Managerial compensation and propensity to pay dividends among quoted deposit money banks in Nigeria

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Date

2019

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Department of Finance, University of Ilorin

Abstract

Recent decline in dividend payout by banks in Nigeria and huge packages of compensation paid to executives stimulates the interest to conduct this study. The study examined how managerial compensation affects the initial decision “to pay” or “not to pay” as opposed to amount paid which most past studies focused on. Secondary data was extracted from the annual reports and accounts of 15 deposit money banks listed on the Nigeria Stock Exchange between 2006 and 2016. Logit model was employed due to the categorical nature of the dependent variable and pooled logit was used specifically as results shows preference for it above random/fixed effects logit. The study found that managerial compensation has negative impact on the decision to pay out dividends which suggests that the high compensation packages of the executives are paid to the detriment of the shareholders. Other variables found to be significant include past payout decision, profitability and leverage. However, estimates of marginal effect shows that profitability records the highest impact while leverage have the lowest impact on payout decision of the banks. In line with findings, the study recommends that stock-based compensation should be included or increased in the compensation packages as this will make them align their interests with that of shareholders and focus more on value creation.

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Keywords

Managerial Compensation, Dividends, Payout, Profitability

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