A new perspective into the relationship between CEO pay and firm performance: evidence from Nigeria’s listed firms

Abstract

Deviating from extant studies, this study examines asymmetric structure in the causal relationship between CEO pay and firm performance in Nigeria’s listed firms. The data on CEO pay and firm performance are transformed into partial cumulative sums for positive and negative shocks so as to allow for asymmetric causality tests. A two-step dynamic panel generalized method of moments is innovatively adopted to estimate the asymmetric causal model. The findings reveal several dimensions of asymmetric structures in the causality between CEO pay and firm performance. The research outputs divulge several hidden information and opportunistic tendencies surrounding the executive compensation contracts in Nigeria’s listed firms which symmetric approaches in the extant studies could not detect. This study, therefore, suggests that caution should be exercised in using pay cut as a corporate governance measure to punish CEOs for poor performance in Nigeria as it causes a fall in firm performance.

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Fig. 1

Availability of data and material

Data are readily available upon request.

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Acknowledgements

The authors are grateful to the anonymous referees of the journal for their extremely useful suggestions to improve the quality of this article. Usual disclaimers apply.

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The work is a joint collaboration of both authors. Author COO initiated the idea, wrote the introduction and did the analysis and discussion of empirical findings as well as conclusion of the paper, while author ORO contributed his scholarship and expertise in the areas of literature review and research method. All authors have read and approved the manuscript.

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Correspondence to Clement Olalekan Olaniyi.

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Olaniyi, C.O., Olayeni, O.R. A new perspective into the relationship between CEO pay and firm performance: evidence from Nigeria’s listed firms. J. Soc. Econ. Dev. (2020). https://doi.org/10.1007/s40847-020-00103-3

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Keywords

  • CEO pay
  • Firm performance
  • Asymmetric causality
  • Positive shock
  • Negative shock
  • Nigeria

JEL Classification

  • L25
  • M12