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Do Boards Govern Executive Remuneration in Indian Banks? An Econometric Exploration

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  • Rachita Gulati

    (Indian Institute of Technology Roorkee)

  • Madhur Bhatia

    (Indian Institute of Technology Roorkee)

  • Geeta Duppati

    (University of Waikato)

Abstract

This paper uses new and unique bank-level data to investigate whether board governance determines executives’ remuneration and if the pay-governance relationship changes across bank ownership groups in India. The findings based on dynamic pay model estimated using two-step system GMM approach reveal that (i) past pay levels hold significant predicting power for the future level of executives’ pay, (ii) executive remuneration is significantly responsive to forward-looking market-based profitability measures, and (iii) individual board attributes play a significant role in pay setting in the Indian banking industry. Frequent board meetings and a more significant proportion of female directors on board moderate the executive remuneration packages. The results further infer that the board’s monitoring abilities considerably differ across ownership groups, with boards play a more prominent role in private banks, while boards of public sector banks lack adequate autonomy to determine executives’ pay. The results validate the “managerial power” approach, suggesting that any weaknesses in governance structure (especially in private banks) may inhibit bank boards from effectively performing their monitoring functions in optimal pay fixation.

Suggested Citation

  • Rachita Gulati & Madhur Bhatia & Geeta Duppati, 2022. "Do Boards Govern Executive Remuneration in Indian Banks? An Econometric Exploration," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 20(1), pages 211-255, March.
    • Handle: RePEc:spr:jqecon:v:20:y:2022:i:1:d:10.1007_s40953-021-00282-8
    DOI: 10.1007/s40953-021-00282-8
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    More about this item

    Keywords

    Executive remuneration; Board governance; Dynamic panel models; Two-step system GMM; Agency theory; Managerial power theory; Indian banks;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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