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Does Human Capital Influence the Relationship Between Highest-Paid Director Compensation and Financial Performance in Nigerian Banks?

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  • Ahmed Abubakar Zik-Rullahi

    (Department of Accounting, Faculty of Management Sciences, University of Abuja, P.M.B 117, Gwagwalada-Abuja)

  • Haleemah Yetunde Zik-Rullahi

    (Department of Accounting, Nile University of Nigeria, Jabi, Abuja, Nigeria)

Abstract

This study examines the influence of human capital on the relationship between highest-paid director compensation and financial performance in listed deposit money banks in Nigeria, focusing on Net Interest Margin (NIM) and Tobin’s Q as performance indicators. The study adopted a Feasible Generalized Least Squares (FGLS) regression analysis to test the moderating effect of human capital, incorporating interaction terms between director compensation and human capital metrics. The analysis indicates that higher compensation for the highest-paid director is associated with lower Net Interest Margin, suggesting a negative impact on financial performance. In contrast, no significant relationship was found between director compensation and Tobin’s Q. Additionally, the interaction between director compensation and human capital did not demonstrate a significant effect on either performance indicator. These findings lead to the conclusion that while higher remuneration for directors may negatively affect NIM, there is no meaningful link with Tobin’s Q. The study underscores the importance of human capital as a potential moderator and highlights the need for banks to reassess their compensation strategies and enhance governance frameworks to ensure that executive pay structures effectively promote organizational performance.

Suggested Citation

  • Ahmed Abubakar Zik-Rullahi & Haleemah Yetunde Zik-Rullahi, 2024. "Does Human Capital Influence the Relationship Between Highest-Paid Director Compensation and Financial Performance in Nigerian Banks?," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(11), pages 118-127, November.
    • Handle: RePEc:bcp:journl:v:8:y:2024:i:11:p:118-127
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    References listed on IDEAS

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    1. Nawazish Mirza & Jamila Abaidi Hasnaoui & Bushra Naqvi & Syed Kumail Abbas Rizvi, 2020. "The impact of human capital efficiency on Latin American mutual funds during Covid-19 outbreak," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 156(1), pages 1-7, December.
    2. Muhammad Ali & Abiodun Egbetokun & Manzoor Hussain Memon, 2018. "Human Capital, Social Capabilities and Economic Growth," Economies, MDPI, vol. 6(1), pages 1-18, January.
    3. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-264, April.
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