Can Firms Create Value Through Excess Managerial Compensation? Evidence from Taiwan

This study investigates the relationship between excess managerial compensation and subsequent firm performance as well as the influence of institutional ownership on this association. Using a sample of non-financial firms listed on the Taiwan Stock Exchange, this study reveals that excess pay negatively influences subsequent performance, suggesting that providing extra compensation to top managers may exacerbate agency problems. However, the adverse effect of excess compensation on firm performance is mitigated when firms have a higher proportion of institutional ownership.