EXECUTIVE COMPENSATION AND BANKING SECTOR PERFORMANCE: EVIDENCE FROM NIGERIA

Osaretin Kayode Omoregie and Ikechukwu Kelikume ()
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Ikechukwu Kelikume: Lagos Business School, Pan-Atlantic University, Lagos, Nigeria

Journal of Developing Areas, 2017, vol. 51, issue 2, 1-15

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.

Keywords: Executive Compensation; Banking Sector Performance; PVECM; Nigeria (search for similar items in EconPapers)
JEL-codes: C23 L25 M12 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (3)

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