Effect of corporate governance on financial performance of listed deposit money banks in Nigeria

Udemeobong Monday Joshua,Eme Joel Efiong,Nelly Rapheal Imong

doi:10.4314/gjss.v18i1.9

Abstract

This study examined corporate governance and financial performance of listed deposit money banks (DMBs) in Nigeria. The study covered listed DMBs listed in the Nigerian Stock Exchange (NSE) for a ten year period from 2007–2016 and data were obtained from their annual financial reports. Data were presented using tables and analyzed using panel data regression. The corporate governance mechanisms of board size (BSIZE), board composition (BCOM) and audit committee (ACOM) were used as independent variables. Performance of the listed DMBs was measured by return on asset (ROA) which is the dependent variable while the bank size (FSIZE) was used as a control variable.The findings of this study revealed that board size had a positive but insignificant relationship with performance. It was also observed that audit committee, board composition and bank size all had positive and significant relationships with return on asset. The study therefore concludes that board composition and audit committee are good predictors of performance as measured by return on assets (ROA). The study recommended that DMBs listed in the Nigerian Stock Exchange should strive to have an average of fourteen members in their boards to avoid decision-making problems which are characterized by larger board of directors and should therefore comprise a mix of executive and nonexecutive directors with the relevant credentials, competence, and experience to serve on the board of banks. Additionally, the audit committee of banks should meet often to enable them review the financial reports of the banks and make appropriate recommendations that will help to improve the performance of the banks. Keywords: corporate governance, financial performance, board size, board composition and audit committee

Highlights

Corporate governance in recent times has attracted a good deal of public interest because of its great importance to the financial and economic growth of corporations and the society in general
The result further revealed that the financial performance of eleven (11) others banks apart from Diamond, Fidelity, Guarantee Trust Bank (GTB) and Zenith banks were positively affected by board composition (BCOM)
When we consider the effect of individual bank audit committee (ACOM) on financial performance, we observed that almost all the banks apart from Zenith and GTB banks exerted positive effect on their performance

Summary

Introduction

Corporate governance in recent times has attracted a good deal of public interest because of its great importance to the financial and economic growth of corporations and the society in general. The growing need for strong corporate governance has been very crucial with countries around the world drawing up guidelines and codes of practice to strengthen governance (Cadbury, 1992, Corporate Governance Code of Nigeria, 2006). The underlying reason for this growing interest is the increased concerns over the integrity of these securities markets in both developed and developing countries. In the Nigerian scene, the case of Cadbury Nigeria PLC who manipulated their stock position to deceive shareholders, NAMPAK, as well as Wema Bank, Afribank, Finbank, and Springbank shook the confidence of investors and regulators alike. Eme Joel, Department of Accounting University of Calabar, Calabar, Nigeria. Rapheal, Department of Accounting University of Calabar, Calabar, Nigeria

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