Corporate Governance and Financial Performance of Money Deposit Banks in Nigeria

Bilqis Bolanle Amole,Kamaldeen A Lawal,Ik Muo

doi:10.32728/ric.2021.71/4

Abstract

Purpose. The main cause of distress in the majority of Nigerian banks is poor corporate governance in the country. Corporate governance (CG) is a contemporary subject attracting the consideration of the corporate world, practitioners, consultants, academia and society at large. As a result, this study explores the financial performance (FP) of money deposit banks (MDBs) in Nigeria as a result of corporate governance put in. It went on to investigate the impact of board size and composition, as well as the audit committee, on bank financial performance. Methodology. A descriptive design method was adopted, while secondary data in the form of yearly financial reports of banks selected for the study were obtained and relevant documents via electronic search of databases. Descriptive statistics were used in analyzing the data and an econometric model of panel least square (PLS) regression test was employed for the study. Findings and Implication. The findings affirmed that the correlation between size of board of directors and bank performance was significant, however negative. The results of the study show that the board of directors (BOD) composition significantly influences the FP of MDBs. The study results further reveal that the correlation between size of the audit committee (AC) and FP of MDBs is significant and also a negative one. As a result, based on the empirical findings of the study, it is concluded that CG has a statistically significant influence on the FP of Nigeria’s listed money deposit banks. Mechanisms such as the large size and composition of the board as well as the size of the audit committee encourage a negative impact on the FP. In line with the foregoing, the study recommended that an effort be made to improve CG, in the sense that the number of directors on board should be kept to a desirable level, and that the ratio of executive directors to non-executive directors, as well as the size of the audit committee, is kept at an optimal level.

Highlights

The customary way of operation of corporate governance (CG) around the world has been identified as vital in all economic dealings, in developing economies like Nigeria that are coming to maturity (Alashi, 2005)
This study examines corporate governance and financial performance (FP) of money deposit banks (MDBs) in Nigeria, with specific reference to six (6) selected MDBs: Guaranty Trust Bank Plc (GTB) Plc, WEMA Bank Plc (WB) Plc, First Bank of Nigeria Plc (FBN) Plc, Union Bank of Nigeria Plc (UBN) Plc, United Bank for Africa Plc (UBA) Plc, as well as Zenith Bank International Limited (ZB) Plc
Based on the panel least square results, the study concluded that there is a significant relationship between the size of the board of directors and the FP of MDBs in Nigeria

Summary

Introduction

The customary way of operation of corporate governance (CG) around the world has been identified as vital in all economic dealings, in developing economies like Nigeria that are coming to maturity (Alashi, 2005). Not to mention the rise in mergers and acquisitions in the banking sector Regardless of these activities, there is a call for Nigeria to foster a healthy financial system, in the banking sector, along with effective corporate governance. This affirms that a sound CG implies that effective utilisation of collective available wealth by controlling shareholders, translates into a more effective allotment of resources and efficient FPs. This affirms that a sound CG implies that effective utilisation of collective available wealth by controlling shareholders, translates into a more effective allotment of resources and efficient FPs This is because stakeholders will want to reinvest their resources in that bank with clear CG practices, which ensures that the cost of capital is minimal and service as a determinant of firm financial performance (Qi et al, 2002)

Methods

Results

Discussion

Conclusion