Effect of Corporate Governance on Organizational Performance in the Nigerian Banking Industry
Chapter One
Objective of the study
The objective of the study is to investigate the effect of corporate governance on organizational performance in the Nigerian banking industry. The specific objectives are to:
- examine the impact of board size on return on equity of banks in Nigeria
- find out whether the impact of board composition determine on return on equity of banks in Nigeria is significant
- examine if the impact of directors’ equity holding on the return on assets of banks in Nigeria is significant
- ascertain whether the impact of the level of corporate governance disclosure on return on equity of banks in Nigeria is significant
- determine the relationship between audit committee size and return on assets of banks in Nigeria.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
Conceptual Framework
In this section, we examine conceptual issues related to this study. In particular we look at Bank performance in Nigeria, corporate governance in Nigeria and corporate governance actors and mechanisms.
Bank Performance
In Federal Republic of Nigeria Bank performance usually implies however well a bank faired over a commerce amount given its objectives and therefore the solely document that explains this can be presumptively the profit-and-loss statement. Performance links AN organisation’s goals and objectives with organisation’s selections (Abdulkadir 2007). Over the years, Nigerian banking industry has undergone notable changes in terms of the amount of establishments, depth and breadth of operations also as possession structure. These changes have for the most part been influenced by challenges created by globalisation of operations, technological innovations, money sector liberation and adoption of superior and prudent necessities that adjust to international standards. before the industry reforms, the state of the Nigerian banks was characterized by low capital base, high non acting loans, economic condition and illiquidity, over dependence on public sector deposits and interchange commerce, poor quality quality, weak company governance, a system were the investors’ confidence is low (Ebong 2006). ‘‘The Nigerian banking industry these days is fragile and marginal” (Soludo 2004). The system faces large challenges that require pressing attention and if not self-addressed may quantity to crisis within the close to future. He conjointly known bank issues as unprofitable operations, persistent illiquidity and having a poor assets base’’. Ashang (2005) cited fast economic development and worth stability as objectives of banking industry. unfortunately, thanks to some deficiencies in our banking industry like low capital base, worn shareholder’s fund as a results of operative loss, tiny and medium scale personal savers neglect etc, these objectives have remained for the most part unattained in Federal Republic of Nigeria. Soludo (2004) discovered that the essential mediation role of banks to mobilize savings and infuse banking habit at the family and small enterprise levels are neglected by them. the issues of high disposition rates and low domestic savings within the country were combined as a result of the banks’ indifference towards tiny savers, principally at the grass-roots level. Access to comparatively low cost and stable funds that may have provided a reliable supply of credit to the productive sectors at cheap rates of interest was conjointly reduced. Ashang (2005) conjointly discovered that the present structure of the industry has promoted tendencies double-geared towards a sticky behaviour of deposit rates, largely at the retail level, such that, whereas disposition rates of banks stay high and positive in real terms, most deposit rates area unit low and negative, significantly those on savings. Secondly, grass-roots savings mobilization has been discouraged by the impractical necessities, by several banks, for gap accounts. Ordinarily, firm performance is believed to be mirrored by stock costs and its behaviour. this might not be reliable continuously as a result of it’s a market indicator however performance indicators like bank size, the quantity of deposit and its gain can be deemed as a lot of reliable. For this analysis purpose, gain indicators, exactly the come on Equity Capital (ROE) and therefore the returns on Assets (ROA) area unit accustomed assess bank performance. These ratios area unit indicators of management potency and rate of returns and once the ROE is above the ROA, the corporate has favourable money leverage. Bank performance during this study is measured in terms of the gain and price of a firm. Since the aim of the study is to work out the impact of company governance on bank performance, the measures of performance area unit ROA and ROE.
Corporate Governance in Nigeria
Corporate Governance is defined as the structures and processes of directing and controlling the business and affairs of institutions in order to improve the long term shareholders’ value by enhancing corporate performance and accountability while taking into consideration other stakeholders’ interests (Organisation for Economic Co-operation and Development, 1999). In the past decade, public outrage over financial misdeeds around the world have arose because of the sudden failure of major corporate institutions in both the developed countries and developing economies example Nigeria. This had made the practice of good corporate governance mandatory. In Nigeria, the regulatory organs namely Central Bank of Nigeria (CBN), Securities and Exchange Commission (SEC) supervised corporations and their board of directors governed them through management.
