Investigating Depositors Influence on Executive Compensation in Malawian Banking Industry

Abstract:     
Malawian Banking Industry is characterised by supra normal profits and excessively high executive compensation. This is against the backdrop of negative growth rate of Gross Domestic Product in Malawi indicating that several sectors are struggling to cope up with the global financial meltdown of 2008.

Depositors are important stakeholders in the banking industry as they supply funds to banks for onward lending to the borrowers who use the credit facilities for enhancing production capacity thereby increasing economic activities in an economy. Banking system cannot function without the depositors. Consequently depositors’ behaviour could affect the banks’ operations. Evidence suggest that executive compensation has significant influence on banks’ desire to achieve higher profits as there is reciprocal gesture to highly reward banks executives. Desire for high profits has negative impact on the depositors as interest rates on deposits can be low or threatened if banks undertake high risk ventures. The study however indicates that Malawian depositors lack power to influence banks due to oligopoly market conditions.

Regulatory authorities and consumer activists can adopt deliberate strategies to destabilise the oligopoly market structure and promote highly competitive practices in the Malawian banking system to benefit depositors and economy as a whole.

Number of Pages in PDF File: 23

Keywords: depositors, bank, executive, compensation, Malawi, profit

JEL Classification: E30, E42, E50, G30, G32

working papers series