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

Ahmed Abubakar Zik-Rullahi and Haleemah Yetunde Zik-Rullahi
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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

International Journal of Research and Innovation in Social Science, 2024, vol. 8, issue 11, 118-127

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.

Date: 2024
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