Proceedings of 10th Annual London Business Research Conference
10 - 11 August 2015, Imperial College, London, UK, ISBN: 978-1-922069-81-8
Factors Effecting CEO Compensation: Evidence from Listed
Banks in Pakistan
Ramshah Rashid Lone*, Fatima Hasan* and Meher Afzal*
This paper represents the initiative to highlight a developing country’s perspective on
justification and thereby identifying the factors affecting CEO compensation. Pakistan’s
Banking Sector represents a definite case of very high salaries and compensation
packages, especially for the top level staff such as CEO and the directors. This paper
tends to explore the reason for such high compensation for CEO’s in the Banking
Industry.
This paper attempts to use panel data of 22 listed banks in Pakistan for the period
2006-2013 and explores the relationship between CEO compensation and following
variables: Firm Performance, Firm Size, CEO from the family, Independence of the
board of directors, Shares held by the board, percentage ownership of financial and
non-financial institution.
Key words: CEO Compensation, Corporate Governance, Banks
1. Introduction
Executive compensation has gained importance in public policy debates as well as in
academic research. The question that needs to be answered is, if the Chief Executive
Officer is at the highest position in an organization how he/she gets compensated and what
are the criteria for determining CEO’s compensation. It is actually hard to accurately
measure and calculate the level and composition of CEO remuneration in relation to the
services he/she provides to the organization. Generally CEO salary comprises of basic
salary, bonuses and allowance. However, recently there has been a trend of offering stock
options, long term incentive benefits and other settlement plans.
Earlier studies have tried to tie CEO compensation with the performance of the firm and
proposed the existence of an optimal contracting system in a competitive market.
Researchers have also gone to propose the theory of rent extraction by powerful CEO’s.
However, agency problem has served as the back ground of all the queries.
Komhausar, (2005) have proposed that compensation should be linked with performance. It
is also realized that CEO’s have power to influence decisions about their own compensation
packages, which brings in the issue of agency problem. Some studies have also focused on
family oriented businesses and have looked into whether CEO from the family exercises
greater power over setting his/her compensation or not.
________________________________________________________________________________________
Ramshah Rashid Lone * Assistant Professor of the Department of Business Administration at the Lahore
School Of Economics, Lahore, Pakistan.ramsha@lahoreschool.edu.pk
Fatima Hasan* PhD Student, University of Kansas, US fatima_ijaz@yahoo.com
Meher Afzal, *Lecturer Department of Business Administration at The Lahore School of Economics,
mehrafzal@gmail.com
Proceedings of 10th Annual London Business Research Conference
10 - 11 August 2015, Imperial College, London, UK, ISBN: 978-1-922069-81-8
Researchers have been trying to explain the question of CEO compensation by examining
various aspects of performance as well. Daines, Nair &
Most of the empirical studies on CEO compensation and corporate governance have been
conducted in developed countries. Several economists are of the opinion that conducting
such studies in developing countries is not possible. As elaborated by Gosh, (2006)
developing economies as managerial markets are not well developed, also corporate laws,
governance code, listing agreement and bankruptcy laws are also weak in these economies.
In case of Pakistan corporate governance code was implemented in 2002 for listed firms.
Implementation of the code of corporate governance in Pakistan primarily falls within the
ambit of two entities: the Security Exchange Commission of Pakistan and the State Bank of
Pakistan. This paper is an attempt to research in a developing country to find most
significant factors affecting CEO compensation in one of the most regulated, stable and
growing sector of the country, namely , banking sector.
2. LITERATURE REVIEW
According to Murphy (1999), CEO pay packages can be divided into four basic components i) A base
salary ii) An annual bonus plan which is tied to some accounting measure of the company e.g.
performance iii) Stock options plans and other long term performance based incentive plans, such as
restricted stock plans iv) CEO being part of the retirement plans offered by their companies receive
special incentives in the form of gratuity/ provident funds. The basic salary is the definite component
and other components of CEO compensation may vary depending on company policies
Researchers have explored many factors that are likely to impact CEO compensation. Findings about
some of the most significant determinants of CEO compensation are discussed below.
