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Directors’ Remuneration and Corporate Financial Reporting Quality: A Conceptual Discussion

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In Malaysia, companies established under the Companies Act 2016 are obliged to provide their shareholders with a formal public document known as the corporate annual report. Undoubtedly, board of directors is directly involved in corporate decisions, therefore corporate annual report which includes the financial information manifest board’s decisions. The corporate annual report represents a measure of the board of directors’ accountability for the information contained, providing details of the prospects and accomplishments of the board over the reporting period. It is the main source of information referred to by the users to obtain corporate information, in particular the financial information, for their decision making process. Essentially, the content of the corporate annual reports, including the financial report, should be of a high quality to be regarded as useful for users in meeting their information needs. This paper focuses on the corporate financial reporting quality. As regards to this concern, it is imperative to explore the factor that may motivate the board of directors to produce a high quality of financial reports. Literature had shown that providing an incentive may possibly affect performance. Hence, using the lens of agency theory, this paper conceptually discusses the possible effect of directors’ remuneration, as an incentive to the board, on the corporate financial reporting quality.
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Keywords: Agency Theory; Directors’ Remuneration; Financial Reporting Quality

Document Type: Research Article

Affiliations: Faculty of Management, Multimedia University, 63100 Cyberjaya, Selangor, Malaysia

Publication date: November 1, 2017

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