The Causality between Employees’ Economic Rewards and Sustainable Performance of Nigerian Quoted Manufacturing Firms

Abstract

This study examines the causal relationship between employees' economic rewards and sustainable performance of the Nigerian quoted manufacturing firms. The study uses 400 firm-year data, involving 50 companies, purposively selected over the period [2006][2007][2008][2009]. The data were sourced from the annual audited reports and accounts of the companies, obtained from the Nigerian Stock Exchange. The study uses correlation and granger causality econometric techniques to analyze the data, after carrying out diagnostic tests such as unit roots and cointegration tests. The study found that relative economic value added (WETREL) was stationary (χ² = 176.425, p<0.01) at level and relative employees' economic rewards (SENREL) stationary (χ² = 317.882, p<0.01) at first difference, using the Philips-Perron Fisher asymptotic chi-square criterion while both WETREL was stationary (Z=-9.8012, p<0.01) and SENREL stationary (Z=-7.2612, p<0.01) at first difference, using Philips-Perron Choi Z-statistics criterion. Also, there was at least one cointegrating equation between SENREL and WETREL of the companies, indicating a long-run equilibrium relationship between the two variables. In addition, WETREL (χ²=7.623, p<0.01) significantly Granger causes SENREL and SENREL (χ²=3.744, p<0.05) also significantly Granger causes WETREL. Thus, a bi-directional causality existed between the variables, indicating that the direction of the causality runs two ways, from WETREL to SENREL, and vice versa. The study concluded that the two variables are good predictor of each other though employees' economic reward is a better predictor of sustainable performance of quoted manufacturing firms in Nigeria.