Executive directors´ remuneration after fraud and lawsuits revelation

The study uses 136 firms, comprising of 68 fraud and lawsuit firms in Malaysia that experienced fraud and lawsuit revelation over the period 2001 to 2006 and 68 non-fraud and non-lawsuit firms. The results show that fraud and lawsuit firms reduced the executives´ remuneration by 6% in the 2^nd year after the fraud and lawsuit revelation while non-fraud and non-lawsuit firms still increased the executives´ remuneration by 8.08% during the same period. The results indicate that fraud and lawsuit firms reduce their executives´ remuneration to improve the firm´s performance and also to discipline the executive directors´ behaviour after the fraud year so that they do not deviate from the shareholders´ wealth maximizing policy. Further, this study also found that fraud and lawsuit revelation enhanced further the monitoring role of the independent directors in fraud and lawsuit firms.