Executive Share Ownership on Risk Taking Among the Listed Commercial Banks in Kenya
Keywords:
executive share ownership, risk takingAbstract
Abstract
Purpose: The purpose of this study was to determine the effect of Executive Share Ownership on Risk Taking among the Listed Commercial Banks in Kenya.
Methodology:The study used an Epistemology research philosophy, causal research design was adopted whereby panel data approach was used. The target population for this study were the 11 listed banks on the NSE. Secondary Data for the year 2010 to 2015 was collected from the NSE handbook. Data collected was analyzed using descriptive statistics which included means and standard deviations. Inferential statistics such as Pearson correlation and panel regression was also used. The results were presented in form of tables, figures, charts, graphs and trend lines.
Results:Based on the findings, the study concluded that there Share Ownership and risk taking are positively and insignificantly related.
Policy recommendation: This study recommends that on Executive Share Ownership banks should not increase director's shares as this will have no effect on risk taking.
Downloads
References
Adams, J. S. (1963) toward an understanding of inequity. Journal of Abnormal and Social Psychology, 67, 422-436.
Adams, R. (2009), "˜Governance and the financial crisis', in Thomsen, S., Rose, C. and Risager, O. (Eds.), Understanding the Financial Crisis: Investment, Risk and Governance (pp. 156-175) Copenhagen, Denmark: SimCorp Strategy Lab.
Aduda, J. (2011). The relationship between executive compensation and firm performance in the Kenyan banking sector. Journal of Accounting and Taxation Vol. 3(6), pp. 130-139.
Agarwal, V., Daniel, N. D., and Naik, N. Y. (2009). Role of Managerial Incentives and Discretion in Hedge Fund Performance. Journal of Finance, 64(5), 2221-2256
Aggarwal, R and Samwick, A. (1999), "˜The Other Side if the Trade-off: The Impact of Risk on Executive Compensation', Journal of Political Economy, 107, 65-104.
Aktar, S., Sachu, M.K., & Ali, M.E., (2012) The Impact of Rewards on Employee Performance in Commercial Banks of Bangladesh: An Empirical Study. Journal of Business and Management, Vol. 6 No. 2, pp. 9-15
Alon, R. and Yoram, L. (2010). The 2007-2009 Financial Crisis and Executive Compensation: An Analysis and a Proposal for a Novel Structure. Brandeis University - International Business School. Hebrew University of Jerusalem - Department of Finance and Banking; New York University (NYU) - Leonard N. Stern School of Business http://ssrn.com/abstract=1420991
Anderson, R. C., & Fraser, D. R. (2000). Corporate control, bank risk taking, and the health of the banking industry. Journal of Banking & Finance, 24(8), 1383-1398.
Armstrong, C. S., &Vashishtha, R. (2012). Executive stock options, differential risk-taking incentives, and firm value. Journal of Financial Economics, 104(1), 70-88.
Armstrong, M., & Taylor, S., (2014) Armstrong's Handbook of Human Resources Practise(13th Ed.), Kogan Page Limited.
Asala, J. U. (2012). Determinants of executive compensation in Kenya. A case of listed firms on the Nairobi Stock Exchange. Unpublished MBA thesis. Kenyatta University, Kenya
Ashforth, B. E., & Gibbs, B. W. (1990). The double-edge of organizational legitimation. Organization science, 1(2), 177-194.
Associated Press (Sunday, August 29, 1999). NY bank fires executive in money laundering plot.
Azul, R. (2011). US banks involved in money laundering operation for Mexican mafia. Published by the International Committee of the Fourth International (ICFI). Retrieved from http://www.wsws.org/articles/2011/may2011/mexi-m20.shtml on15May 2012
Baltagi, B. H., Bratberg, E., &Holmås, T. H. (2005). A panel data study of physicians' labor supply: the case of Norway. Health Economics, 14(10), 1035-1045.
Barako, D.G. Hancock, P. Izan, H.Y (2006). Relationship between Corporate Governance Attributes and Voluntary Disclosures in Annual Reports: The Kenyan Experience, Working Paper, Graduate School of Management, University of Western Australia.
