Do Internal Corporate Governance Code, Capital Structure, and Ownership Structure Matter in Explaining the Performance of Nigerian Financial Institutions

Abstract

The rise in financial scandals and corporate failures prompted a greater spotlight on CG, particularly as it pertains to financial institutions (FI). This research looks at how the corporate governance code, CS, and ownership structure affect financial institution performance in Nigeria. The data for the study was obtained from the annual financial reports of 37 financial service institutions as the sample between 2010 and 2019. Internal corporate governance code proxy by board size, board independence, board remuneration and audit committee size, capital structure proxy by long-term debt and equity and short-term debt and equity ratio, ownership structure proxy by board ownership, ownership concentration, and foreign ownership concentration are the independent variables used in this study. The dependent variable is performance proxy by earnings per share and Tobin's Q. The study used a dynamic panel GMM estimator to deal with the panel data models. The results show that the EPS of FI in Nigeria is positive and significantly influenced by board size and short-term debt to equity ratio. Board remuneration and the long-term debt to equity/assets ratio, on the other hand, have a negative and considerable effect on FI earnings per share. Similarly, for Tobin Q, Bindp and Bremu, except board size, negatively impacted FP of the Nigerian financial service industry. Capital structure proxies by long-term debt and equity and short-term debt and equity ratio exerted a considerable impact on Tobin's Q. Equally, the ownership structure has a considerable impact on Tobin's Q. As a result, we recommend that financial institutions in Nigeria prefer equity financing over long-term debt when funding capital projects. On the other hand, short-term debt obligations should be used to fund short-term initiatives to keep the firm's performance growing. The research is necessary to ensure that debt and equity ratios are used appropriately in financial sector funding firms to maximise return on capital.