The Relationship Between Executive Compensation and Capital Structure of Firms Quoted in the Nairobi Securities Exchange
Abstract
share price return (SPR) have
significant and positive impact on executive compensation.
The public anger over the hefty pay to executives of firms that nearly were bailed out
by government during the financial crisis elicited concerns over excessive risk taking
by executives. In this study the researcher uses the capital structure of the firms as a
proxy for risk taking by executives. The study’s objectives were to establish
relationship between the executive compensation and capital structure of the
companies listed in Nairobi Securities Exchange and whether this relationship varies
with the size of the firm and the industry in which the firm operates.
The researcher undertook an empirical cross sectional survey. The target population
for this study comprised of all 44 listed companies in the Nairobi Securities Exchange
main market segment as at 1st January 2007 and secondary data was collected from
the annual reports of the publicly listed companies. A Multiple Regression model was
conducted using Statistical Package for Social Sciences (SPSS) on the total executive
compensation and accounting based measures of firm’s capital structure, the firm size
measured by natural log of sales and a dummy variable to denote the industry of the
firms.
Research findings indicate that the model had accounted for 24.7% of the variance in
total executive compensation over the five year study period (2007 - 2010). The
research finds that capital structure (DE), Firms size (FS) and industry (DV) have no
impact on executive compensation. Management share ownership (MSO) and share price return (SPR) have
significant and positive impact on executive compensation.
Sponsorhip
The University of NairobiPublisher
University of Nairobi School of Business