Bartkus, B. R., Morris, S. A., & Seifert, B. (2002). Governance and Corporate Philanthropy Restraining Robin Hood. Business & Society, 41(3), 319-344.
Bebchuk, L. A. Cohen, A. &Spamann, H. (2010). The wages of failure: Executive compensation at Bear Stearns and Lehman 2000-2008. Yale Journal on Regulation.
Belsley, D. A., Kuh, E., &Welsch, R. E. (1980). Regression diagnostics. J.
Benito, A., &Conyon, M. J. (1999). The governance of directors' pay: Evidence from UK companies. Journal of Management and Governance, 3(2), 117-136.
Bhattacharyya, N., Mawani, A., & Morrill, C. (2008). Dividend payout and executive compensation: theory and evidence. Accounting & Finance, 48(4), 521-541.
Biegelman, M.T., & Bartow, J.T., (2012) Executive Roadmap to Fraud Prevention and Internal Control: Creating a Culture of Compliance. (2nd Ed.), John Wliey& Sons Inc.
Boivie, S., Bednar, M. K., & Barker, S. B. (2015). Social comparison and reciprocity in director compensation. Journal of Management, 41(6), 1578-1603.
Bolton, P. Scheinkman, & W. Xiong,(2006) Executive Compensation and Short- TermistBehaviour in Speculative Markets." Review of Economic Studies 73, no. 3 (July 2006): 577-610.
Boyd, B. (1990). "Corporate Linkages and Organizational Environment: A Test of the Resource Dependence Model." Strategic Management Journal 11(6): 419-430.
Brealey, R. A., & Myers, S. C. (2003). Capital investment and valuation. McGraw Hill Professional.
Bruce, A. Buck, T. & Main, B.G. (2005). Top executive remuneration: A view from Europe. Journal of Management Studies, 42(7): 1493-1506.
Bruce, A., Skovoroda, R., Fattorusso, J., & Buck, T. (2007). Executive bonus and firm performance in the UK. Long Range Planning, 40(3), 280-294.
Buck, T., Bruce, A., Main, B. G., &Udueni, H. (2003). Long term incentive plans, executive pay and UK company performance. Journal of Management Studies, 40(7), 1709-1727.
Burnison, G. (2009). The Looming Compensation Crisis.(Electronic) Korn/Ferry Institute, 15 th Sept. Bushee, B. J., Core, J. E., Guay, W., & Hamm, S. J. (2010). The role of the business press as an information intermediary. Journal of Accounting Research, 48(1), 1-19.
Cain, M. D., McKeon, S. B., & Davidoff Solomon, S. (2015). Do takeover laws matter? Evidence from five decades of hostile takeovers. Evidence from Five Decades of Hostile Takeovers (July 21, 2015). AFA.
Carney, M., Gedajlovic, E., & Sur, S. (2011). Corporate governance and stakeholder conflict. Journal of Management & Governance, 15(3), 483-507.
Carpenter, J. N. (2000). Does option compensation increase managerial risk appetite? The journal of finance, 55(5), 2311-2331.
Carrell, M. R., &Dittrich, J. E. (1978). Equity theory: The recent literature, methodological considerations, and new directions. Academy of Management Review, 3(2), 202-210.
Cascarino, R.E., (2013) Corporate Fraud and Internal Control: A Framework for prevention. John Wliey& Sons Inc
Chen, C.R. Steiner, T.L. &. A.M. Whyte, (2006).Stock option-based manager compensation induces risk-taking. An analysis of the banking industry,' Journal of Banking and Finance 30, 915-945.
Chen, D., &Zheng, Y. (2014). CEO tenure and risk-taking. Global Business and Finance Review, 19(1), p1-27.
Chesney, M., Stromberg, J., & Wagner, A. F. (2012). Risk-taking incentives and losses in the financial crisis. Research Paper, 10-18.
