance attributes, and voluntary disclosures. The study also examines the moderating role of audit quality in these dynamics.

Utilizing data from 90 Indian firms listed on the S&P BSE index for the period 2017-2019, the research employs a robust methodology grounded in agency and signaling theories. The analysis reveals that higher executive compensation aligns with greater transparency, reflecting a „tone from the top“ that resonates with stakeholders‘ interests. Additionally, good governance practices, such as larger board sizes and greater gender diversity, are positively correlated with increased voluntary disclosures.

Moreover, the reputation of the auditing firm, particularly the involvement of the „Big 4,“ enhances the credibility and extent of these disclosures. This indicates that a well-regarded auditor can reinforce investor confidence by mitigating information asymmetry and signaling long-term positive outlooks.

The findings underscore the importance of fair executive compensation and strong corporate governance in promoting transparency and stakeholder trust, offering valuable insights for managers and stakeholders aiming to enhance corporate disclosure practices.