A new perspective into the relationship between CEO pay and firm performance: evidence from Nigeria's listed firms

Deviating from extant studies, this study examines asymmetric structure in the causal relationship between CEO pay and firm performance in Nigeria's listed firms. The data on CEO pay and firm performance are transformed into partial cumulative sums for positive and negative shocks so as to allow for asymmetric causality tests. A two-step dynamic panel generalized method of moments is innovatively adopted to estimate the asymmetric causal model. The findings reveal several dimensions of asymmetric structures in the causality between CEO pay and firm performance. The research outputs divulge several hidden information and opportunistic tendencies surrounding the executive compensation contracts in Nigeria's listed firms which symmetric approaches in the extant studies could not detect. This study, therefore, suggests that caution should be exercised in using pay cut as a corporate governance measure to punish CEOs for poor performance in Nigeria as it causes a fall in firm performance.