To pay or not pay: Board remuneration and insolvency risk in credit unions

Abstract

Abstract This study examines the effect of board of directors pay on insolvency risk in Australian credit unions. We find that both voluntary boards and highly-paid boards are more likely to reduce insolvency risk. Board remuneration has two distinct effects on insolvency risk, depending on the size of the credit union. For small credit unions, volunteer boards are associated with less probability of insolvency risk; while for large credit unions, highly paid boards are associated with less probability of insolvency risk. Board diligence is also a significant determinant in reducing insolvency risk in the credit union setting. This study demonstrates the significance of the efficiency wage hypothesis and informs regulatory debate on voluntary boards and board remuneration, around risk oversight.