Are the Directors or Supervisors Fat Cats in Zombie Firms? Discuss the Role of the Compensation Committee
Lih-Wen Tsai/Department of Accounting, Fu Jen Catholic University
Chih-Sheng Hsu/Deloitte Taiwan
Abstract
This study explores the probability of zombie firms with fat cat directors or supervisors, and also examines whether the frequency of compensation committee meetings affects the incidence of directors or supervisors becoming fat cats. Using 10,237 firm-year observations of Taiwanese listed firms from 2013 to 2019, empirical evidence indicates that directors or supervisors of zombie firms are more likely to be fat cats than non-zombie firms. This means that the government or banks that provided funding to zombie firms not only failed to increase their profitability but also ran the risk of creating a conflict of interest for the directors or supervisors. In addition, the results show that the higher the frequency of compensation committee meetings, the more likely it is to reduce the chances of directors or supervisors becoming fat cats. However, we also point out that in the sub-samples of family-owned businesses or firms with poor corporate governance ratings, even if the compensation committee of zombie firms has more meetings, it cannot reduce the possibility of directors or supervisors as fat cats. These results emphasize the significance of corporate governance. Lastly, there is no relationship between zombie firms and the low salaries of non-executive full-time employees.