CHAPTER THREE
RESEARCH METHODOLOGY
Introduction
This Chapter discusses the ways and procedures utilized to finish this analysis study. It discusses the analysis style, population of the study, sample size and sampling technique, information supply and model specification. the tactic conjointly encapsulates information analysis and measuring of variables that embrace correlation and multivariate analysis.
Research Design
This study adopted the judgmental sampling technique to pick the 10 (10) listed banks from the 24 (24) banks within the Nigerian securities market (NSE). The monetary annual reports of those 10 (10) hand-picked listed banks were gathered from 2012 to 2021 and therefore the contents evaluated in a very tabulated type. The Pearson correlation technique was used to live the degree of association between the variables into consideration whereas regression estimates the impact of company governance on bank performance proxied by ROE and ROA. The revelation index things for the chosen banks were conjointly evaluated from the banks’ annual reports to attain the governance revelation level of the banks
Population of the Study
The targeted population of the research study includes all the 24 universal banks that made the consolidation dead line in Nigeria. The data gathered cover all the listed banks in the Nigeria stock exchange from 2012 to 2021.
Sample Size and Sampling Technique
From the 24 listed banks that made the consolidation dead line, this study is restricted to ten (10) selected banks drawn from the population using the judgmental sampling techniques and a time frame of ten (10) years ranging from 2012 to 2021. The published annual reports of the ten (10) selected banks for ten (10) years were gathered and the contents evaluated.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
Introduction
The chapter focuses on the presentation and analysis of the secondary information retrieved from the Nigerian securities market reality Book and therefore the monetary annual reports of the 10 (10) banks hand-picked from the Nigerian securities market. The secondary information is conferred during a tabulated type and analysis of this information moreover as testing of the developed hypothesis in chapter one was disbursed through the appliance of economic indicators and multivariate analysis to change the man of science reach a sound conclusion.
This chapter made use of two types of data analysis; namely descriptive analysis and inferential analysis. The descriptive analysis helps us to provide detailed information about each relevant variable while the Pearson correlation measures the degree of association between the variables under consideration; the regression estimates the impact of the corporate governance variables on profitability proxied by return on equity (ROE) and return on asset (ROA).
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
Introduction
This chapter discusses the findings from the results of the test, reach conclusion and make necessary recommendations from all the qualitative and quantitative analysis presented in chapter four. Bibliography and appendixes are also included in this chapter.
Summary of Findings
The Pearson Correlation and regression analysis were used to find out whether there is a relationship between the variables to be measured (i.e. corporate governance and banks’ financial performance) and also to find out if the relationship is significant or not. The proxies that were used for corporate governance are; board size, Board composition (defined as the ratio of outside directors to total number of directors), directors’ equity holdings, corporate governance disclosure and audit committee size. Accounting measure of performance were return on equity (ROE) and return on asset (ROA). Results derived from the computed statistics using SPSS and results from the tested hypotheses revealed that both board size, board composition with proportion to Non-executive/outside directors and audit committee size are negatively related to financial performance of banks in Nigeria, while directors’ equity holding and corporate governance disclosure are significantly positive in relation with bank performance.
Conclusion
The purpose of this study was to examine the impact of corporate governance on performance of banks in Nigeria. From the theoretical and empirical evidences gathered, the study reveals that corporate governance have made some impact in improving the performance of banks in Nigeria. Therefore, the issue of corporate governance should be taken seriously by financial institutions. The study further concludes that a negative relationship exist between board size, board composition with proportion to non executive directors and audit committee size to financial performance of banks. While the directors’ equity holding and level of corporate governance disclosure index shows positive significant relationship with performance. Also, a percentage increase in return on equity can be explained by directors’ equity holding.
Recommendations
Going by the findings observed in this research, we then present below the recommendations which will be very useful to stakeholders in the bank and other firms in general.
- From the study, it shows that the size of a board have no significant relationship with the financial performance of banks. It should be noted that the R2-value was positive at 0.116, this shows that even though there is no significant relationship statistically, it is necessary to consider board size when taking financial decisions. The implication of this is that the quality of board members should have significant impact on bank performance and not the quantity of members in the board.
- It is of great importance to be careful when enlisting members into the board of directors and consideration should be given to members who are visionary and who will establish policies and structures that will lead to improved financial performance.
- To improve corporate governance, the value of the stock ownership of board members must be put in mind, since it relates positively to both the probability of disciplinary management turnover and future operating performance in poorly performing banks.
- A legal framework specifying the rights and obligations of a bank, its directors, shareholders, specific disclosure requirements should be developed and this shouldprovide for effective enforcement of the law. Also, there should be steps for compulsory compliance with the corporate governance code.
References
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