2.1. FIRM SIZE AND PERFORMANCE
Historically firm performance has been considered as the most important variable affecting CEO
compensation (Ozkan, 2007). Performance refers to the ability of a firm to earn and maintain
profits/returns. Returns can be accounting returns or stock returns. Accounting returns are measured
Proceedings of 10th Annual London Business Research Conference
10 - 11 August 2015, Imperial College, London, UK, ISBN: 978-1-922069-81-8
through ROA and ROE (Uneg, 2000), whereas stock returns refer to the stock price performance and
is measured by looking at the market price of the firm’s share (Hill, 1991).
In literature most of the studies have used one form of performance to find its impact on CEO
compensation. Tai (2004) assessed the rapport between CEO’s pay and their companies’ stock
performance. He reported a positive relationship between CEO pay and firms performance.
However, Boschen et al. (2003) examined the long run impact of rising accounting performance on
CEO compensation and investigated whether accounting performance had a greater impact on CEO
compensation than stock price. The reported that the two measures of performance had dissimilar
long run effects on CEO compensation. They also found significant multi era dynamics i.e. CEO
received no compensation for an unanticipated rise in accounting performance while in contrast they
did receive a higher long run compensation for an unanticipated rise in stock price performance.
The impact of performance on CEO compensation has rarely been studied in isolation. The impact of
performance on CEO compensation has been combined with corporate governance variable or firm
specific variable. The most common firm specific variable used by researchers is firm size (Tai,
2004). Firm size is basically defined as how small or big an organization is in terms of its sales
revenue and/or in terms of book value of the firm’s asset.
Ueng (2000) investigated CEO compensation for both small and larger size companies. The study
defined small organizations as those that had assets less than $250 million and organizations that
appeared on the Fortune 500 companies were taken as large. CEO compensation was taken as the
dependent variable while CEO influence, firm size, performance and growth were taken as
independent variables. It was reported that CEO pay was significantly related to firm size, CEO
influence was not an important determinant of CEO compensation in small organizations while it was
Proceedings of 10th Annual London Business Research Conference
10 - 11 August 2015, Imperial College, London, UK, ISBN: 978-1-922069-81-8
found to be significant determinant of CEO compensation in larger organization. Performance as
measured by ROA was found in large companies to have an impact on CEO compensation. No
evidence was found for the impact of growth rate on CEO compensation
The results suggests that there were differences amongst the determinants of CEO compensation for
small and larger firms.
Ozkan (2007) estimated the relationship between CEO compensation and company’s performance
while controlling for corporate governance variables. Ozkan believed that corporate governance
factors reduce the agency conflict influencing compensation plans. A regression model was
developed with compensation as the dependent variable- measured as the cash compensation i.e. an
aggregate of salary, bonus, value of stock options and long-term compensation plans. Firm
performance, institutional investors, block holders ownership, director ownership (executive to nonexecutive directors), board size and firm size were taken as independent variables. The results showed
a positive and considerable alliance between CEO compensation and company’s performance. Larger
board size were found not much of use in monitoring, but were more inclined to control CEO
authority. The results also highlighted the role that institutional investors played by holding a large
percentage of shares and thus was reported to be in a position to have greater impact on CEO
compensation decisions.
2.2. OWNERSHIP STRUCTURE
Theory and research has proved that ownership structure of an organization is of a crucial importance as
it not only affects the performance of the company but also brings in agency problem for an organization.
Measuring an effective ownership structure is not only difficult, but also has been done differently in
researches done in the past. Ownership structure can be measured in the form of board control i.e. how
Proceedings of 10th Annual London Business Research Conference
10 - 11 August 2015, Imperial College, London, UK, ISBN: 978-1-922069-81-8
many shares are held by the members of the Board of Directors. The extent of board’s control can be
measured as – first is the CEO duality (when an individual is acting as a CEO and as a chairman to the
board), second is the ratio of insiders members on the board (insider members are those directors who are
also part of the firms’ management).
Boyd (1994) hypothesized a framework for assessing CEO-board control relations. His research findings
supported earlier studies describing the board as the key in-house control means for determining CEO
compensation, thus aligning shareholder and management interests which reduces agency problems. In
order to test and analyze the hypothesis, total compensation was taken as the dependent variable,
described as the sum of basic salary and bonus. The results revealed that CEO duality and director
compensation had negative impact on CEO compensation whereas, board member’s stock ownership had
positively on board control. Apart from board stock ownership, institutional stock ownership also had a
positive relationship.
