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To pay or not pay: Board remuneration and insolvency risk in credit unions

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  • Unda, Luisa A.
  • Ranasinghe, Dinithi
Abstract
This study examines the effect of board of directors' pay on insolvency risk in Australian credit unions. We find that both voluntary boards and highly-paid boards are more likely to reduce insolvency risk. Board remuneration has two distinct effects on insolvency risk, depending on the size of the credit union. For small credit unions, volunteer boards are associated with less probability of insolvency risk; while for large credit unions, highly paid boards are associated with less probability of insolvency risk. Board diligence is also a significant determinant in reducing insolvency risk in the credit union setting. This study demonstrates the significance of the efficiency wage hypothesis and informs regulatory debate on voluntary boards and board remuneration, around risk oversight.

Suggested Citation

  • Unda, Luisa A. & Ranasinghe, Dinithi, 2021. "To pay or not pay: Board remuneration and insolvency risk in credit unions," Pacific-Basin Finance Journal, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:pacfin:v:66:y:2021:i:c:s0927538x17305747
    DOI: 10.1016/j.pacfin.2019.03.005
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    More about this item

    Keywords

    Board remuneration; Insolvency risk; Credit unions; Corporate governance;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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