Financial Performance, Governance Characteristics and CEO Compensation: Evidence from the UK and Nigerian Banks

Adeniji, AOA

Abstract

The peculiar nature of banks means that they are heavily regulated and highly leveraged and as such, results obtained by existing pay-performance literature cannot automatically be extended to banks. This research work examines the relationship between CEO pay and financial performance in Nigeria and UK banks while recognizing its peculiarities. It further analyzed the relationship between CEO pay and board governance characteristics, and the relationship between CEO share ownership and performance. Finally, this research work compares the pay-performance relationship in both countries. Data for twenty-six listed banks in the UK and thirteen Nigerian banks between 2009 and 2019 were adopted. Using an OLS regression model, the study finds that both accounting and market-based performance measures exerts a significant and positive influence on CEO pay in Nigerian banks and as such is consistent with agency theory but that it has no impact on accounting performance in UK banks. Fixed effects and GMM were adopted to address endogeneity and the signs of the coefficients remained the same. Overall, it finds that in line with previous literature, bank size is the main factor that drives CEO pay. Furthermore, it examines the relationship between CEO pay and board governance characteristics and finds that they are similar across both countries. This could be due to the similarities in the rules and regulations including corporate governance codes that govern banks in both countries. Also, CEO share ownership is significantly influenced by bank performance both in Nigeria and the United Kingdom. The research implies that CEO pay if well-designed is an important corporate governance mechanism which does align the interests of CEOs and shareholders and helps mitigate agency cost as well as the ability of CEOs to extract rent.

Citation

Adeniji, A. Financial Performance, Governance Characteristics and CEO Compensation: Evidence from the UK and Nigerian Banks. (Thesis). University of Salford

• Thesis Type: Thesis
• Deposit Date: Jul 20, 2022
• Publicly Available Date: Jul 20, 2022
• Award Date: May 27, 2022