Chibuike, U. U. (2012). Money Laundering: A View from a Developing Country. Department Of Banking and Finance, University Of Nigeria
Christensen, P. O., Feltham, G. A., &Åžabac, F. (2005). A contracting perspective on earnings quality. Journal of Accounting and Economics, 39(2), 265-294.
Christensen, P.O., Feltham, J.A., (2005). Economics of Information, (Volume II:) Performance Evaluation. LLC, Springer-Verlag New York
Christensen, P.O., Feltham, J.A., 2005. Economics of Information, Volume II: Performance Evaluation. LLC, Springer-Verlag New York.
Coles, J.L. Daniel, N.D. & Naveen, L.(2006). Manager Incentives and Risk-taking, Journal of Financial Economics 79(2), 431-468.
Conyon, M and Murphy, K. (2000), "˜The Prince and the Pauper? CEO Pay in The Compensation in the United Kingdom', Economic Journal, 105, 704-714.
Conyon, M. (1997), "˜Corporate Governance and Executive Compensation', International Journal of Industrial Organization, 15, 493-509.
Conyon, M. J., & He, L. (2016). Executive compensation and corporate fraud in China. Journal of Business Ethics, 134(4), 669-691.
Conyon, M., Gregg, P., &Machin, S. (1995). Taking care of business: Executive compensation in the United Kingdom. The Economic Journal, 105(430), 704-714.
Conyon, M.J., & He, L., (2013) Executive Compensation and Corporate Fraud in China. Working Paper Presented to Wharton School.
Conyon, M.J., N. Fernandes, M. A. Ferreira, P. Matos and K.J. Murphy (2010), "˜The Executive Compensation Controversy: A Transatlantic Analysis', redraft of Annual FRDB conference paper.
Core, J., and D. Larcker (1999), "˜Corporate Governance, chief executive officer compensation, and firm performance', Journal of Financial Economics, 51(3), 371-406.Crisis (Russell Sage Foundation).
Creswell, J. W., Plano Clark, V. L., Gutmann, M. L., & Hanson, W. E. (2003). Advanced mixed methods research designs. Handbook of mixed methods in social and behavioral research, 209-240.
Crowe, C. W., Ostry, M. J. D., Kim, M. J. I., Chamon, M. M., & Ghosh, M. A. R. (2009). Coping with the crisis: policy options for emerging market countries. International Monetary Fund.
Crumley, C. (2008). A study of the relationship between firm performance and CEO compensation in the U.S. commercial banking industry. Journal of Applied Management and Entrepreneurship, 13, 26-46.
Davis, G. F. and J. A. Cobb (2010) "Resource dependence theory: Past and future." Stanford's organization theory renaissance, 1970-2000: 21-42. Bingley, NY: Emerald Group.
Demski, J. (1994).Managerial Uses of Accounting Information. Kluwer, Boston.
Diamond, D.W. &Raghuram, G. Rajan, (2009). The credit crisis: Conjectures about causes and remedies. American Economic Review: Papers & Proceedings 99:2, 606-610
Donaldson, L. (1990). A rational basis for criticism of organizational economics: a reply to Barney. Academy of Management Review, Vol. 15, pp. 394-401., ISSN: 0363-7425
Donaldson, L., & Davis, J. H. 1991. Stewardship Theory or Agency Theory: CEO governance and shareholder returns. Australian Journal of Management, 16: 49-65.
Donaldson, L., Davis, J. H. 1993. The Need for Theoretical Coherence and Intellectual Rigour in Corporate Governance Research: Reply to Critics of Donaldson and Davis. Australian Journal of Management, 18: 213-225.
Dow, J. and Raposo, C. (2005). CEO Compensation, Change, and Corporate Strategy," Journal of Finance, LX (2005), 2701-2727.
Drees, J. M. and. Heugens P.P.M.A.R (2013). "Synthesizing and Extending Resource Dependence Theory: A Meta-Analysis." Journal of Management, 39: 1666-1698.
El Akremi A., Roussel P., and Trepo G. (2001) "˜CEO compensation strategies: Consequences on the structure and management of executive pay' Working paper.
