Firm Valuations and Board Compensation: Evidence from Alternative Banking Models

The Enron debacle and the Global Crossing bankruptcy have raised particular concerns of investors about the effectiveness of directors' scrutiny and their compensations. This study, therefore, examines whether the board of directors' compensation schemes affect stock market valuations for banks within an international context. We employ a sample of 386 bank-year observations from 2010 to 2015. Our results show that for the whole sample, director compensation has a significant positive impact on stock market valuations. By conditioning our analyses on the bank type, we find that the positive effect of the board of directors' compensation on market valuations holds only for conventional banks, with no evidence for their Islamic counterparts. We, additionally, examine the stock market valuations of Shari'ah supervisory board's compensation on Islamic banks value. Results show investors positively price information related to such board compensation.