Bank performance and executive pay: tournament or teamwork

We investigate the relationship between the dispersion of executive pay and bank performance/valuation by examining two competing theories, the tournament theory (hierarchical wage structure) and the equity fairness theory (compressed wage structure). The key variable of executive pay dispersion is measured using a hand-collected dataset composed of 63 banks from OECD countries and 29 banks from developing countries. The dataset covers the period 2004 to 2012. By combining and modifying a translog profit function and a pay-dispersion model, we are able to address the potential problems of relying on reduced-form estimation. In our subsample of developed and civil law countries, where bank performance is measured by either Tobin’s Q or by the price-to-book ratio, the overall impact of executive pay dispersion is mostly negative, and we find supporting evidence for the equity fairness theory, except for very high levels of dispersion. There is a non-linear effect, as banks perform best when there is either very low or very high executive pay dispersion. For developing country sample banks, greater executive pay dispersion has a negative impact on bank profit. In our subsample of common law countries, however, we find no evidence of a significant impact of executive pay dispersion on bank performance. We conclude that lower executive pay dispersion, a proxy for teamwork, is mostly effective in enhancing bank performance in a significant section of sample banks, i.e., civil law and developing countries

Pay dispersion and bank performance: the role of culture and law

We examine the impact of executive pay dispersion on firm performance and valuation in a global sample of banks. The pay dispersion variable is measured using our hand-collected dataset comprised of banks chosen from OECD countries and banks from China and India. Controlling for cultural differences across countries using Hofstede’s four cultural dimensions, we test whether the equity fairness (favouring smaller pay dispersion) or tournament theory (arguing for higher pay dispersion) are better descriptions of the relationship between pay dispersion and performance. We find that the equity fairness theory prevails in most sub-groups of our sample, with the exception of Common Law developed country banks, where there is no significant relationship between pay dispersion and performance or valuation. With regard to the cultural variables, we find for our sample banks in Developed Countries that Individualism is positively associated with market valuation while Uncertainty Avoidance has a negative effect

Bank performance and executive pay: tournament or teamwork

We investigate the relationship between the dispersion of executive pay and bank performance/valuation by examining two competing theories, the tournament theory (hierarchical wage structure) and the equity fairness theory (compressed wage structure). The key variable of executive pay dispersion is measured using a hand-collected dataset composed of 63 banks from OECD countries and 29 banks from developing countries. The dataset covers the period 2004 to 2012. By combining and modifying a translog profit function and a pay-dispersion model, we are able to address the potential problems of relying on reduced-form estimation. In our subsample of developed and civil law countries, where bank performance is measured by either Tobin’s Q or by the price-to-book ratio, the overall impact of executive pay dispersion is mostly negative, and we find supporting evidence for the equity fairness theory, except for very high levels of dispersion. There is a non-linear effect, as banks perform best when there is either very low or very high executive pay dispersion. For developing country sample banks, greater executive pay dispersion has a negative impact on bank profit. In our subsample of common law countries, however, we find no evidence of a significant impact of executive pay dispersion on bank performance. We conclude that lower executive pay dispersion, a proxy for teamwork, is mostly effective in enhancing bank performance in a significant section of sample banks, i.e., civil law and developing countries

Why German banks should merge

Purpose – The paper aims to investigate whether the wave of mergers observed in other European countries is suitable for the German banking industry. Design/methodology/approach – This question is approached by studying the relationship between market structure and profit (the so-called profit-structure relationship) in the German banking industry using the model suggested by Berger. By extending his econometric model to include portfolio and capital risk and using German banks' financial data, the authors are able to test simultaneously for three competing theories of the profit-structure relationship. Findings – It is found that including portfolio risk significantly improves the fit of the estimated profit-structure relationship. In addition, it is found that scale economies are present in German banking and that the so-called structural conduct – performance hypothesis is accepted. Owing to the acceptance of this hypothesis, conclude it is that mergers are likely to boost German banks' profitability but possibly at the expense of lower consumer welfare. Research limitations/implications – The research methodology employed is unable to weigh the potential benefits of higher financial sector profitability and stability against the possible detrimental impact on consumer Originality/value – The value of the paper is to provide a robust estimate of scale economies and a reliable test of the profit-structure relationship in German banking based on recent data. It should be of particular value to bank managers, seeking to increase their institution's profitability by way of merger and to the regulator of the financial industry.Acquisitions and mergers, Banking, Germany, Profit

Environmental transparency and investors' risk perception: Cross‐country evidence on multinational corporations' sustainability practices and cost of equity

Abstract: We explore whether a greater amount of environmental disclosure can reduce a firm's ex ante cost of equity. This could occur because the quantity of environmental information changes investors' risk perception of the company, thereby influencing its ex ante cost of equity. Our study is a cross‐country analysis of 1481 multinational corporations (MNCs) across 43 countries and territories from 2013 to 2019. Firstly, we measure investors' risk perception as a firm's ex ante cost of equity by employing five different valuation models, all based on equity analysts' forecasted data. We then investigate whether large quantities of environmental information disclosed by an MNC affect its ex ante cost of equity. We find evidence that investors price the amount of environmental disclosure. More environmental disclosure decreases a firm's ex ante cost of equity because it lessens investors' information asymmetry. However, this relationship is non‐linear. Once the amount of environmental disclosure data exceeds a certain threshold level, a firm's ex ante cost of equity will rise again. Our empirical results also suggest that non‐financial factors at the country level play a role in shaping how investors perceive a firm's riskiness. Locating the firm in a country with better environmental performance and a higher score of the human development index can reduce investors' risk perception and result in a lower ex ante cost of equity. A policy implication of our findings is that a global standardised and effective corporate sustainability reporting is needed to provide investors a more holistic view for evaluating the riskiness of their investments

Changes in suitable habitat for the critically endangered Northern white-cheeked gibbon (Nomascus leucogenys) in the Western Nghe An Biosphere Reserve, Vietnam: Implication for conservation

Several recent studies have highlighted that change in land use and land cover (LULC) is the main threat causing the decline and extinction of certain species. Gibbons (Hylobatidae) could be excellent examples, on account of their potential for extinction in the near future under the effects of LULC changes due to their particular ecological traits. This study aims to model the current suitable habitat of the Northern white-cheeked gibbon (Nomascus leucogenys (Ogilby, 1840)) in the Western Nghe An Biosphere Reserve (BR), Vietnam and assess the changes in its suitable habitat following the changes in LULC from 1990 to 2020. The maximum entropy approach (MaxEnt) was used to predict the suitable habitat of the gibbon using its occurrence localities and environmental predictors. The model analysis showed that the “Distance to Agriculture” variable had the strongest impact on the gibbons’ suitable habitat. Our results predicted the present suitable habitat of the gibbon species at approximately 4,022.42 km2 (30.95% of the overall BR area) in three spatially separated areas inside the Western Nghe An BR. Furthermore, the suitable habitat areas of the gibbon in 1990, 2000, and 2010 were projected at roughly 4,347.68 km2, 4,324.97 km2, and 2,750.21 km2, respectively, following a decreasing trend from 1990 to 2010, but a gradual increase between 2010 and 2020. The suitable habitat of the gibbon inside three core protected areas (Pu Mat National Park, Pu Huong, and Pu Hoat Nature Reserves) showed a continually increasing trend from 1990 to 2020. Our results highlighted the influence of LULC changes and the role of the protected area network in gibbon conservation. The information from the study provides a quantitative baseline for the future conservation of the critically endangered gibbon in the Western Nghe An BR