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

Rachita Gulati (), Madhur Bhatia () and Geeta Duppati ()
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Madhur Bhatia: Indian Institute of Technology Roorkee
Geeta Duppati: University of Waikato

Journal of Quantitative Economics, 2022, vol. 20, issue 1, No 9, 255 pages

Abstract: 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.

Keywords: Executive remuneration; Board governance; Dynamic panel models; Two-step system GMM; Agency theory; Managerial power theory; Indian banks (search for similar items in EconPapers)
JEL-codes: C23 G21 G34 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s40953-021-00282-8

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