Paying for More Than Presence: Board Compensation, Performance, and International Competence

Sammanfattning

This thesis examines whether board compensation relates to subsequent firm performance in Swedish listed firms and how compensation above a predicted benchmark should be interpreted. We study an unbalanced panel of larger firms listed on Nasdaq Stockholm with market capitalisation above SEK 6.5 billion over 2020 to 2024, covering 673 firm-year observations. Financial data come from Capital IQ, while board compensation, board size and director nationality are hand-collected from annual reports. Using pooled panel regressions with year and sector effects and standard errors clustered by firm, we relate both logged board compensation and its deviation from a predicted level to firm performance in the following year. Higher board compensation is positively associated with subsequent Tobin's Q, significant at the 5 percent level, but not with return on assets. Compensation above the predicted level shows no significant association with either performance measure, which gives no support for a managerial power reading. Foreign board representation is positively associated with compensation above the predicted level and significant at the 1 percent level. These results suggest that unexplained board pay partly reflects demand for international board competence rather than governance failure, so it should be read as a signal requiring further explanation.