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Executive Compensation And Banking Sector Performance: Evidence From Nigeria

Author

Listed:
  • Osaretin Kayode Omoregie
  • Ikechukwu Kelikume

    (Lagos Business School, Pan-Atlantic University, Lagos, Nigeria)

Abstract

There is an increasing interest towards the relationship between executive compensation and bank performance in Nigeria in recent years following the profligate lifestyle of some bank executives. This raises the question whether the banking sector performance justifies bank executives’ compensation. Extant literature on the relationship between executive compensation and banking sector performance is inconclusive. While the findings of some studies indicate a positive and significant relationship, other studies found a significant negative relationship. Also, the outcomes of some studies suggest no correlation between executive compensation and banking performance. In the light of this, the study examined the relationship between executive compensation and banking sector performance in 12 commercial banks in Nigeria over the period 2005-2014. The study captured bank performance with customer deposit (CDP), return on equity (ROE), and the equity-asset ratio (EAR). The study obtained the data on these variables from the annual financial reports of the selected commercial banks. Using the impulse response of the panel vector error correction model (PVECM), the study found that EXC responds positively to CDP and EAR but responds negatively to ROE. The variance decomposition also revealed that CDP accounts for greater variation in EXC. Also, the study employed the PVECM Granger causality/block test and found that there is no causal relationship between the bank performance variables investigated with executive compensation. The outcome of the study suggests that the banking sector performance does not determine the executive compensation in the Nigerian banking sector. Findings of the study have an important implication on both the shareholders and the regulator of the banking sector. There is a need for shareholders to ensure that executive compensation is aligned with bank performance to deter bank executives from lavishly spending the resources in their custody. The regulator of the banking industry, Central Bank of Nigeria, should continuously check the excesses of bank executives to ensure that they act in the best interest of the bank and shareholders.

Suggested Citation

  • Osaretin Kayode Omoregie & Ikechukwu Kelikume, 2017. "Executive Compensation And Banking Sector Performance: Evidence From Nigeria," Journal of Developing Areas, Tennessee State University, College of Business, vol. 51(2), pages 1-15, April-Jun.
    • Handle: RePEc:jda:journl:vol.51:year:2017:issue2:pp:1-15
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    Citations

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    Cited by:

    1. Clement Olalekan Olaniyi & Olaolu Richard Olayeni, 2020. "A new perspective into the relationship between CEO pay and firm performance: evidence from Nigeria’s listed firms," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 22(2), pages 250-277, December.
    2. Douglas A. Adu & Basil Al‐Najjar & Thitima Sitthipongpanich, 2022. "Executive compensation, environmental performance, and sustainable banking: The moderating effect of governance mechanisms," Business Strategy and the Environment, Wiley Blackwell, vol. 31(4), pages 1439-1463, May.
    3. Clement Olalekan Olaniyi & Olufemi Bodunde Obembe & Emmanuel Oluwole Oni, 2017. "Analysis of the Nexus between CEO Pay and Performance of Non-Financial Listed Firms in Nigeria," African Development Review, African Development Bank, vol. 29(3), pages 429-445, September.

    More about this item

    Keywords

    Executive Compensation; Banking Sector Performance; PVECM; Nigeria;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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