Within the ownership structure the importance of institutional investors has increased in the recent
years, and their ability to impact corporate governance policies has emerged as a significant research
topic. Researchers have also shown that institutional investors have an important impact upon CEO
compensation. Institutional investors are defined as companies like banks and investment companies
that collect money from general public investors and invest majorly in corporate shares company
thus have an impact on management decisions about CEO compensation package.
David et al. (1998) categorized the relationship between organization and institutional investors as
“pressure resistant” for an organization i.e. institutional investors do not come across at variance with
the management preferences, but at the same time they use their powers to offset managerial
governance and may influence CEO pay keeping it in line with investor preferences. The other type
Proceedings of 10th Annual London Business Research Conference
10 - 11 August 2015, Imperial College, London, UK, ISBN: 978-1-922069-81-8
of institutional investor’s relationship was termed as “pressure sensitive” that constrains institutional
investors from opposing manager’s preferences, which could reduce rights to influence firm policies
with respect to CEO compensation. Another type of investors termed as the “pressure indeterminate”
for organizations were those whose relationship with the firm was unclear. Earlier research had
unveiled that pressure resistant’s investors were found to have a positive impact on firm policies. The
author developed hypothesis to test the negative/ positive impact of pressure-resistant investors on
CEO compensation level.
The model incorporated two dependent variables - one the level of CEO compensation (measured as
the sum of basic salary, bonuses and long-term compensations) and two the proportion of long-term
inducements in accumulated CEO pay (measured as ratio of total long-term incentives to aggregate
CEO salary). The independent variables were the different types of institutional investors described
above. The model also incorporated control factors that might impact CEO salary, like the block
holders (that held more than 5 percent of the ownership), outside directors, CEO duality, firm
performance (measured as return on assets), firms size, firms’ systematic risk (defined as difference
of stock price to market portfolio), and industry pay. The results were consistent with the earlier
researches and “pressure resistant” institutional investors were found to have influenced the CEO
compensation most significantly.
Ownership Structure concept cannot be complete, unless it is recognized that a company is either
privately held or public limited company. Privately held companies have always been subject of
debate when it comes to compensation of their top executives. Family control businesses is quite
widespread phenomena, whereas, the concept of ownership by large institutional investors is recent.
Mejia et. al. (2003) research was based on family controlled corporations. They tried to research
Proceedings of 10th Annual London Business Research Conference
10 - 11 August 2015, Imperial College, London, UK, ISBN: 978-1-922069-81-8
various issues like i) whether family CEOs’ receive low salary packages, ii) whether the
concentration of family ownership in an organization effected compensation of their company’s CEO
negatively, iii) whether a large ratio of institutional investors effect the compensation of family
CEO’s negatively. A firm was selected under the family controlled category if it had two or more
directors who had a family relation or had at least 5 percent of voting rights.
The research included total compensation as dependent variable. CEO’s association with the family
was taken as the dummy variable. Their results supported the hypothesis that in the long run family
CEO’s received less compensation than outside CEO’s when family ownership increases. Secondly
when institutional investors hold a large chunk of shares, family CEO received less compensation.
Croci et. al. (2010) contributed by examining the effect of family ownership and institutional
investors on chief executive officers’ salary in continental Europe. The dependent variable was the
CEO cash and equity compensation, and independent variables were family firms and institutional
investors, firm performance (stock returns), firm size, CEO’s tenure, the experience of a CEO and
composition of the board in a firm. Authors defined a business as family controlled, if a family
member owned at least 10% of the shares. They used family firms and family CEO’s as dummy
variables. The reported that for family owned companies, CEO was compensated far less than what a
professional CEO would receive. Although institutional investors had a major part to play in
impacting CEO compensation, but in continental Europe institutional investors were found not
scrutinizing CEO compensation, which is contrary to earlier research. Also the preference of
independent directors, CEO tenure and firm performance were found to have a negative impact on
CEO compensation.
