Remuneration committee of the board of directors and the cost of equity

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Abstract

This study examines the impact of the remuneration committee on the cost of equity capital, focusing on manufacturing companies listed on the Indonesia Stock Exchange (IDX) over the period 2013–2023. Data were collected using purposive sampling, selecting only companies that had established remuneration committees. A total of 144 observations were obtained from 19 companies. The analysis employed panel data and multiple linear regression. The results indicate that the frequency of remuneration committee meetings has no statistically significant effect on the cost of equity capital, implying that, within this context, corporate governance mechanisms may not have a direct influence on the cost of equity financing (Ali et al., 2019). Nevertheless, the composition of the remuneration committee shows a significant negative association with the cost of equity capital. The presence of a well-structured and effective remuneration committee seems to strengthen governance practices and contribute to a reduction in equity financing costs, irrespective of the firm’s size (Klein, 2002). With respect to the control variables, firm size exhibits a negative effect on the cost of equity capital. In contrast, sales growth, leverage, and earnings quality do not demonstrate any statistically significant influence.

Keywords: Governance, Remuneration Committee, Cost of Equity Capital, Company Size, Sales Growth, Debt, Earnings Quality

Authors’ individual contributions: Conceptualization — H.D., T.A.G., A.H.A., and M.R.R.; Methodology — H.D., T.A.G., and M.R.R.; Investigation — T.A.G., A.H.A., and M.R.R.; Resources — H.D.; Writing — H.D., T.A.G., A.H.A., and M.R.R.; Supervision — T.A.G.; Funding Acquisition — H.D.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G32, G34, L6

Received: 14.12.2024
Revised: 09.04.2025; 22.05.2025; 07.07.2025
Accepted: 18.07.2025
Published online: 22.07.2025

How to cite this paper: Darwis, H., Gumanti, T. A., Arifin, A. H., & Rita, M. R. (2025). Remuneration committee of the board of directors and the cost of equity. Corporate Board: Role, Duties and Composition, 21(2), 70–80. https://doi.org/10.22495/cbv21i2art6