Exploring the Nexus between Executive Compensation and Disclosure Transparency: Evidence from Taiwan

Abstract

This study investigates the relationship between executive compensation and compensation disclosure transparency in Taiwanese firms, particularly in light of recent regulatory changes that mandate increased transparency. Employing a two-stage least squares (2SLS) regression model, the analysis focuses on the impact of executive salary and bonuses on various measures of compensation disclosure. The findings reveal a significant negative relationship between predicted executive bonuses and the Compensation Committee Quality Score (CCQ), indicating that higher bonus levels are associated with lower transparency in compensation committee disclosures. Conversely, executive salaries do not show a significant impact on compensation disclosure measures, suggesting that salary levels may not be a primary determinant of disclosure transparency in the Taiwanese context. The study contributes to the understanding of the dynamics between executive remuneration and transparency in financial reporting, highlighting the importance of executive bonuses in shaping compensation disclosure practices in Taiwan. The results have implications for policymakers, corporate executives, and shareholders, emphasizing the need to consider the structure of executive compensation packages in promoting transparency and enhancing corporate governance standards.