Ellul, A., &Yerramilli, V. (2013). Stronger risk controls, lower risk: Evidence from US bank holding companies. The Journal of Finance, 68(5), 1757-1803.
Erickson, M., Hanlon, M., &Maydew, E. L. (2006). Is there a link between executive equity incentives and accounting fraud? Journal of Accounting Research, 44(1), 113-143.
Ernst & Young. (2006). Global Non performing Loan Report 2006. Retrieved from www.ey.com/...Non-Performing_Loan_Report
Fahlenbrach, R., &Stulz, R. M. (2011). Bank CEO Incentives and the credit crisis. Journal of Financial Economics, 99(1), 11-26.
Fatemi, A., Desai, A.S., & Katz, J.P. (2003). Wealth creation and managerial pay: MVA and EVA a determinants of executive compensation. Global Finance Journal, 14(2), 159-179.
Fernandes, N., Ferreira, M. A., Matos, P., & Murphy, K. J. (2009). The pay divide :( Why) US top executives are paid more. University of Southern California working paper
Field, A. (2009). Discovering statistics using SPSS. Sage publications.
Filatotchev, I. &Allcock, D. (2010). Corporate governance and executive remuneration: A contingency framework. Academy of Management Perspectives, 24(1): 20-33.
Financial Services Authority (2009a), Reforming remuneration practices in financial services, Consultation Paper, 09/10 March.
Financial Services Authority (2009b). Reforming remuneration practices in financial services: Feedback on CP09/10 and final rules, Policy Statement 09/15, August.
Finkelstein S., Boyd B. (1998) "˜How much does the CEO matter? The role of managerial discretion in the setting of CEO compensation' Academy of Management Journal. Vol. 41(2) Pp 179-200.
Finkelstein S., Boyd B. (1998) "˜How much does the CEO matter? The role of managerial discretion in the setting of CEO compensation' Academy of Management Journal. Vol. 41(2) Pp 179-200.
Firth, M., Fung, P. M. Y., &Rui, O. M. (2007). How ownership and corporate governance influence chief executive pay in China's listed firms. Journal of Business Research, 60, 776-785.
Gao, P. &Shrieves, R.E. (2002). Earnings Management and Executive Compensation: A Case of Overdose of Option and Underdose of Salary?Working Paper. University of nessee.
Gao, P., and Shrieves, R., (2002). Earnings management and executive compensation: A case of overdose of option and under dose of salary? Unpublished working paper. University of Tennessee, Knoxville.
Garen, J. E. (1994). Executive compensation and principal-agent theory. Journal of political economy, 1175-1199.
Garvey, G., &Milbourn, T. (2003). Incentive compensation when executives can hedge the market: Evidence of relative performance evaluation in the cross section. The Journal of Finance, 58(4), 1557-1582.
Gathua, P.K., Ngumi, P., &Kiragu, D.N., (2013) The Relationship between Executive Compensation and Risk Among Commercial Banks in Kenya. ¬Prime Journal of Social Sciences, Vol. 2 (2), pp. 204-212
Gomez-Mejia, L. & Wiseman, R. M. (1997). Reframing executive compensation: An assessment and outlook. Journal of Management, 23(3): 291-374.
Gomez-Mejia, L. R., Larraza-Kintana, M., &Makri, M. (2003). The determinants of executive compensation in family-controlled public corporations. Academy of management journal, 46(2), 226-237.
Greckhamer, T. (2011). Cross-cultural differences in compensation level and inequality across occupations: A set-theoretic analysis. Organization Studies, 32 (1), 85-115.
Greckhamer, T., &Mossholder, K. W. (2011). Qualitative comparative analysis and strategic management research: Current state and future prospects. Building Methodological Bridges (Research Methodology in Strategy and Management, (Volume 6), 259-88.
Greenberg, J., & Baron, R. A. (2003). Behavior in organizations: Understanding and managing the human side of work. Pearson College Division.
Gujarati, D. N. (2003). Basic Econometrics. (4th edition). New York: McGraw-Hill.
