Can remote voting mitigate agency problems?

Board members are critical in resolving agency conflicts. How- ever, many are unable to perform their function due to their distance, as they are not present at board meetings. As of Instruction no. 561, the Brazilian Securities and Exchange Commission (CVM) regulated remote voting for Boards of Directors, allowing for greater attendance at meet- ings and, as a result, increased involvement. In this context, this research examines the effect of remote voting by Boards of Directors on execu- tive compensation and financial performance of publicly traded firms in Brazil.

Originality/value:

This research is innovative in the sense that it exam- ines the effect of the Board of Directors remote voting on the CEO com- pensation and financial performance of the firm, using an innovative methodology.

Design/methodology/approach:

We applied a quasi-experimental method (difference-in-differences) to assess the effects of a given group (treat- ment) before and after the event, significantly reducing endogeneity when considering an exogenous shock to the system.

Findings:

As a result, the estimation of the main model reveals statisti- cally significant differences between the effects of treatment and control on profitability and executive remuneration, indicating that remote vot- ing mitigated agency problems by generating a substitution effect for explicit incentives (as evidenced by the decrease in executive remunera- tion) and by providing greater accounting performance for companies.

Keywords:
financial performance; executive compensation; differ- ence-in-differences; remote voting; board of directors

Variable	Acr.	Description/formula	Author
Dependent variables – Performance
Return on assets	ROA	$\frac{E B I T^{1}}{T o t a l A s s e t s}$	Gaur et al. (2015)Gaur, S. S., Bathula, H., & Singh, D. (2015). Ownership concentration, board characteristics and firm performance. Management Decision, 53, 911–931. https://doi.org/10.1108/MD-08-2014-0519 https://doi.org/10.1108/MD-08-2014-0519... , Sonza and Kloeckner (2014)Sonza, I. B., & Kloeckner, G. D. O. (2014). Does corporate governance influ- ence the efficiency of Brazilian companies? Revista Contabilidade & Finan- ças, 25(65), 145–160. https://www.scielo.br/j/rcf/a/v4DMSYyNtFyNJWy 3bRRqffC/?lang=en&format=pdf https://www.scielo.br/j/rcf/a/v4DMSYyNtF... , and Frank and Goyal (2008)Frank, M. Z., & Goyal, V. K. (2008). Trade-off and pecking order theories of debt. Handbook of Empirical Corporate Finance, 135–202. https://doi. org/10.1016/B978-0-444-53265-7.50004-4 https://doi. org/10.1016/B978-0-444-5326...
Return on equity	ROE	$\frac{N e t I n c o m e}{E q u i t y}$	Gaur et al. (2015)Gaur, S. S., Bathula, H., & Singh, D. (2015). Ownership concentration, board characteristics and firm performance. Management Decision, 53, 911–931. https://doi.org/10.1108/MD-08-2014-0519 https://doi.org/10.1108/MD-08-2014-0519... and Sonza and Kloeckner (2014)Sonza, I. B., & Kloeckner, G. D. O. (2014). Does corporate governance influ- ence the efficiency of Brazilian companies? Revista Contabilidade & Finan- ças, 25(65), 145–160. https://www.scielo.br/j/rcf/a/v4DMSYyNtFyNJWy 3bRRqffC/?lang=en&format=pdf https://www.scielo.br/j/rcf/a/v4DMSYyNtF...
Tobin‘s Q	Q	$\frac{{(MVE + PS + D)}^{2}}{T o t a l A s s e t s}$	Futema et al. (2009)Futema, M. S., Basso, L. F. C., & Kayo, E. K. (2009). Capital structure, divi- dends and interests on equity: tests in Brazil. Revista Contabilidade & Finan- ças, 20(49), 44–62. and Tristão and Sonza (2021)Tristão, P. A., & Sonza, I. B. (2021). Increase in leverage driven by international financial reporting standards adoption. Revista de Administração Contemporânea, 25(4), e200157–e200157. https://doi.org/10.1590/1982- 7849rac2021200157.en https://doi.org/10.1590/1982- 7849rac202...
Dependent variables – Executive compensation
Average remuneration	RM	$l o g (\frac{A v . E x e c . R e m u n e r a t i o n}{N u m b e r o f E x e c u t i v e s})$	Krauter (2013)Krauter, E. (2013). Executive remuneration and financial performance: A study of Brazilian companies. Revista de Educação e Pesquisa em Contabili- dade, 7(3)., Aguiar and Pimentel (2017)Aguiar, A. B. D., & Pimentel, R. C. (2017). Remuneração de executivos e desempenho no mercado brasileiro: Relações contemporâneas e defasa- das. Revista de Administração Contemporânea, 21(4), 545–568. http://dx.doi. org/10.1590/1982-7849rac2017160228 http://dx.doi. org/10.1590/1982-7849rac2... , Jensen and Murphy (1990)Jensen, M. C., & Murphy, K. J. (1990). Performance pay and top-manage- ment incentives. Journal of Political Economy, 98(2), 225–264. https://www. jstor.org/stable/2937665 https://www. jstor.org/stable/2937665... , and Kaplan (1994)Kaplan, S. N. (1994). Top executive rewards and firm performance: A com- parison of Japan and United States. Journal of Political Economy, 102(3), 510–546. https://doi.org/10.1086/261944 https://doi.org/10.1086/261944... .
Shares and options	AP	Log (value of executive’s shares and options)	Jensen and Murphy (1990)Jensen, M. C., & Murphy, K. J. (1990). Performance pay and top-manage- ment incentives. Journal of Political Economy, 98(2), 225–264. https://www. jstor.org/stable/2937665 https://www. jstor.org/stable/2937665... and Sonza and Kloeckner (2014)Sonza, I. B., & Kloeckner, G. D. O. (2014). Does corporate governance influ- ence the efficiency of Brazilian companies? Revista Contabilidade & Finan- ças, 25(65), 145–160. https://www.scielo.br/j/rcf/a/v4DMSYyNtFyNJWy 3bRRqffC/?lang=en&format=pdf https://www.scielo.br/j/rcf/a/v4DMSYyNtF...

