Executive Compensation and Risk-Taking Behaviour of Listed Nigerian Firms

This study examines the impact of executive compensation on the risk-taking behaviour of 148 listed Nigerian firms over the period 2011 to 2025. Grounded in agency theory, managerial power theory, and prospect theory, the study employs a panel regression framework, incorporating fixed effects and random effects estimators with Hausman specification tests to determine the preferred model. Executive compensation is operationalised through total executive pay, cash bonus, and equity-linked remuneration, while risk-taking is measured using return volatility (earnings volatility), asset risk (standard deviation of return on assets), and the leverage-adjusted risk index. Firm-level control variables include firm size, leverage, profitability, growth opportunities, board independence, board size, and ownership structure. Macro-level controls capture industry risk level, industry growth rate, GDP growth rate, inflation rate, and interest rate. Findings reveal that equity-based compensation exerts a statistically significant positive influence on corporate risk-taking, consistent with alignment incentive arguments, while fixed salary compensation is negatively associated with risk appetite. Cash bonuses yield heterogeneous results across model specifications. The results survive a battery of robustness checks including the system GMM estimator, alternative risk proxies, and subsample analyses. These findings carry important implications for corporate governance reform, regulatory policy, and compensation committee design in Nigeria's emerging market context.