EFFECT OF CORPORATE GOVERNANCE ON FINANCIAL PERFORMANCE OF SELECTED DEPOSIT MONEY BANKS QUOTED ON THE NIGERIAN STOCK EXCHANGE (2005 – 2017)

Benson Aisagbonbuomwan Esan, Amalachukwu Chijindu Ananwude, Ijeoma Chinwe Okeke

Abstract


This study examined the effect of corporate governance on financial performance of selected deposit money banks. Corporate governance is an important issue because of the rise in corporate scandal suffered by corporate organizations arising from insider abuse by management board, and other financial recklessness. Specifically, the effect of board ownership structure, audit committee, independence, age and block shareholding on return on assets, return on equity and earnings per share of selected deposit money banks quoted on the Nigerian Stock Exchange (NSE) were ascertained. The result of the analysis using panel data from 2005 to 2017 established that corporate governance practice has significant effect on financial performance of deposit money banks in Nigeria, however, such effect is marginal considering the number of corporate governance variables that significantly affect return on assets, return on equity and earnings per share. In this regard, appointment into the board should be on the bases of age and experience not on friendship since it positively relates to performance and to the probability of disciplinary management turnover in poorly performing banks. Board members should not be encouraged to have too much stake in the ownership structure of the banks as it is negatively related with performance. The holding of block shares of the banks by individuals, institutional investors or agencies should be discouraged because block shareholding could induce the prioritization of self-interest by block shareholders and the consequent expropriation of firm resources, resulting in decreased bank performance.

 

JEL: G30; G34; G21

 

Article visualizations:

Hit counter

DOI

Keywords


corporate governance; financial performance; banks

Full Text:

PDF

References


Abdulazeez, D. A., Adeyeye, M. M., Ndibe, L., & Yahaya, M. D. (2016). Corporate governance and financial performance of listed deposit money banks in Nigeria, Journal of Business and Management, 18(4), 4-11.

Abdul-Qadir, A. B. & Kwanbo, M. L. (2012). Corporate governance and financial performance of banks in the post-consolidation era in Nigeria. International Journal of Social Sciences and Humanity Studies, 4(2), 27-36.

Abobakr, M. G. (2017). Corporate governance and banks' performance: evidence from Egypt. Asian Economic and Financial Review, 7(12), 1326-1345.

Aldalayeen, B. (2017). Does corporate governance affect the financial performance? Analysis of findings from Jordanian banks? International Journal of Business and Management, 12(4), 123-129.

Adams, R. B. & Mehran, H. (2005). Corporate performance, board structure and its determinants in the banking industry, EFA 2005 Moscow Meetings.

Adigwe, P. K., Nwanna, I. O. & John, E. I. (2016). Effect of corporate governance mechanism on the financial performance of banks in Nigeria, NG-Journal of Social Development, 5(2), 41-50.

Ahmad, B. A. & Mensur, L. K. (2012). Corporate governance and financial performance of banks in the post-consolidation era in Nigeria. International Journal of Social Sciences and Humanity Studies, 4(2), 128-136.

Ahmed, S. U., Ullah, G. M. W., Ahmed, S. P. & Rahman, A. (2016). An empirical study on corporate governance and Islamic bank performance: A case study of Bangladesh. Journal of Finance & Banking Studies, 5(4), 103-116.

Ahmed, S. P., Zannat, R. & Ahme, S. U. (2017). Corporate governance practices in the banking sector of Bangladesh: do they really matter? Banks and Bank Systems, 12(1), 27-35.

Ahmed, I. E. (2017). The impact of corporate governance on Islamic banking performance: the case of UAE Islamic banks. Journal of Banking & Finance, 9(9), 1-10.

Ajala, O. A., Amuda, T. & Arulogun, L. (2012). Evaluating the effect of corporate governance on the performance of Nigerian banking sector. Review of Contemporary Business Research, 1(1), 32 – 42.

Ajanthan, A., Balaputhiran, S. & Nimalathashan, B. (2013). Corporate governance and banking performance: A comparative study between private and state banking sector in Sri Lanka. European Journal of Business and Management, 5(20), 92-100.

Akingunola, R. O., Olusegun, B. & Adedipe, S. (2013). Corporate governance and banks performance in Nigeria (post bank consolidation). European Journal of Business and Social Sciences, 2(8), 89-111.

Akingunola, R. O., Olusegun, B. & Adedipe O. A. (2015). Corporate governance and banks’ performance in Nigeria. European Journal of Business and Social Sciences, 2(8), 89-111.

Akpan, E. O. & Amran, N. A. (2014). Board characteristics and company performance: Evidence from Nigeria. Journal of Finance and Accounting, 2(3), 81-89.

