MODERATING EFFECT OF SHAREHOLDERS ACTIVISM ON THE RELATIONSHIP BETWEEN EXECUTIVE COMPENSATION AND DIVIDEND PAYOUT RATIO OF LISTED INSURANCE FIRMS IN NIGERIA
Keywords:
CEO Compensation, Dividend Payout Ratio, Highest Paid Director’s Compensation, Total Directors’ FeesAbstract
The debate over how executive compensation influences corporate outcomes remains central in finance and governance literature. This study examined the moderating effect of shareholder activism on the relationship between executive compensation and dividend payout ratio of listed insurance firms in Nigeria. Specifically, the study assessed the effects of CEO compensation, highest paid director’s compensation, and total directors’ fees on dividend payout, while also considering the role of shareholder activism. The study adopted an ex-post facto research design and utilized panel data drawn from the annual reports of 14 listed insurance firms in Nigeria between 2013 and 2023. Executive compensation was decomposed into CEO compensation, highest paid director’s compensation, and total directors’ fees, while dividend payout ratio served as the dependent variable. Shareholder activism was introduced as a moderating variable. Data were analyzed using panel regression models with interaction terms to capture moderation effects. The results revealed that CEO compensation has a positive and significant effect on dividend payout ratio (β = 0.082, p < 0.05), while the compensation of the highest paid director exerts a negative and significant effect (β = -0.065, p < 0.05). Total directors’ fees showed a positive and significant influence on dividend payout (β = 0.054, p < 0.05). Shareholder activism exerted a direct positive effect on dividend payout (β = 0.090, p < 0.01) and moderated the relationships asymmetrically: strengthening the positive link between CEO compensation and dividend payout, amplifying the negative effect of highest paid director compensation, and exerting a positive but insignificant moderating effect on total directors’ fees. The study concludes that executive compensation structures significantly shape dividend policy in Nigerian insurance firms and that shareholder activism serves as a critical governance mechanism that reinforces or constrains these effects. The study recommends that regulatory bodies such as the National Insurance Commission (NAICOM) and the SEC enforce pay-for-performance disclosure frameworks, cap non-CEO director remuneration, and institutionalize shareholder engagement in compensation and dividend decisions. These measures will enhance governance quality, protect shareholder interests, and promote sustainable value creation in the Nigerian insurance industry.
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