Proceedings of 10th Annual London Business Research Conference
10 - 11 August 2015, Imperial College, London, UK, ISBN: 978-1-922069-81-8
The literature on ownership structure also reveals an important dimension to compensation in which
an issue is bought forward that as the CEO holds multiples positions at the organizations, i.e. act as a
CEO and also the head of the board, he automatically gets placed at a higher position, gets more
authority in managing operations. Such CEO not only influence their pay packages, but tend to
engage in merger and acquisition activities. Mergers and acquisitions are an attractive form of
restructuring and reformation for a CEO as the enhanced availability of free cash flows in a postmerger firm adds to CEO power. It has been argued that in merger & acquisitions activities dual
position CEO’s tend to only benefit themselves by doing merger activities rather than improving
organizational performance. Dorata and Petra (2008) surveyed and evaluated the impact of CEO
duality as the driving force for a CEO to involve himself/herself in merger and acquisitions activities
in order to increase his/her compensation. The paper inspected as to whether dual serving CEO’s
were more involved in merger and acquisitions decision making, with which they tend to benefit
more than the corresponding CEO of the non-merging organization.
The study used CEO compensation as dependent variable; and CEO duality as independent variable,
and also incorporated firm size, returns on equity and the firm’s indulgence in a merger or an
acquisition. The results of the regression showed that CEO’s who involved themselves in merger
activities received compensation not consistent with their performance. Also it was found that CEO
duality was not the basic determinant of compensation in mergers rather the organization size was
found the most important factor which was seconded by firm performance.
Other variables that have been acknowledged in the literature, but have found to be less significant in
affecting CEO compensation and cannot be studied in isolation are the role of compensation
Proceedings of 10th Annual London Business Research Conference
10 - 11 August 2015, Imperial College, London, UK, ISBN: 978-1-922069-81-8
committees (Adut et al, 2003; Sun, 2004), CEO tenure (Zheng, 2010; Nourayi and Mintz, 2008) and
organizational culture
3. BANKING SECTOR IN PAKISTAN:
Pakistan’s banking sector reforms which were initiated in the early 1990s, and have transformed the
sector into an efficient, sound and strong banking system. According to joint assessment carried by
World Bank and IMF, the conclusion drawn was:
“Reforms have resulted in a more efficient and competitive financial system in particular, the
predominantly state-owned banking system has been transformed into one that is
predominantly under the control of the private sector. The legislative framework and the State
Bank of Pakistan’s supervisory capacity have been improved substantially. As a result, the
financial sector is sounder and exhibits an increased resilience to shocks.”
Pakistan’s Banking Sector is one of the highest paying sector of the economy. Despite increasing
inflation, compensation for the top executive, in the form of basic salary, bonuses and allowances
have increased over the year. On the other hand, banks in Pakistan have followed an expansionary
policy, thus the asset base has gone up, but due to lack of business activity and falling interest rates
the performance is showing a declining trend
4. BACKGROUND OF THE RESEARCH PROBLEM:
In Pakistan corporate governance code was implemented in 2002 for listed firms. Presently, corporate
governance in Pakistan primarily falls within the ambit of two entities: the SECP and the State Bank
of Pakistan. In Pakistan research on determinants of CEO compensation is a new area. The studies
that have been conducted mostly focused on manufacturing companies (Shah et al, 2009).
Proceedings of 10th Annual London Business Research Conference
10 - 11 August 2015, Imperial College, London, UK, ISBN: 978-1-922069-81-8
Despite the financial sector being the fast growing, efficient, strongly regulated with best corporate
governance practices, a little work has been done to explore the compensation trends in the financial
sector in Pakistan. The objective of this research is thus to identify those factors that affect the CEO
compensation specifically in the banking sector of Pakistan.
In order to achieve this objective following research hypothesis have been formulated
H1: There is a significant and positive impact of Firm size on CEO Compensation.
H2: There is a significant and positive impact of
firm’s accounting performance on CEO
compensation.
H3: There is a significant and negative impact of board size on CEO compensation.
H4: There is a significant and negative impact of family CEO and his compensation.
H5: There is a significant and negative relationship between CEO compensation and proportion of
independent directors on the board.
H7: There is a significant and negative relationship between CEO compensation and shares held by
the board of directors.
