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

DOI:	https://doi.org/10.1016/j.pacfin.2019.03.005
URL:	https://www.sciencedirect.com/science/article/pii/...
Document Type:	Article
Year of publication:	2021
The title of a journal, publication series:	Pacific-Basin Finance Journal
Volume:	66
Issue number:	Article 101128
Page range:	101-128
Place of publication:	Amsterdam [u.a.]
Publishing house:	Elsevier
ISSN:	0927-538X , 0927-538X
Publication language:	English
Institution:	Business School > ABWL u. Corporate Finance (Maug 2006-)
Subject:	330 Economics
Classification:	JEL: G21 , G32 , G34,
Keywords (English):	board remuneration , director remuneration , insolvency risk , credit unions , corporate governance
Abstract:	This study examines the effect of directors' pay on insolvency risk in member-owned organisations, such as credit unions. This research uses a unique setting of Australian credit unions, where a significant shift is observed from a traditional volunteer board nature to one that compensates directors, to test the hypotheses. Specifically, this study investigates the impact of the remuneration of board members and other board governance and credit-union specific factors that are expected to affect credit unions’ probability of insolvency. The main finding is that remuneration packages for credit union directors tend to decrease insolvency risk, measured by the accounting-based Z-score measure, only when directors are paid more rather than less. This study provides important insights into the ongoing global debate on whether or not to remunerate credit union board members and their relationship with risk-taking behaviour in the context of cooperative financial institutions.