The Effect of Financial Incentives on Business Sustainability Performance of Deposit Money Banks in Nigeria: A Panel Data Analysis

Abstract

Nigerian Deposit Money Banks (DMBs) face growing pressure to demonstrate sustainability commitment, yet the mechanisms driving Corporate Social Responsibility Expenditure (CSREX) remain poorly understood. Existing literature has largely examined regulatory and financial performance drivers of sustainability, while the role of internal and external financial incentives remains underexplored. This study investigates how Executive Compensation (EXCOM), Board Bonuses/Incentives (BBINC), and Government Subsidies/Incentives (GSINC) influence business sustainability performance, proxied by CSREX, among five listed Nigerian DMBs over a ten-year period (2015–2024). Using panel data and fixed effects regression validated by the Hausman test, findings reveal that EXCOM (β = 0.324, p < 0.01) and GSINC (β = 0.275, p < 0.01) significantly and positively influence CSREX, leading to rejection of their respective null hypotheses. Conversely, BBINC (β = -0.091, p = 0.173) shows no significant effect, and its null hypothesis is retained, indicating misalignment between board-level rewards and sustainability objectives. Firm size (FSIZE) positively influences CSREX (β = 0.221, p < 0.05). The model explains 69.2% of variance in CSREX (R² = 0.692). The study concludes that while executive pay structures and government incentives effectively promote sustainability investments, board-level reward systems require restructuring to incorporate ESG metrics. Policy implications include integrating sustainability indicators into executive and board compensation frameworks and strengthening regulatory CSR reporting requirements.