SHARE OWNERSHIP, EXECUTIVE COMPENSATION AND VALUE OF FIRM: A COMPARISON BETWEEN LOW AND HIGH LEVERED BANKS IN NIGERIA

Abstract

It is still a paradox on whether individuals would be inspired when they deem it that resilient effort does improve the bank value and enhanced bank value would result into good pay. Conflicting finding have been reported in this area and as such, the study investigates impact of executive pay and share owned by executive as it affects the value of commercial banks listed in Nigeria. Proxies of compensation to executive employed are CEO pay, compensation to chairman and the highest pay to director. However, ratio of interest by executive in shares owned represents the ownership of share to banks’ executives. Value of the bank was measured using Tobin’s Q. Technique employed for estimation is the Robust OLS regression. Meanwhile, the tool of data analysis used was Stata version 13. Data from secondary source was used and were extracted from the published annual accounts statement of the banks covering the period from 2007 to 2018. Post estimation examination which includes normality test of standard error term, heteroscedasticity, multicollinearity was estimated to validate the regression results. The results revealed that, pay to CEO had positive and significant effect on value of high and low levered banks. However, compensation to chairmen and highest paid director had negative effect on value high and low levered banks. Additionally, effective of executive compensation on value of banks does not improve significantly through increase in executive share ownership for both high and low levered banks. It is recommended amongst others that the CEO pay should be tied to their performance. Increase in share ownership shouldn’t be used as a yardstick to achieve improved value for banks through executive compensation. Management should also tie the degree of Chairmen compensation and that of highest paid directors to enhanced value of banks through their efforts.

Keywords

• Tobin’s Q
• Compensation to Executives
• Pay-Performance Theory
• Banks