Effect of Corporate Governance on the Performance of Financial Institutions in Nigeria

Gbadebo Adeloye

doi:10.11648/j.sjbm.20210902.18

Abstract

This study investigated the relationship between corporate governance and the performance of some selected commercial banks in Nigeria. The purpose of the study is to ascertain the causal relationship between these two variables – corporate governance and financial performance. The study employed cross sectional survey research design, capturing 12 commercial banks studied over the period of 5 years (2015-2020). The matrixes of corporate governance that was used are size of the board, accountability of the board, diversity of the Board. Financial performance indicator is return on investment. Data was collected for the both independent and dependent variables. The independent variables which are board accountability, board size and board diversity were investigated against the financial performance of the selected banks. This is to underscore the causal relationship between these variables and Return on Investment (ROI). Return on Investment (ROI) is our indicator of financial performance. The sample size of the study is 15 financial institutions (commercial banks) using purposive sampling techniques. The study utilized secondary source of data, which include the financial reports of these banks and the corporate governance internal documents of these banks. The data collected was analyzed using multi linear regression data analysis techniques. The population for the study was derived from the Nigerian stock exchange which are 22 in number. The study therefore used census sampling to select all the 22 banks. However, data was only collected for 12 due to incomplete data for the remaining 10. The finding revealed that there is no significant relationship between board size and ROI, there is no significant relationship between board diversity and ROI, and finally, there is also no significant relationship between board accountability and ROI. The study provides an in-depth relationship between the board size, board diversity, board accountability and ROI of commercial banks.

Highlights

The success of financial institutions, irrespective of their scope is predicated on a number of factors, in which a core of these factors is corporate governance
The aim of this study is to investigate the effect of corporate governance on the financial performance of commercial banks in Nigeria
The findings revealed that a higher number of board members implies a lower Return on Equity (ROE) which is significant, and a higher payout implies a lower Return on Equity, a high dividend negatively affect financial performance [10]

Summary

Introduction

The success of financial institutions, irrespective of their scope is predicated on a number of factors, in which a core of these factors is corporate governance. Corporate governance, being the conduit through which the affairs of organizations are piloted must reflect the right values, structures, and processes necessary to give the organization an edge and help it achieve its stated objectives. This involves the relationship between the control system and the company, executive positions, stakeholders and shareholders as well [14]. Corporate governance is a term used to capture the set of rules, values, practices, and processes by which companies are managed In this regard, the model of corporate governance adopted by an organization goes a long way in shaping the duties and responsibilities of all participants in the organization. The board of directors, which is the main vehicle for corporate governance, is responsible for protecting the appropriate interests of stakeholders of a firm through directing its operation and by supporting its decision-making [5]

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Discussion

Conclusion