Covariates²				F	C
Number of executives	NE	Log (number of executives)	Chen et al. (2008)Chen, Q., Goldstein, I., & Jiang, W. (2008). Directors’ ownership in the U.S. mutual fund industry. Journal of Finance, 63(6), 2629–2677. https://doi. org/10.2139/ssrn.685202 https://doi. org/10.2139/ssrn.685202... , Granzotto and Sonza (2019)Granzotto, A., & Sonza, I. B. (2019). Compensar ou monitorar os execu- tivos? Revista de Administração, Contabilidade e Economia, 18(3), 393–418. https://doi.org/10.18593/race.20740 https://doi.org/10.18593/race.20740... , and Schmid and Wurster (2016)Schmid, S., & Wurster, D. J. (2016). Are international top executives paid more? Empirical evidence on fixed and variable compensation in manage- ment boards of German MNCs. European Journal of International Manage- ment, 10(1), 25–53. https://doi.org/10.1504/EJIM.2016.073981 https://doi.org/10.1504/EJIM.2016.073981...	-	+
Tenure of executives	TE	Log (average tenure of the executives)	Chen et al. (2008)Chen, Q., Goldstein, I., & Jiang, W. (2008). Directors’ ownership in the U.S. mutual fund industry. Journal of Finance, 63(6), 2629–2677. https://doi. org/10.2139/ssrn.685202 https://doi. org/10.2139/ssrn.685202... , Granzotto and Sonza (2019)Granzotto, A., & Sonza, I. B. (2019). Compensar ou monitorar os execu- tivos? Revista de Administração, Contabilidade e Economia, 18(3), 393–418. https://doi.org/10.18593/race.20740 https://doi.org/10.18593/race.20740... , and Schmid and Wurster (2016)Schmid, S., & Wurster, D. J. (2016). Are international top executives paid more? Empirical evidence on fixed and variable compensation in manage- ment boards of German MNCs. European Journal of International Manage- ment, 10(1), 25–53. https://doi.org/10.1504/EJIM.2016.073981 https://doi.org/10.1504/EJIM.2016.073981...
Number of directors	ND	Log (number of directors)	Hermalin and Weisbach (2003)Hermalin, B. E., & Weisbach, M. S. (2003). Board of directors as an endog- enously determined institution: A survey of the economic literature. Eco- nomic Policy Review, 9(1). https://papers.ssrn.com/sol3/papers.cfm? abstract_id=794804 https://papers.ssrn.com/sol3/papers.cfm?... , Jensen (1993)Jensen, M. C. (1993). The modern industrial revolution, exit, and the failure of internal control systems. The Journal of Finance, 48(3), 831–880. https:// doi.org/10.1111/j.1540-6261.1993.tb04022.x https:// doi.org/10.1111/j.1540-6261.199... , Granzotto and Sonza (2019)Granzotto, A., & Sonza, I. B. (2019). Compensar ou monitorar os execu- tivos? Revista de Administração, Contabilidade e Economia, 18(3), 393–418. https://doi.org/10.18593/race.20740 https://doi.org/10.18593/race.20740... , and Conyon et al. (2019)Conyon, M. J., Haß, L. H., Vergauwe, S., & Zhang, Z. (2019). Foreign experi- ence and CEO compensation. Journal of Corporate Finance, 57, 102–121. https://doi.org/10.1016/j.jcorpfin.2017.12.016 https://doi.org/10.1016/j.jcorpfin.2017....	+ -	-