H6: There is a significant relationship between CEO compensation and institutional participation
5. METHODOLOGY AND MODEL:
The data has been hand collected from published audited annual reports of the 22 banks listed on the
Karachi Stock Exchange, for the period 2006-2013.The panel data analysis has been used for
Proceedings of 10th Annual London Business Research Conference
10 - 11 August 2015, Imperial College, London, UK, ISBN: 978-1-922069-81-8
interpretation purposes. The study includes significant firm specific and corporate governance
variables, identified through the literature.
In this paper the firm specific variables included are performance and size of the company/bank. To
gauge the effect of performance on CEO compensation ROE been used. The size of the bank is
measured by taking book value of assets. Ownership structure has been measured as size of the board,
the percentage of independent directors on the board, percentage of shares held by institutional
investors including percentage of shares held by financial and non- financial institutions, family held
business (quite common in Pakistan) and therefore CEO belongs to the family. According to
Pakistan’s Code of Corporate Governance, a CEO cannot be the chairman of the company, thus
concept of CEO duality is not applicable in Pakistan. (Explanation of the variables have been
provided in Table1 Appendix)
On the basis of the literature reviewed and data availability in the Pakistan, a following model is
developed for the factors that can affect CEO compensation
Ln Comp= α0+β1 ROE+β2Firm Size+β3Board Size+β4 CEO Family+β5 Indp
Dir+β6ShareFI+β7ShareNFI+β8ShareBoard+€
Proceedings of 10th Annual London Business Research Conference
10 - 11 August 2015, Imperial College, London, UK, ISBN: 978-1-922069-81-8
6. EMPIRICAL FINDINGS:
Summary of the descriptive statistics of the dependent variable and independent variables gives an
insight about the Banking Sector in Pakistan. Total compensation has a means value of 45821.07, this
means that the average salary of a CEO in banking sector is Rs 45.82 million per year. However, the
basic pay on average is Rs 27.84 million per year. This points out to the amount of fringe benefits
CEO’s in this sector are enjoying in the form of bonuses( average Rs 5.13 million per year) and
allowances (average Rs 29.87 million in form of provident fund, medical allowance, house rent and
utility allowances)
It can also be seen from Table 2(attached in Appendix), that average total assets of the banks were
Rs 300 million, with minimum of Rs 4 million to maximum of Rs 1715.2 million. However, the
performance was very low, an average of ROE was 10%.
With the help of Table2, one can also get a broad picture of corporate governance practices being
followed. Banks were generally not operated by families (average value of 0.02), 60% of the directors
on the board being independent and more than 50% of the shares are held by institutional investors
(Shares_nfi+ Shares_nfi). It can also be seen from the table that average tenure of a CEO in the
banking sector was 3.2 years, with minimum of 1 year to maximum of 8 years.
Table 3 shows the correlation between explanatory variables. All the correlation co-efficient have
value less than 0.5, thus there is no multi -collinearity among the explanatory variables.
After checking for multi-collinearity, model was estimated by running multiple regression. Multiple
Regression using panel data allows for using either fixed effect or random effect models. Both fixed
Proceedings of 10th Annual London Business Research Conference
10 - 11 August 2015, Imperial College, London, UK, ISBN: 978-1-922069-81-8
effect and random effect models were estimated. Hausman test was conducted. The Chi Square value
of the test was found highly significant(Prob>chi2=0.187), thus fail to accept null hypothesis that
there is a difference in co efficient estimates of fixed effect and random effect models are systematic,
thus Random Effect model is preferred.
This study thus uses Random Effect Regression, where dependent variable is total compensation of
all the other variables i.e., company’s performance (ROE) , firm size, board size,
CEO and
proportion of independent directors, participation of financial and non-financial institutions and CEO
family are taken as independent variables.
