The Synergistic Effect of State Regulation and Self-Regulation on Disclosure Level of Director and Executive Remuneration in Australia

Abstract

This article examines how the introduction of a mix of state and market-based regulatory mechanisms representing formal and informal institutional elements, respectively, impacts disclosure level of director and executive remuneration in Australia. In doing so, our study steps beyond the simple state versus market dichotomy that the extant literature is primarily concerned with and proposes a symbiotic relationship between the two. The results of our study reveal that both state regulation and self-regulation as bundles of corporate governance can potentially join forces to ease agency conflicts. What is more, certain well-institutionalized organizational practices that guide agents toward self-regulation remain highly relevant and significant, even in the presence of pervasive state regulation. The synthesis of constructs borrowed from agency and institutional theories and its testing in an empirical setting of Australia verifies the significance of formal (state regulation) and informal (self-regulation) institutional aspects in addressing moral hazard agency conflicts. Our research provides insights for public policy makers as to how policies can be developed for good corporate governance. Particularly, in the context of current global economic crises, policy makers would be better off choosing those institutional mechanisms of corporate governance that complement the state regulation with self-regulation for the management and regulation of the modern global economy.