Tenure of directors	TD	Log (average tenure of directors)	Chen et al. (2008)Chen, Q., Goldstein, I., & Jiang, W. (2008). Directors’ ownership in the U.S. mutual fund industry. Journal of Finance, 63(6), 2629–2677. https://doi. org/10.2139/ssrn.685202 https://doi. org/10.2139/ssrn.685202... , Sonza and Kloeckner (2014)Sonza, I. B., & Kloeckner, G. D. O. (2014). Does corporate governance influ- ence the efficiency of Brazilian companies? Revista Contabilidade & Finan- ças, 25(65), 145–160. https://www.scielo.br/j/rcf/a/v4DMSYyNtFyNJWy 3bRRqffC/?lang=en&format=pdf https://www.scielo.br/j/rcf/a/v4DMSYyNtF... , Granzotto and Sonza (2019)Granzotto, A., & Sonza, I. B. (2019). Compensar ou monitorar os execu- tivos? Revista de Administração, Contabilidade e Economia, 18(3), 393–418. https://doi.org/10.18593/race.20740 https://doi.org/10.18593/race.20740... , and Conyon et al. (2019)Conyon, M. J., Haß, L. H., Vergauwe, S., & Zhang, Z. (2019). Foreign experi- ence and CEO compensation. Journal of Corporate Finance, 57, 102–121. https://doi.org/10.1016/j.jcorpfin.2017.12.016 https://doi.org/10.1016/j.jcorpfin.2017....	+	-
Size	Size	Log (total assets)	Klapper and Love (2004)Klapper, L. F., & Love, I. (2004). Corporate governance, investor protection, and performance in emerging markets. Journal of Corporate Finance, 10(5), 703–728. https://doi.org/10.1016/S0929-1199(03)00046-4 https://doi.org/10.1016/S0929-1199(03)00... , Krauter (2013)Krauter, E. (2013). Executive remuneration and financial performance: A study of Brazilian companies. Revista de Educação e Pesquisa em Contabili- dade, 7(3)., Aguiar and Pimentel (2017)Aguiar, A. B. D., & Pimentel, R. C. (2017). Remuneração de executivos e desempenho no mercado brasileiro: Relações contemporâneas e defasa- das. Revista de Administração Contemporânea, 21(4), 545–568. http://dx.doi. org/10.1590/1982-7849rac2017160228 http://dx.doi. org/10.1590/1982-7849rac2... , and Cai et al. (2023)Cai, X., Jiang, F., & Kang, J. K. (2023). Remote board meetings and board monitoring effectiveness: Evidence from China. Review of Financial Studies, Forthcoming. http://dx.doi.org/10.2139/ssrn.3450328 http://dx.doi.org/10.2139/ssrn.3450328...	+ -	+
Leverage	AL	$\frac{s h o r t a n d l o n g t e r m d e b t}{E q u i t y}$	Rajan and Zingales (1995)Rajan, R., & Zingales, L. (1995). What do we know about capital structure? Some evidence from international data. The Journal of Finance, 50, 1421–1460. https://doi.org/10.1111/j.1540-6261.1995.tb05184.x https://doi.org/10.1111/j.1540-6261.1995... , Lemmon et al. (2008)Lemmon, M., Roberts, M., & Zender, J. F. (2008). Back to the beginning: Persistence and the cross-section of corporate capital structure. The Journal of Finance, 63, 1–37. https://doi.org/10.1111/j.1540-6261.2008.01369.x https://doi.org/10.1111/j.1540-6261.2008... , and Frank and Goyal (2008)Frank, M. Z., & Goyal, V. K. (2008). Trade-off and pecking order theories of debt. Handbook of Empirical Corporate Finance, 135–202. https://doi. org/10.1016/B978-0-444-53265-7.50004-4 https://doi. org/10.1016/B978-0-444-5326...	- +	-
Sectorial fixed effects	Sector FE	Dummies: 1 company belongs to the industrial sector and 0 otherwise	Sonza and Kloeckner (2014)
Time fixed effects	Time FE	Dummies: 1 company belongs to the year in which the data is generated and 0 otherwise	Sonza and Kloeckner (2014)