The table below shows significant variables along with T statistics
Variable Name
Variable
Co-efficient
Std-Error
T-Statistics
9.9e-07
2.96e-07
3.35
-0.617
0.241
-2.55
.0074133
.0028301
2.62
.01808
.01042
1.73
-0.32306
0.1667
-1.94
Symbol
Book Value of Assets
No
of
Bv_assets
Independent Indp_directors
Directors
% of share held by share_nfi
Financial Institutions
% of shares held by share_fi
Non-Financial
Institutions
CEO belonging to the ceo_family
family
(
dummy
variabale)
Wald chi2(8)
39.70
Prob>chi2=0.0
000
Proceedings of 10th Annual London Business Research Conference
10 - 11 August 2015, Imperial College, London, UK, ISBN: 978-1-922069-81-8
The regression results points out to the overall goodness of fit for the model. We can interpret that
keeping everything else constant, book value of assets, percentage of shares held by independent
directors, ceo_family, Shares_nfi and Shares_nfi are highly significant at 5% & 10% level of
significance .It can also be interpreted from the table that size of the firm has a positive impact on the
CEO compensation as hypothesized (an increase in assets by Rs1 will bring 9.9e-07 percent change
in the compensation).Board independence has a statistically significant negative impact on
compensation, which shows that as the number of outsiders on the board (independent directors)
increases, they affect CEO compensation negatively. However, statistically significant and positive
impact of shares held by non-financial and to some extent significant and positive impact of shares
held by financial institution shows that role of institutional investor is in favor of CEO for setting
their salaries. As far as Pakistan’s banking sector is concerned a family member of the bank holding
company being a CEO does not guarantee a high compensation level for the CEO.
The most noticeable finding from the regression results is that of performance. Performance as
measured by ROE not only has a negative impact on CEO compensation, but is also an insignificant
factor. This result is in align with previous compensation studies done in Pakistan. (Shah et al, 2009;
Athar &Khan, 2012).
7. CONCLUSION:
This study is an attempt to investigate significant factors that affect CEO compensation in the
Banking Sector of Pakistan. This study has tried to include both firm specific and corporate
governance variable to find out the impact on CEO compensation. The results suggest that:
1. Performance does not play any role in CEO compensation, whereas size of the firm has a
significant and positive impact on CEO compensation in the banking sector of Pakistan.
Proceedings of 10th Annual London Business Research Conference
10 - 11 August 2015, Imperial College, London, UK, ISBN: 978-1-922069-81-8
2. Board size does not matter, however, the composition of the board is the main factor affecting the
CEO compensation. More outsider on the board (independent directors) has a negative effect on CEO
compensation. The role of institutional investors on the board is found to be positive and significant.
8. LIMITATION AND FUTURE DIRECTIONS:
The data for this study has been collected from audited annual reports of the bank. Unfortunately in
case of Pakistan there is no other source, except these annual reports to find about the corporate
governance practices. The level of
disclosure in these report lacks the information about the
demographics of the CEO, especially age, qualification and experience.( 80 % missing values
generated). Since all the CEO’s are male, except CEO of First Women Bank, thus data is controlled
for gender
Although the result of the study are in align with Athar &Khan (2012), a significant value of intercept
and low value of R2 =0.204 points out that else than firm specific and corporate governance factors
other variables affect the CEO compensation.
There is not much work done in literature on analyzing the impact of demographic features on the
CEO compensation. Including such variables, and making disclosure in more detail can better capture
the true impact of factor that can affect CEO compensation in Pakistan.
Proceedings of 10th Annual London Business Research Conference
10 - 11 August 2015, Imperial College, London, UK, ISBN: 978-1-922069-81-8
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10 - 11 August 2015, Imperial College, London, UK, ISBN: 978-1-922069-81-8
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Proceedings of 10th Annual London Business Research Conference
10 - 11 August 2015, Imperial College, London, UK, ISBN: 978-1-922069-81-8
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Proceedings of 10th Annual London Business Research Conference
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APPENDIX
Table 1. Variable Description
Variables
Dependent Variable
Ln Comp
Definition/Description
CEO compensation calculated as sum of salary,
bonus and allowance (Stock options concept is not
applicable in Pakistan
Independent Variables
ROE
Firm Size
Ownership Structure
Board Size
CEO family
Profit Before Tax/Share Holder Equity
Book Value of Assets
CEO Duality
Independent Directors(IndpDir)
Share of Financial Institutions(ShareFI)
Share of Non- Financial Instituion(ShareNFI)
Shares held by the board(ShareBoard)
No of directors on the board
Equals 1 if CEO is the member of the controlled
family
Equals 1 if CEO is also the Chairman of the
Comoany
% of independent directors on the board
% of shares held by Financial Instituions
% of shares held by Non-Financial Instituion
% of shares held by the board
TABLE 2: DESCRIPTIVE STATISTICS OF THE VARIABLES
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Table2. Descriptive Statistics of the Variables
. summarize totcomp_ceo basicpay_ceo000 ALLOW_CEO BONUS_CEO bv_assets000000 roe boardsize CE
> o_tenure indp_directors SHARES_BOARD SHARES_FI share_nfi
Variable
Obs
Mean
totcomp_ceo
basicpay~000
ALLOW_CEO
BONUS_CEO
bv_as~000000
175
175
176
175
175
45821.07
27845.22
29878.51
5130.189
300505.3
roe
boardsize
CEO_FAMILY
ceo_tenure
indp_direc~s
175
175
175
175
175
SHARES_BOARD
SHARES_FI
share_nfi
167
175
175
Std. Dev.
