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Keywords:

  • Rewarding failure;
  • Board of directors and supervisors;
  • Compensation;
  • Performance;
  • Volatility

Abstract

The compensation of boards of directors and supervisors is higher in firms with lower earnings, than that of boards of directors and supervisors in corresponding industries with higher earnings. Using firm-level panel data of Taiwan Stock Exchange listed firms over the period 1999–2008, this study investigates the reasons for this phenomenon of rewarding failure. The result provides evidence that rewarding failure is due to an asymmetric reward scheme and human capital retention, and it encourages the board to make aggressive decisions.