Executive compensation, share ownership, and earnings management of banks in Nigeria

Abstract

Aim/purpose – Higher compensation and increased share ownership are believed to drive fewer earnings management. Therefore, the study examines the moderating impact of share ownership on the relationship between executive compensation and earnings management of listed Deposit Money Banks in Nigeria. Design/methodology/approach – Panel Least Square regression and Stata 13 were used for the estimation. The secondary data source was employed and extracted from the banks’ published financial statements covering the period from 2007-2018. Post- estimation tests, including normality tests of standard error, heteroscedasticity, and mul- ticollinearity, were carried out to validate the outcome. Executive compensation variable is represented by Chief Executive Officer Pay (CEO Pay), Board Chairman’s compensa- tion, and the highest-paid director, while executive share ownership represents the mod- erator variable. Chang et al. (2008) model was used to proxy earnings management. Findings – The findings revealed that CEO Pay increases the banks’ level of earnings management, while after moderation with executive share ownership; CEO pay decreas- es the possibilities of earnings management by banks. Compensation to Chairmen of the banks decreases the level of earnings management of banks. However, an increase in share ownership of the board with an increase in compensation to chairmen of banks’ boards increases the earnings management practices of the management of the banks. Research implications/limitations – The findings imply that the executive ownership interest should be made to align with that of the minority shareholders following an increase in their stake so that they can act in the overall best interest of the owners. The study is limited to only the banking sector and some specific executive compensation variables. Originality/value/contribution – The utilization of the highest paid director variable and use of share ownership as a moderator between executive compensations and earn- ings management. Keywords: earnings management, executive, share ownership, compensation, and expectan- cy theory. JEL Classification: M21, M41, M42, G32.

The Effect of CFO Characteristics on the Quality of Real Surplus: A Case Study of the Chinese Real Estate Industry

“…Foreign scholars such as Farouk Musa Adeiza [12], who studied the relationship between executive compensation and surplus management in Nigerian listed banks, found that CEO compensation has a significant positive effect on surplus management, while after moderation of executive shareholding; CEO compensation reduces the likelihood of surplus management by banks. Wang Runting [13] selected the data of Chinese A-share listed companies from 2010 to 2018 as empirical samples and started the research from the heterogeneous characteristics of executives to explore the association between the internal compensation gap of corporate executives and surplus management, and the results concluded that there is a negative relationship between the executive compensation gap and the real level of surplus management, and when the corporate executive compensation gap is larger, the quality of corporate surplus management is less real.…”

Corporate governance Role between CEO compensation and earnings management: A developing economy Perspective Evidence from Pakistan

“…Powerful CEO use accrual techniques to manage the earnings. In the same vein, other recent studies focused on association of CEO pay and earnings management through moderating role of CEO share ownership (Farouk and Ahmed, 2023), ownership concentration, large board size and CEO duality (Sheikh et al, 2018), investor protection in firm and strong corporate governance system reduces earnings management (Farouk and Ahmed, 2023). In Pakistan, no previous research is conducted on corporate governance index taken as moderator in relation to CEO compensation and earnings management.…”