Min
Max
37869.41
32836.27
37605.02
10866.38
316588.2
3848
1108
0
0
4025
277516
264439
277516
63212
1715271
10.24311
8.554286
.2628571
3.217143
.5869714
37.98785
1.416719
.4414486
2.078556
.2228588
-125.25
4
0
1
.1
184.06
13
1
8
.92
6.683883
8.044107
49.2327
11.7094
9.502677
30.91336
0
0
.02
63.41
46.57
98.99
Table 3 Correlation Matrix between Explanatory Variables
Proceedings of 10th Annual London Business Research Conference
10 - 11 August 2015, Imperial College, London, UK, ISBN: 978-1-922069-81-8
. corr roe boardsize ceo_family indp_directors shares_board share_fi share_nfi
(obs=167)
roe boards~e ceo_fa~y indp_d~s shares~d share_fi shar~nfi
roe
boardsize
ceo_family
indp_direc~s
shares_board
share_fi
share_nfi
1.0000
0.1351
-0.0999
0.0148
0.0213
0.0073
-0.1394
1.0000
0.2065
0.0215
0.1014
0.1107
0.0274
1.0000
0.1452 1.0000
0.3163 -0.0684 1.0000
0.4714 0.0508 0.0489 1.0000
0.0670 0.1680 -0.1764 -0.2896
xtset id years
panel variable: id (strongly balanced)
time variable: years, 2006 to 2013
delta: 1 unit
Table 4. Random Effect Model
1.0000
Proceedings of 10th Annual London Business Research Conference
10 - 11 August 2015, Imperial College, London, UK, ISBN: 978-1-922069-81-8
. xtreg lncomp bv_assets000000 roe boardsize ceo_family indp_directors shares_board share_fi share_nfi,
> re
Random-effects GLS regression
Group variable: id
Number of obs
Number of groups
=
=
167
21
R-sq:
Obs per group: min =
avg =
max =
7
8.0
8
within = 0.2040
between = 0.1770
overall = 0.1857
corr(u_i, X)
Wald chi2(8)
Prob > chi2
= 0 (assumed)
lncomp
Coef.
bv_assets000000
roe
boardsize
ceo_family
indp_directors
shares_board
share_fi
share_nfi
_cons
9.91e-07
-.0005099
-.0061277
-.3230661
-.6175057
.0037744
.0180854
.0074133
10.13193
2.96e-07
.0015659
.0497286
.1667783
.2416923
.0078569
.0104249
.0028301
.5330822
sigma_u
sigma_e
rho
.58310941
.50252511
.5738211
(fraction of variance due to u_i)
.
Std. Err.
z
3.35
-0.33
-0.12
-1.94
-2.55
0.48
1.73
2.62
19.01
P>|z|
=
=
0.001
0.745
0.902
0.053
0.011
0.631
0.083
0.009
0.000
39.70
0.0000
[95% Conf. Interval]
4.11e-07
-.0035789
-.1035939
-.6499455
-1.091214
-.0116249
-.002347
.0018665
9.087112
1.57e-06
.0025592
.0913385
.0038132
-.1437975
.0191736
.0385179
.0129601
11.17676
Proceedings of 10th Annual London Business Research Conference
10 - 11 August 2015, Imperial College, London, UK, ISBN: 978-1-922069-81-8
Table 5. Fixed Effect Model
. xtreg lncomp bv_assets000000 roe boardsize ceo_family indp_directors shares_board share_fi share_nfi,
> fe
Fixed-effects (within) regression
Group variable: id
Number of obs
Number of groups
=
=
167
21
R-sq:
Obs per group: min =
avg =
max =
7
8.0
8
within = 0.2153
between = 0.0545
overall = 0.0955
corr(u_i, Xb)
F(8,138)
Prob > F
= -0.2634
lncomp
Coef.