Hagendorff, J., Saunders, A., Steffen, S., &Vallascas, F. (2015). The wolves of Wall Street? How Bank Executives Affect Bank Risk Taking (September 8, 2015).
Han, T. S., &Shen, C. H. (2007). The effects of bonus systems on firm performance in Taiwan's high-tech sector. Journal of Comparative Economics, 35(1), 235-249.
Heathfield, S. M. (2010). What is human resource management? Retrieved October, 24, 2010.
Hill, C. W. L. (1990). Cooperation, Opportunism, and the Invisible Hand: Implications for Transaction Cost Theory. Academy of Management Review, Vol. 15, No. 3, pp. 500-513., ISSN: 0363-7425
Hillman, A. J., Withers, M. C. and B. J. Collins (2009). "Resource dependence theory: A review." Journal of Management 35: 1404-1427.
Himmelberg, C. Hubbard, R. &Palia, D. (1999). Understanding the determinants of managerial ownership and the link between ownership and performance. Journal of Financial Economics 53, 353-384.
Hoskisson, R.E. Castleton, M.W. & Withers, M.C. (2009). Complementarily in monitoring and bonding: More monitoring leads to higher executive compensation. Academy of Management Perspectives, 23(2): 57-74.
Houston, J. F., & James, C. (1995). CEO compensation and bank risk is compensation in banking structured to promote risk taking? Journal of Monetary Economics, 36(2), 405-431.
Huseman, R.C., Hatfield, J.D. & Miles, E.W. (1987). A New Perspective on Equity Theory: The Equity Sensitivity Construct. The Academy of Management Review. 12;2: 222-234.
Jensen, M. C., and Meckling, W. H. (1976), Theory of the firm: managerial behavior,
agency costs, and ownership structure, Journal of Financial Economics 3, 305-360.
Jensen, M., and K.J. Murphy (1990), "˜Performance pay and top management incentives', Journal of Political Economy, 98, 225-264.
Jian, C., Kent, C. and Todd, M. (2010). Compensation and Risk Incentives in Banking and Finance. Economic Commentary.
Jin, L. (2002). CEO compensation, diversification and incentives. Journal of Financial Economics. 66, 29-63.
John, K., Litov, L., and Yeung, B. (2008). Corporate governance and risk-taking. Journal of Finance, 63:1979-1728.
Jones, R., & Wu, Y.W., (2010) Executive Compensation, Earnings Management and Shareholder Litigation. Review of Qualitative Financial Accounting, 35, 1-20 Journal of Banking and Finance 48, 139-151.
Kang, S. H., Kumar, P., & Lee, H. (2006). Agency and corporate investment: the role of executive compensation and corporate governance. The Journal of Business, 79(3), 1127-1147.
Kempf, A., Ruenzi, S., &Thiele, T. (2009). Employment risk, compensation incentives, and managerial risk taking: Evidence from mutual fund industry. Journal of Financial Economics. 92, 92-108
Kerr, J., &Bettis, R. A. (1987). Boards of directors, top management compensation, and shareholder returns. Academy of Management journal, 30(4), 645-664.
Kithinji, A.., &Ngugi, W..(2005). Stock market performance before and after general elections-a case study of the Nairobi stock exchange.
Laeven, L. and Levine, L. (2007). Is there a diversification discount in financial conglomerates? Journal of Financial Economics, 85:331-367.
Lam, S. S., &Chng, B. F. (2006). Do executive stock option grants have value implications for firm performance?.Review of Quantitative Finance and Accounting, 26(3), 249-274.
Landy, F.J. & Conte, J.M. (2010). Work in the 21st Century: An introduction to industrial and organizational psychology, (3rd ed). McGraw Hill
Leisen, D. (2014). Does Bonus Deferral Reduce Risk Taking?. Available at SSRN 1662555.
Leisen, D. P. (2015). Dynamic risk taking with bonus schemes. Quantitative Finance, 15(9), 1583-1596.
Levine, R., (2012) The Governance of Financial Regulations: Reform Lessons from the Recent Crisis. International Review of Finance, 12:1, 39-56
Low, A. ( 2009). Manager risk-taking behavior and equity-based compensation, Journal of Financial Economics, 92: 470-490.
