Pay dispersion, culture and bank performances

Yu, Ellen Pei-yi and Luu, V. Pay dispersion, culture and bank performances. In: 43rd Academy of International Business (UK & Ireland Chapter) Conference, International Business in a Multi-speed Global Economy, 7-9 Apr 2016, London, UK. (Unpublished)

Abstract

We examine the impact of executive pay dispersion on bank performance and valuation, controlling for cultural differences across countries using Hofstede’s four dimensions. In our subsample of civil law countries, where bank valuation is measured by either by Tobin’s Q or by the P/B ratio, the overall impact of pay dispersion is mostly negative and we find supporting evidence of the equity fairness theory, except for very high levels of dispersion. For developing country sample banks in China and India, greater executive pay dispersion has a negative effect on bank profit. In our subsample of common law developed countries, however, we find no significant impact of executive pay dispersion on bank performance. Three of the four dimensions of national culture have meaningful effects on bank performance and valuation. In civil law and developing countries, Individualism is positively associated with bank performance and valuation, but it has no significant effect in civil law countries. Higher values in Power Distance impact bank performance adversely in civil law, common law and developing countries. Lastly, Masculinity has contradictory influences, being beneficial to performance in in civil law countries and detrimental in developing countries.

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