bv_assets000000
roe
boardsize
ceo_family
indp_directors
shares_board
share_fi
share_nfi
_cons
1.07e-06
.0006142
-.0491509
-.3152887
-.7795553
-.000498
.0275795
.0050561
10.62386
4.21e-07
.0018931
.0553437
.177142
.2814306
.0102383
.0129512
.0033824
.6023598
sigma_u
sigma_e
rho
.67480716
.50252511
.64326481
(fraction of variance due to u_i)
F test that all u_i=0:
.
Std. Err.
F(20, 138) =
t
2.53
0.32
-0.89
-1.78
-2.77
-0.05
2.13
1.49
17.64
9.41
P>|t|
=
=
0.013
0.746
0.376
0.077
0.006
0.961
0.035
0.137
0.000
4.73
0.0000
[95% Conf. Interval]
2.33e-07
-.003129
-.1585823
-.6655522
-1.336029
-.0207422
.0019712
-.001632
9.432814
1.90e-06
.0043575
.0602805
.0349749
-.2230815
.0197462
.0531879
.0117442
11.81491
Prob > F = 0.0000
Proceedings of 10th Annual London Business Research Conference
10 - 11 August 2015, Imperial College, London, UK, ISBN: 978-1-922069-81-8
Table 6. Hausman Fixed Random Test
. hausman fixed random
Note: the rank of the differenced variance matrix (7) does not equal the number of coefficients being
tested (8); be sure this is what you expect, or there may be problems computing the test.
Examine the output of your estimators for anything unexpected and possibly consider scaling
your variables so that the coefficients are on a similar scale.
Coefficients
(b)
(B)
fixed
random
bv_as~000000
roe
boardsize
ceo_family
indp_direc~s
shares_board
share_fi
share_nfi
1.07e-06
.0006142
-.0491509
-.3152887
-.7795553
-.000498
.0275795
.0050561
9.91e-07
-.0005099
-.0061277
-.3230661
-.6175057
.0037744
.0180854
.0074133
(b-B)
Difference
7.48e-08
.0011241
-.0430232
.0077775
-.1620496
-.0042724
.0094941
-.0023572
sqrt(diag(V_b-V_B))
S.E.
2.99e-07
.0010639
.0242899
.0597019
.1441806
.0065644
.0076846
.0018525
b = consistent under Ho and Ha; obtained from xtreg
B = inconsistent under Ha, efficient under Ho; obtained from xtreg
Test:
Ho:
difference in coefficients not systematic
chi2(7) = (b-B)'[(V_b-V_B)^(-1)](b-B)
=
10.07
Prob>chi2 =
0.1847
.
Proceedings of 10th Annual London Business Research Conference
10 - 11 August 2015, Imperial College, London, UK, ISBN: 978-1-922069-81-8
BANKING SECTOR GRAPHS
Table 2.1 Trend of average Total Compensation
70000
60000
50000
40000
30000
20000
10000
0
2006
2007
2008
2009
2010
2011
2012
Table 2.2 Trend Average Basic Pay
40000
30000
20000
10000
0
2006
2007
2008
2009
2010
2011
2012
2013
2013
Proceedings of 10th Annual London Business Research Conference
10 - 11 August 2015, Imperial College, London, UK, ISBN: 978-1-922069-81-8
Table 2.3 Average Allowance & Bonus Trend
50000
40000
30000
20000
10000
0
2006
2007
2008
2009
2010
2011
2012
2013
Table2.4. Average Bank Size
500000
400000
300000
200000
100000
0
2006
2007
2008
2009
2010
2011
2012
2013
2012
2013
Table2.5Performance Trend (ROE)
30.00
25.00
20.00
15.00
10.00
5.00
0.00
2006
2007
2008
2009
2010
2011