Akpan, E. S. & Riman, Hodo B. (2012). Does corporate governance affect bank profitability? Evidence from Nigeria. American International Journal of Contemporary Research, 2(7), 135-145.

Al-Baidhani, A. M. (2016). The effects of corporate governance on bank performance: Evidence from the Arabian Peninsula, (Maters Thesis, University of Putra, Malaysia).

Alam, M. R. & Akhter, F. (2017). Impact of corporate governance on performance of commercial banks in Bangladesh. The Cost and Management, 45(4), 1-8.

Ashenafi, B. F., Kalifa, S. K., & Yodit, K. W. (2013). Corporate governance and impact on bank performance. Journal of Finance and Accounting, 5(2), 20-31.

Ashfaq, S. & Saeed, M. A. (2017). Financial performance of banking industry of Pakistan: The role of corporate governance index and earnings management practices. Asian Journal of Scientific Research, 10(2), 97-103.

Aulia, R. B. (2013). The effect of good corporate governance practices on bank financial performances, (Master’s Thesis, Tilburg University).

Ayorinde, A. O., Toyin, A., & Leye A. (2012). Evaluating the effect of corporate governance on the performance of Nigerian banking sector. Review of Contemporary Business Research, 1, 32 – 42.

Bebeji, A., Mohammed, A. & Tanko, M. (2015). The effect of board size and composition on the financial performance of banks in Nigeria. African Journal of Business Management, 9(16), 590-598.

Belhaj, S. & Mateus, C. (2016). Corporate governance impact on bank performance evidence from Europe. Corporate Ownership & Control, 13(4), 583-597.

Bussoli, C., Gigante, M. & Tritto, M. B. (2015). The impact of corporate governance on banks performance and loan quality: Evidence from Italian cooperative banks. Chinese Business Review, 14(8), 390-401.

Changezi, N. I. & Saeed, A. (2013). Impact of corporate governance framework on the organizational performance. Journal of Management Policies and Practices, 1(2), 1-8.

Coles, J. W., McWilliams, V. B. & Sen, N. (2001). An examination of the relationship of governance mechanisms to performance, Journal of Management, 27, 23-50.

Davis, J. H., Schoormann, F. D. & Donaldson, L. (1997). Toward a stewardship theory of management, Academy of Management Journal, 22(1), 20-47.

Dincer, B. & Dincer, C. (2013). Corporate governance and market value: Evidence from Turkish banks. International Journal of Academic Research in Business and Social Sciences, 3(1), 241-249.

Dogan, M. & Yildiz, F. (2013). The impact of the board of directors’ size on the banks performance: Evidence from Turkey. European Journal of Business and Management, 5(6), 130-140.

Dzingai, I. & Fakoya, M. B. (2017). Effect of corporate governance structure on the financial performance of Johannesburg Stock Exchange (JSE)-listed mining firms. Sustainability, 9(867), 1-15.

Ejuvbekpokpo, S. A. & Esuike, B. U. (2013). Corporate governance issues and its implementation: The Nigerian experience. Journal of Research in International Business Management, 3(2), 53-57.

Ene, E. E. & Bello, A. I. E. (2016). The effect of corporate governance on banks financial performance in Nigeria, IOSR Journal of Business and Management, 18(11), 99-107.

Eisenhardt, K. M. (1989). Agency theory: An assessment and review. International Journal of Management, 5, 341-353.

Ermina, P. (2010). Corporate governance and bank performance, (Master’s Thesis, International Hellenic University).

Ferede, Y. (2012). The impact of corporate governance mechanisms on firm's financial performance: Evidence from commercial banks in Ethiopia, (Master’s Thesis, Addis Ababa University, Addis Ababa, Ethiopia).

Filip, F., Vesna, M. & Kiril, S. (2014). Corporate governance and bank performance: Evidence from Macedonia. Economic Analysis, 47(1-2), 76-99.

Georgantopoulos, A. G. & Filos, I. (2017). Corporate governance mechanisms and bank performance: Evidence from the Greek banks during crisis period. Investment Management and Financial Innovations, 14(1), 160-172.

Grove, H., Patelli, L., Victoravich, L. M. & Pisun, X. (2011). Corporate governance and performance in the wake of the financial crisis: Evidence from US commercial banks. Corporate Governance: An International Review, 19(5), 418–436.

Guo, R., Langston, V. & Hadley, L. (2003). Business cycle, corporate governance, and bank performance. Research in Business and Economics Journal, 25, 1-11.

