Non-executive Director Compensation and Financial Distress in China and South Africa: A Comparative Analysis in State-Owned Enterprises

Abstract The 21st century has witnessed the rise of new and major economic regions that were initially overlooked by traditional economic superpowers. This study examines two such economies namely: China and South Africa. Certain attributes of the agency theory are examined. Henceforth, the research investigates the relationship between non-executive directors (NEDs) compensation and financial distress within listed firms. Emphasis is placed on the operations of listed state-owned enterprises (SOEs). NEDs play a vital role in reducing agency costs through the advising and monitoring of the firm’s senior management, thereby aligning shareholder interests with those of senior management. This study therefore attempts to explore these aspects through the use of quantitative research methods and comparative analysis. The revised Altman Z-score model which incorporates features unique to emerging markets is used to measure financial distress. The findings indicate that in both countries financial distress will result in a reduction in NEDs pay.