CORPORATE GOVERNANCE INDICATORS AND PERFORMANCE OF NIGERIA BANKING SECTOR
This study is set to examine the impact that corporate governance characteristics (board size, board composition and audit committee independence) have on performance of Nigerian banks. Using the Ordinary Least Square (OLS) regression technique to analyze the research secondary data, the findings revealed among other things that board size and audit committee independence has no significant impact on the performance of the banks in Nigeria, while board composition has significant impact on the performance of the banks in Nigeria. It is recommended that board size should be limited in other to improve firm performance because the benefits of larger boards in increased monitory activities are outweighed by poorer communication and delays in decision making due to the size of the board.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
Background to the Study
Statement of the Problem
Objectives of the Study
Hypotheses of the Study
Scope of the Study
Significance of the Study
CHAPTER TWO: LITERATURE REVIEW
Corporate Governance Practices
Corporate Governance and Risk Management in Nigerian Banks
Corporate Governance Codes for Nigerian Banks
Role and Responsibilities of the Board
Transparency and Disclosure
Monitoring and Enforcement
Corporate Governance Measures in Nigeria
Corporate Governance Mechanisms
CHAPTER THREE: RESEARCH METHOD
Sources of Data Collection
Measurement of Variables
Method of Data Analysis
CHAPTER FOUR: ANALYSIS AND PRESENTATION OF DATA
Test of Hypothesis
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.2 Summary of Findings
BACKGROUND TO THE STUDY
There is no gain-saying the fact that, the idea of corporate governance has become prominent in modern day business world. This is truly captured by the president of World Bank when he said that, “The proper governance of companies will become as crucial to the world economy as the proper governing of countries” (Wolfenson, 1999).
Nigeria as an emerging economy looks to the private sector for the required quantum leap towards rapid development. There is a renewed emphasis of effective governance, particularly for public limited liability companies. Recently, corporate scandal has put companies in the spotlight and codes of conduct and guidelines have been developed to improve corporate governance (Macey & O’Hara (2003).
McGee (2009) states that good corporate governance helps to increase share capital or price and makes its easier to obtain capital and that international investors tend to be reluctant to lend money or buy shares in a corporation that does not subscribe to good corporate governance principles.
It is note-worthy to mention here that, the issue of corporate governance arose due to the separation of management and ownership in modern corporation. In practice, the interest of the management could differ from the interest of the shareholders. The so called “management – shareholders” problem is reflected in management pursuing activities, which may be detrimental to the interest of the shareholders of the firm and society at large, (Mensah, 2000). Given this state of affairs, it become pertinent for management to render stewardship account to shareholders on how the resources put at their disposal were utilized, and the net effect of the effort of their firm.
A company whose performance increases over the years is expected to survive. The major causes of business collapse in Nigeria can be attributed to governance failures, (Wood, 2003). Tentatively, we can say that, corporate governance is related to performance of firms. Well–functioning corporate governance mechanism in emerging economics are crucial for both local firms and foreign investors interested in the tremendous opportunities that such economies provide. As such, improvements in corporate governance can enhance investors confidence and increase these firms’ access to capital (Rajagopalam and Zhang 2008).
A number of studies investigated the efficacy of firm governance structures in promoting performance. As pointed out by Core, Holthnusen and Larcker (1999), collective evidence from these studies is mixed, failing to provide a coherent pictures of what constitutes an optimal governance arrangement. Nevertheless, this study investigates the effects and extents of corporate governance practice in some selected Nigerian quoted companies on the overall firm values and performance while also intending to uncover new results as well as confirming the key findings and prediction of prior research.
STATEMENT OF THE PROBLEM
Corporate governance is expected to affect directly, the performance of firm. A good number of ideas and theories have been put in place by scholars. Therefore, it will be of utmost interest to find out if such researches are not just for literature purposes but can be observed in the outwitted of an organization. It is also expected that, through influence on firm strategies and decisions with regards to inputs, output, innovations and markets, the governance arrangement should influence firm performance.
Transparency in corporate governance of a firm helps to maintain the confidence of investors. The more businesses are perceived to be accountable, transparent and socially responsible, the more they are perceived to be founded on integrity, the greater will be their competitive advantage which should in turn result in increased performance.
The problem of this study is to investigate whether board size, composition of the board, audit committee, etc have significant impact on bank performance; since the following research questions are raised:
This research work tends to find solutions to the following problems.
Does the board size have significant impact on the performance of the banks in Nigeria?
Does the composition of the board have significant impact on the performance of the banks in Nigeria?
Does audit committee have significant impact on the performance of the banks in Nigeria?
OBJECTIVES OF THE STUDY
The broad objective of this study is to examine corporate governance indicators and performance of Nigeria Banking Sector.
The specific objectives are:
To examine whether board size have significant impact on the performance of the banks in Nigeria.
To examine if the composition of the board have significant impact on the performance of the banks in Nigeria.
To determine whether the audit committee have significant impact on the performance of the banks in Nigeria.
HYPOTHESES OF THE STUDY
The following hypothesis would be tested empirically in the course of this research work and the result would form the basis of conclusion and recommendation.
Ho: The size of the board has no significant impact on the performance of the banks in Nigeria.
H1: The size of the board has significant impact on the performance of the banks in Nigeria.
Ho: The composition of the board has no significant impact on the performance of the banks in Nigeria.
H1: The composition of the board has significant impact on the performance of the banks in Nigeria.
Ho: The audit committee has no significant impact on the performance of the banks in Nigeria.
H1: The audit committee has significant impact on the performance of the banks in Nigeria.
SCOPE OF THE STUDY
The research study focuses on corporate governance indicators and performance of Nigeria Banking Sector. The population of the study is the entire quoted banks in the Nigeria Stock Exchange. The sample size is restricted to all banks quoted in the Nigeria Stock Exchange.
The time frame of this study is five year (2006 – 2011).
SIGNIFICANCE OF THE STUDY
It is expected that this study would consolidate existing literature on the issues surrounding the corporate governance indicators and bank performance in Nigeria. The study would also facilitate the examination of the effects of corporate governance indicators on bank performance in Nigeria and thus boost the empirical evidence from Nigeria. Furthermore, given the empirical nature of the study, the outcome of this study would aid policy makers and regulatory bodies in economic modeling and policy simulation with respect to the selected variable examined in the study.
The result of the study would be of benefits to investment analysts, investors and corporations in examining the effectiveness of corporate governance indicators and bank performance in Nigeria. It will also be useful in stimulating public discourse given the dearth of empirical researches in this area from emerging economic like Nigeria. Finally, it would also add to the available literature on the area of study while also providing a platform for other researchers who may want to further this study.
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