Treatment group
Before the shock						After the shock
Var.	(n)	Mean	Min.	Max.	SD	(n)	Mean	Min.	Max.	SD	t
ROA	736	0.02	−0.22	0.23	0.07	736	0.04	−0.22	0.23	0.07	−5.09	***
ROE	736	0.04	−0.59	0.72	0.17	736	0.09	−0.59	0.72	0.17	−5.11	***
Q	736	0.66	0.07	4.26	0.62	736	0.78	0.07	4.26	0.68	−3.49	***
RM	416	1.95¹	0.00	15.70¹	2.04¹	208	1.86¹	0.00	11.40¹	1.81¹	0.49
AP	416	0.72¹	0.00	14.80¹	2.09¹	200	1.57¹	0.00	33.10¹	4.99¹	−2.98	***
NE	416	4.60	2.00	13.00	2.21	208	4.56	2.00	9.00	1.86	0.23
TE	408	4.90	0.50	21.00	3.72	197	5.67	0.50	21.00	3.85	−2.36	**
ND	648	0.82	0.48	1.32	0.17	649	0.82	0.48	1.32	0.16	0.15
TD	412	4.65	0.50	19.2	3.60	200	5.22	0.90	19.2	3.77	−1.78	**
Size	736	6.41	5.19	7.65	0.59	736	6.48	5.19	7.82	0.61	−1.97	**
AL	736	1.82	0.10	16.81	2.46	736	1.76	0.10	16.81	2.15	0.47
ROA	424	0.04	−0.18	0.23	0.07	424	0.05	−0.13	0.23	0.06	−1.48	*
ROE	424	0.10	−0.59	0.72	0.20	424	0.12	−0.59	0.72	0.18	−1.27
Q	424	1.00	0.07	4.26	0.98	424	1.11	0.10	4.26	0.98	−1.69	**
RM	224	3.12	0.10	31.00	4.21	112	3.60	0.24	12.90	3.10	−1.05
AP	224	2.91	0.00	28.00	5.57	112	3.88	0.00	43.00	9.08	−1.21
NE	216	6.39	2.00	14.00	3.01	108	6.78	2.00	14.00	2.87	−1.11
TE	224	5.33	1.00	13.25	3.03	112	5.49	1.00	11.50	2.82	−0.47
ND	424	0.90	0.48	1.32	0.15	424	0.90	0.48	1.32	0.15	0.60
TD	224	4.48	0.86	13.14	2.57	112	4.94	1.30	10.20	2.45	−1.55	*
Size	424	7.12	6.00	8.53	0.57	424	7.20	6.09	8.53	0.55	−2.03	**
AL	424	2.23	0.13	16.81	2.68	424	2.46	0.10	16.81	3.17	−1.10

