Re-examining Firm Size-profitability Nexus: Empirical Evidence from Non-financial Listed Firms in Nigeria

Olaniyi, Clement Olalekan; Simon-Oke, Olayemi O.; Obembe, Olufemi Bodunde; Bolarinwa, Segun Thompson

doi:10.1177/0972150917692064

Cited by 25 publications

(52 citation statements)

References 40 publications

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“…It is measured as the natural logarithms of annual pay of the CEOs. Firm performance ( PERF ): A proxy for firm performance adopted in this study is return on assets (ROA). This is measured by profit after tax divided by total assets (Olaniyi et al , ; Outa and Waweru, ; Liang et al , ; Alley et al , ; Obembe et al , ; Ntim et al , ; Abidin et al , ; Duffhues and Kabir, ; Haniffa and Hudaib, ; Zhou, ). Firm size ( FMS ): This is defined in terms of total assets owned by each firm. It is measured by the natural logarithms of total assets of the respective firm.…”

Section: Methodsmentioning

confidence: 99%

Analysis of the Nexus between CEO Pay and Performance of Non-Financial Listed Firms in Nigeria

Olaniyi¹,

Obembe²,

Oni³

2017

African Development Review

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This study examines the causal relationship between CEO pay and firm performance in Nigeria for the period 1998-2010, using annual data of 63 non-financial listed firms. We adopt a two-step dynamic generalized method of moments to explore the causal relationship. The study establishes a bi-directional relationship between CEO pay and firm performance. While CEO pay Granger-causes firm performance, firm performance also Granger-causes CEO pay. It implies that CEO pay acts both as a reward and a performance motivator. This study therefore suggests that CEO pay effectively aligns shareholders' interests with those of CEOs; hence stakeholders should focus more on CEO pay as a corporate governance mechanism to reduce agency problem in non-financial listed firms in Nigeria. 429Moreover, following the two modelling strategies, empirical studies on the relationship between CEO pay and firm performance occupy a substantial portion of economic literature, most especially in advanced countries and emerging economies with limited attention from developing countries and sub-Saharan Africa in particular. Meanwhile, previous empirical investigations have continued to yield conflicting results. Some of these studies have obtained a weak or negative relationship or none at all (Jensen and Murphy, ). Results continue to differ depending on the environment, methodology and the measures of firm performance adopted in various studies.Apart from the inconclusiveness of previous studies, the bulk of these studies ignored the effect of executive pay on firm performance, despite the fact that motivation is the main rationale for executive pay packages. This was hinted at by Jensen and Murphy (1990) who stated that executive pay is 'designed to give manager incentives to select and implement actions that increase shareholders' wealth'. Moreover, Buck et al. (2008) and Tosi et al. (2000) contended that all studies surveyed, most especially in Europe, used pay as the dependent variable which means firm performance is considered a determinant of executive pay, neglecting the possibility of feedback effect from pay to performance. The prevalence of long-term incentives (equity incentives), such as stock awards and options, for managers in Europe has made it extremely difficult to separate reward from motivation (Buck et al., 2008;Jegede, 2012;Olaniyi and Obembe, 2015;Liang et al., 2016;Omoregie and Kelikume, 2017). Hence, the majority of empirical studies from advanced countries focused on the effect of firm performance on directors' compensation (performance-based pay) without exploring the possibility of feedback. Meanwhile, executive directors of publicly traded firms in developing countries, most especially sub-Saharan Africa, are usually paid in cash, not in the form of long-term incentives such as equity-based pay. This gives ample opportunity to examine CEO pay as a factor that determines firm performance (Buck et al., 2008). Globally, only few studies (Choo and Tan, 2004;Buck et al., 2008;Omoregie and Kelikume, 2017; Amdouni, 2016) h...

