Do Boards Govern Executive Remuneration in Indian Banks? An Econometric Exploration

Gulati, Rachita; Bhatia, Madhur; Duppati, Geeta

doi:10.1007/s40953-021-00282-8

Cited by 3 publications

(3 citation statements)

References 60 publications

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“…For instance, Słomka-Gołębiowska and Urbanek (2016) and Lee and Isa (2015) noted a significant relationship between current-year performance and pay. On the other hand Gulati et al (2022), Owen and Temesvary (2019), Luo (2015) and Doucouliagos et al (2007) show insignificant relationship between pay and one-period lagged performance. However, Doucouliagos et al (2007) indicated a significant impact of two-period lagged performance on pay.…”

Section: Executive Remuneration and Performancementioning

confidence: 87%

“…Bartlett and Kaiser–Meyer–Olkin tests confirm the validity of PCA on our data set. For the reliability of the variables, the chosen board attributes are measured following the principles recommended by the regulatory authorities as well as the previous studies on board governance (see, for instance, Bhatia and Gulati, 2022, 2020; Gulati et al , 2022). A higher mean value of the board index denotes better board quality.…”

Section: Database and Estimation Methodologymentioning

confidence: 99%

“…However, the recent literature on examining pay contracts of executives has only focussed on the short-run phenomenon (Gulati et al, 2022;Adu et al, 2022;Owen and Temesvary, 2019;Olaniyi and Obembe, 2017;Słomka-Gołębiowska and Urbanek, 2016;Luo, 2015;Doucouliagos et al, 2007; for banking firms) and (Khursheed and Sheikh, 2022;Dias et al, 2020;Abdalkrim, 2019;Benkraiem et al, 2017;Pereira and Esperanc ¸a, 2015;Petra and Dorata, 2008;Nahar Abdullah, 2006;Pass, 2003;Elloumi and Gueyi e, 2001; among others for non-financial firms). There is currently no conclusive evidence from research that has assessed the connection between pay and performance using current or one-period lagged performance variables.…”

Section: Executive Remuneration and Performancementioning

confidence: 99%

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Co-integrating relation between pay, board governance and performance: evidence from Indian banking

Bhatia

Gulati

2023

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Purpose The purpose of the paper is to explore the long-run impact of board governance and bank performance on executive remuneration. More specifically, the study addresses two objectives. First, the authors investigate the long-run relationship between pay and performance hold for the Indian banking industry. Second, the authors explore the moderating role of the board in explaining the relationship between executive pay and performance. Design/methodology/approach The study uses multivariate panel co-integration approaches, i.e. fully modified and dynamic ordinary least square, to explain the co-integrating relationship between executive pay, governance and performance of Indian banks. The analysis is conducted for the period from 2005 to 2018. Findings The results of co-integration tests reveal a long-run relationship between executive pay, board governance and bank performance. The long-run estimates produce evidence in favour of the dynamic agency theory, suggesting that the implications of asymmetric information can be mitigated by associating the current executive pay with the bank performance in the previous periods. The finding of this study reveals that improvements in the board quality serve as a monitoring tool to constrain excessive pay and moderate the executives’ pay. Furthermore, the interaction of performance and board governance negatively impacts pay, supporting a substitution approach. It implies that setting optimal pay packages for executives necessitates enhanced and efficient board governance practices. Practical implications The study recommends significant policy implications for regulators and the board of directors that executive pay significantly responds to the bank’s performance and good board governance practices in the long run. Originality/value This paper provides novel evidence of long-run pay-performance-governance relation using a panel co-integration approach.

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