Maijoor, S. J., &Vanstraelen, A. (2006). Earnings management within Europe: the effects of member state audit environment, audit firm quality and international capital markets. Accounting and business research, 36(1), 33-52.
Main, B.G.M., A. Bruce, and T. Buck (1996), "˜Total Board Remuneration and Company Performance', Economic Journal, 106, 1627-1644.
Massa, M., and Patgiri, R. (2009). Incentives and Mutual Fund Performance: Higher Performance or Just Higher Risk Taking? Review of Financial Studies, 22(5), 1777-1815
Matteo, T, (2008) "Overseeing Risk Management and Executive Compensation: Pressure Points for Corporate Directors," The Conference Board Executive Action Report.
Mehran, H., Morrison, A. D., & Shapiro, J. D. (2011). Corporate governance and banks: What have we learned from the financial crisis?.FRB of New York Staff Report, (502).
Michael, F. Dalida, K. Prabhala, N. & Lemma, S. (2011). Executive Compensation: An Overview of Research on Corporate Practices and Proposed Reforms. Journal of applied corporate finance. Vol 22 No2 winter 2011
Mintzberg, H. (2009). No more executive bonuses! Business Insight: MIT Sloan Management Review/The Wall Street Journal: R3, R6, November 30, 2009.
Mintzberg, H. (2009). No more executive bonuses! Business Insight: MIT Sloan Management Review/The Wall Street Journal: R3, R6, November 30, 2009.
Mueller, E., & Spitz"Oener, A. (2006). Managerial ownership and company performance in German small and medium"sized private enterprises. German Economic Review, 7(2), 233-247.
Mululu, A.K. (2005). "The Relationship between Board Activity and Firm Performance: A Study of Firms Quoted on the Nairobi Stock Exchange" [unpublished].
Muriithi, A.K. (2004). "The Relationship between Corporate Governance Mechanism and Performance of Firms Quoted at the Nairobi Stock Exchange' [unpublished]
Muriungi, C. K. M. (2014). Investigation of the relationship between auditing and performance of state corporations in Kenya (Doctoral dissertation).
Murphy, K. J. (1998). Executive compensation. Handbook of labor economics, 3, 2485-2563.
Murphy, K. J. (2012). Pay, politics and the financial crisis. Economic Lessons from the Financial Crisis.
Nes, L. S., Roach, A. R., &Segerstrom, S. C. (2009). Executive functions, self-regulation, and chronic pain: a review. Annals of Behavioral Medicine, 37(2), 173-183.
Newman, M. E., Moore, C., & Watts, D. J. (2000). Mean-field solution of the small-world network model. Physical Review Letters, 84(14), 3201.
Ng, P. W. (2015). Guesthouse customer satisfaction analysis using quantitative kano model.
Ngui, T.K., (2014) Effect of Human Resource Management Strategies on Performance of Commercial Banks in Kenya. PhD Dissertation Presented to Jomo Kenyatta University of Science and Agriculture
Nienhüser, W. (2008). Resource dependence theory-How well does it explain behavior of organizations?.Management revue, 9-32.
Nyaoga, R.B., Basweti, A.K., &Tarus, K.E., (2014) The Relationship between Executive Compensation and Financial Performance of Insurance Companies in Kenya. Research Journal of Finance and Accounting, Vol. 5 No. 1, 114-122
Ongore, V.O. (2011) The relationship between ownership structure and firm performance: An empirical analysis of listed companies in Kenya. African Journal of Business Management, 5(6),
Ozkan N. (2007) CEO "˜Compensation and Firm Performance: An Empirical Investigation of UK Panel Data' Journal of Economic Literature
Palia, D., & Porter, R. (2004). The impact of capital requirements and managerial compensation on bank charter value. Review of Quantitative Finance and Accounting, 23(3), 191-206.
Downloads
Published
How to Cite
Issue
Section
License
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution (CC-BY) 4.0 License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