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Section: Methodsmentioning

confidence: 99%

Analysis of the Nexus between CEO Pay and Performance of Non-Financial Listed Firms in Nigeria

Olaniyi¹,

Obembe²,

Oni³

2017

African Development Review

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“…The growth ratios consist of asset growth and sales growth. Olaniyi et al (2017) stated that sales growth has a strategic influence on the company because sales growth is marked by an increase in market share which positively impacts sales of the company and increases the profitability of the company.…”

Section: Financial Ratiomentioning

confidence: 99%

“…Companies with growing profits will have a large number of assets, thus providing greater opportunities to generate profitability (Shahnia et al, 2020). Olaniyi et al, (2017) stated that FS has a significant positive effect on profit growth. The purpose of this study was to partially analyze the effect of CR, CLI, TAT, NPM, SG, and FS on profit growth in F&B companies on the IDX.…”

Section: Introductionmentioning

confidence: 99%

Determinants of Profit Growth in Food and Beverage Companies in Indonesia

Endri¹,

Sari²,

Budiasih³

et al. 2020

JAFEB

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The study aims to estimate the effect of current ratio (CR), current liability to inventory (CLI), total asset turnover (TAT), net profit margin (NPM), sales growth (SG), and company size (FS) on profit growth (PG). The research population was 18 companies in the Food and Beverage (F&B) sector listed on the Indonesia Stock Exchange (IDX) from 2014-2018. The data estimation method uses the common effect panel data regression model. The empirical findings show that the CR and CLI ratios have a negative effect on PG, while the TAT, NPM, and SG ratios have a positive effect. Company size is a factor that does not affect the growth of company profits. The results of the study imply that an increase in company profits can be achieved if the company operates efficiently and with low liquidity to encourage higher sales growth. The limitations of the research are as follows: first, this research considers only one type of industry, hence the results of this study would not be the same if applied to another type of industry. Second, the author observes profit growth by using the company's financial ratios and size and ignores other factors that may affect profit growth, for example, the number of employees, total net sales, and market capitalization.

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“…These works argue that bank size allows banks to enjoy economies of scale thereby increasing profitability. On the other hand, negative effects of bank size attributed to diseconomies of scale and manifesting in forms of rigidities, inertia, the bureaucracy that characterized big organizations (Athanasoglou et al, 2008; Jakubík & Reininger, 2014; John, 2018; Khemraj & Pasha, 2016; Kjosevski & Petkovski, 2017; Olaniyi, Simon‐Oke, Obembe, & Bolorinwa, 2017; Petria et al, 2015) have been reported. Capitalization is another important determinant in the literature (Kjosevski et al, 2019; Klein, 2013; Kumar & Kishore, 2019).…”

Section: Brief Literature Reviewmentioning

confidence: 99%

Is there a nonlinear relationship between nonperforming loans and bank profitability? Evidence from dynamic panel threshold

Bolarinwa

Olayeni

2021

Manage Decis Econ

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This study examines the threshold effect in the nonperforming loans–profitability nexus within the Nigerian banking industry. Using the innovative dynamic panel threshold of Seo, Kim, and Kim (2019), the work documents threshold levels of 3.5% and 5.0% of nonperforming loans for return on average assets (ROAA) and return on average equity (ROAE), respectively. These levels of nonperforming loans ensure equilibrium profitability without stability trade‐off in the industry. Similarly, the robust models suggest the threshold of 5.2% and 2.81% of impaired loans for optimal ROAA and ROAE, respectively. The results are important for policy formulations. It is recommended that the Central Bank of Nigeria (CBN) should review the 5% threshold nonperforming loans adopted in the industry in 2019 prudential guidelines to ensure stability in the Nigerian banking industry.

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Re-examining Firm Size-profitability Nexus: Empirical Evidence from Non-financial Listed Firms in Nigeria

Cited by 25 publications

References 40 publications

Analysis of the Nexus between CEO Pay and Performance of Non-Financial Listed Firms in Nigeria

Analysis of the Nexus between CEO Pay and Performance of Non-Financial Listed Firms in Nigeria

Determinants of Profit Growth in Food and Beverage Companies in Indonesia

Is there a nonlinear relationship between nonperforming loans and bank profitability? Evidence from dynamic panel threshold

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