	ROA		ROE		Q	RM		AP
Before
Treatment	0.03		0.06		0.65	14.19		13.84
Control	0.08		0.12		0.72	14.47		13.29
Difference	−0.06	*******	−0.06	*******	−0.07	−0.28	*******	0.55
SD	(0.01)		(0.01)		(0.05)	(0.07)		(0.34)
t	8.83		−4.2		−1.36	−3.95		1.60
After
Treatment	0.04		0.09		0.78	14.10		14.13
Control	0.05		0.09		0.81	14.97		13.89
Difference	−0.01		0.00		−0.03	−0.86	***	0.24
SD	(0.01)		(0.02)		(0.06)	(0.10)		(0.40)
t	0.93		0.00		0.49	8.78		0.60
DID	0.05	***	0.06	***	0.04	−0.58	***	−0.31
DP	(0.01)		(0.02)		(0.08)	(0.12)		(0.53)
t	5.10		2.79		0.53	4.81		0.59

Variable	ROA		ROE		Q		RM		AP
Variable	(n = 869)		(n = 869)		(n = 869)		(n = 853)		(n = 356)
Treat	−0.05	***	−0.11	***	−0.24	***	−0.02		−1.68	**
t	−5.34		−3.97		−5.64		−0.19		−2.22
Post	0.00		0.03		0.16	***	0.42	***	−0.42
t	0.13		0.94		2.49		3.59		−0.83
DID	0.02	**	0.01		0.06		−0.42	***	0.16
t	2.36		0.55		1.19		−4.94		0.33
NE	0.00		0.00		0.02	***	−0.09	***	−0.09
t	1.37		−0.44		2.62		−6.08		−0.81
TE	0.00	***	0.00		−0.01	*	0.03	***	−0.08
t	3.16		1.44		−1.66		2.72		−1.49
ND	−0.06	***	−0.14	***	−0.15		−0.36		−4.10	***
t	−4.33		−2.97		−1.50		−1.40		−3.24
TD	0.00	***	0.01	***	0.01		-0.07	***	0.20	*
t	4.83		2.93		1.04		−5.69		1.77
Size	0.00		0.01		0.03		0.92	***	0.83
t	−0.50		0.62		0.71		11.09		1.39
AL	−0.01	***	−0.03	***	−0.03	***	−0.02		0.01
t	−5.33		−3.04		−4.71		−1.38		0.16
Constant	0.11	**	0.14		0.22		9.17	***	1.12	**
t	1.93		0.91		0.65		14.97		2.24
Sector FE	Yes		Yes		Yes		Yes		Yes
Time FE	Yes		Yes		Yes		Yes		Yes
R²	0.55		0.39		0.81		0.65		0.66

	ROA		ROE		Q	RM		AP
Before
Treatment	0.03		0.06		0.58	14.11		13.47
Control	0.06		0.09		0.58	14.51		12.95
Difference	−0.03	**	−0.03		0.00	−0.40	*	0.53
SD	(0.01)		(0.03)		(0.11)	(0.14)		(0.70)
t	−2.55		−0.90		0.01	−2.84		0.76
After
Treatment	0.03		0.07		0.75	14.15		13.93
Control	0.07		0.12		0.75	14.75		13.45
Difference	−0.04	*	−0.05	*	0.00	−0.60	*	0.48	*******
SD	(0.01)		(0.01)		(0.04)	(0.06)		(0.28)
t	8.05		4.67		0.04	9.76		1.72
DID	−0.01		−0.02		0.00	−0.20		−0.05
DP	(0.01)		(0.03)		(0.11)	(0.15)		(0.75)
t	0.38		0.76		0.02	1.30		0.07

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[1] Correspondence concerning this article should be addressed to Letícia Marasca, Avenida Roraima, 1000, Camobi, Santa Maria, Rio Grande do Sul, Brazil, ZIP code 97105-900. Email: leticiamarasca@yahoo.com.br