Abstract
In Nigeria, Banks’ multifaceted and pivotal role in the economic system has attracted regulatory attention in aneffort to inspire sound corporate governance standards and address the unique features of risks faced by creditinstitutions. The composition of the board of directors therefore constitutes one of the most essential corporategovernance themes and has caught the attention of academics and regulators alike. This paper thereforeemployed secondary data covering a period of 3 post consolidation years (2006-2008) in studying the effects ofthe proportion of non executive directors on the profitability of the listed banks in Nigeria. A panel dataregression analysis was used in analysing the variables under consideration. The paper observed from thefindings that a negative but significant relationship exists between ROE and NED. The paper concludes that thenegative association is likely to be because non executive directors are too busy with other commitments and areonly involved with the company business on a part-time basis. We therefore recommend that in other to haveproper monitoring by independent directors, bank regulatory bodies should require additional disclosure offinancial and personal ties between directors and the organizations they work for.
Highlights
Over the past two decades, particular attention in both the academic and professional literatures (Jensen, 1993; Hermalin & Weisbach 1991; Bhagat, & Black, 2002) has been directed towards the role of corporate governance in company administration
This study investigates the relationship between corporate governance and financial performance of banks
NED is the proportion of non- executive directors on the board et, represents the error term which account for other possible factors that could influence return on equity (ROE) that are not captured in the model
Summary
Over the past two decades, particular attention in both the academic and professional literatures (Jensen, 1993; Hermalin & Weisbach 1991; Bhagat, & Black, 2002) has been directed towards the role of corporate governance in company administration. Given the furry of activities that has affected the efforts of banks to comply with the various consolidation policies and the antecedents of some operators in the system, there are concerns on the need to strengthen corporate governance in banks. To stem the temptation of management to serve their own interests, board directors in a modern corporation are charged to monitor management behaviors with the objective of representing and protecting the interests of shareholders (Jensen and Meckling, 1976; Berle and Means, 1933). This is true for outside directors who are independent and are different from inside managing directors.
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