EXPROPRIATION THROUGH EXECUTIVE COMPENSATION AND CASH HOLDINGS: A CASE OF NON-FINANCIAL CONCENTRATED FIRMS IN PAKISTAN

Abstract

Tunneling, the most severe practice in non-financial firms, harm a firm's performance, bring lose to
minority shareholders and discourage potential investors. Agency conflict between minority and
majority shareholders causes tunneling activities to take place. This study is aimed at examining the
influence of CEO compensation and cash holding on tunneling in the non-financial firms in Pakistan.
Several statistical techniques and models (regression, Hausman model, fixed effect model etc.) have
been applied to examine the subject phenomenon. Finding of the study shows that both cash holdings
and CEO compensation have significant positive impact on tunneling and thus cause minority
shareholders' expropriation. Firms usually pay good compensation and hold more cash to safeguard
the benefits of controlling shareholders. Finding also confirms gradual increase in tunneling over a
period. Study provide detailed examination of tunneling phenomenon to reshape the regulatory
policies regarding concentrated firms and hence to flourish the new ventures.