Herawanto, E. & Maman-Kusman, N. E. (2017). The influence of corporate governance and ownership structure on profitability. International Journal of Scientific and Research Publications, 7(7), 7-15.

Hermalin, B. E. & Weisbach, M. S. (2003). Boards of directors as an endogenously determined institution: a survey of the economic literature, Economic Policy Review, 9(1), 7-26.

Hoque, M. Z., Islam, R. & Ahmed, H. (2013). Corporate governance and bank performance: The case of Bangladesh. Retrieved from http://ssrn.com/abstract=2208903.

Kusuma, H. & Ayumardani, A. (2016). The corporate governance efficiency and Islamic bank performance: An Indonesian evidence. Polish Journal of Management Studies, 13(1), 111-120.

Kaur, J. (2014). Corporate governance and financial performance: A case of Indian banking industry. Asian Journal of Multidisciplinary Studies, 2(2), 91-96.

Kigera, M. N. (2012). Assessment of corporate governance and return on assets of commercial banks in Kenya, (MSc Thesis, University of Nairobi, Kenya).

Malik, M., Wan, D., Ahmad, M. I., Naseem, M. A. & Rehman, R. U. (2014). Role of board size in corporate governance and firm performance applying Pareto approach, is it cultural phenomena? The Journal of Applied Business Research, 30(5), 1395-1406.

McIntyre, M. L., Murphy, S. A. & Mitchell, P. (2007). The top team: examining board composition and firm performance, Corporate Governance – An International Review, 7(5), 547-561.

Mohammed, F. (2012). Impact of corporate governance on banks performance in Nigeria. Journal of Emerging Trends in Economics and Management Sciences, 3(3), 257-260.

Naushad, M. & Malik, S. A. (2015). Corporate governance and bank performance: A study of selected banks in GCC Region. Asian Social Science, 11(9), 226-234.

Neiftar, S. & Haliou, K. (2013). Determinants of corporate governance disclosure: The case of Tunisian firms listed on the Tunis Stock Exchange, International Journal of Finance and Accounting, 2(3), 174-183.

Odili, O., Ezeudu, I. J. & Orikara, C. P. (2015). Does corporate governance influence banking sector performance in Nigeria? International Journal of Economics, Commerce and Management United Kingdom, 3(10), 345-365.

Ogege S. B. & Tarila, B. (2014). Corporate governance and financial performance of banks: Evidence from Nigeria. Acta Universitatis Danubius, 10(3), 44-58.

Oki, E. U. & Maimako, S. S. (2015). Corporate governance disclosure practices and bank performance in Nigeria: An empirical investigation, International Journal of Managerial Studies and Research, 3(1), 49-56.

Okiro, K., Aduda, J. & Omoro, N. (2015). The effect of corporate governance and capital structure on performance of firms listed at the east African Community Securities Exchange. European Scientific Journal, 11(7), 504-533.

Okoye, L. U., Evbuomwan, G. O., Achugamonu, U. & Araghan, I. (2016). Impact of corporate governance on the profitability of the Nigerian banking sector. ESUT Journal of Accountancy, 7(1), 281-297.

Organization for Economic Cooperation and Development (OECD) (2004). Principles of corporate governance. Paris France: OECD publications service. Available online www.oecd.org.

Osisioma, C. B., Egbunikie, P. A. & Adeaga, J. C. (2015). Investigating the impact of corporate governance on banks’ performance in Nigeria: A field experiment. International Journal of Economics and Business Administration, 1(2), 98-112.

Osuagwu, G. O. (2013). Implications of corporate governance on the performance of deposit money banks in Nigeria (2005 – 2010). Arabian Journal of Business and Management Review, 2(10), 107-119.

Pan, M. (2015). Bank corporate governance and its performance during the crisis of 2007-2008: evidences from 74 banks in Europe, (Master’s Thesis, University of Twente, Netherland).

Sakawa, H. & Watanabel, N. (2011). Corporate board structures and performance in the banking industry: Evidence from Japan. Retrieved from http://ssrn.com/abstract=1786200.

Sakilu, O. B. & Kibret, B. G. (2015). Determinants of the financial performances of commercial banks in Ethiopia: from internal corporate governance practices perspective. Journal of Eastern European and central Asian Research, 2(1), 1-10.

Shungu, P., Ngirande, H. & Ndlovu, G. (2014). Impact of corporate governance on the performance of commercial banks in Zimbabwe. Mediterranean Journal of Social Sciences, 5(15), 93-105.

Srairi, S. (2015). Corporate governance disclosure practices and performance of Islamic banks in GCC countries. Journal of Islamic Finance, 4(2), 1 – 17.

Thuraisingam, R. (2013). The effects of corporate governance on company performance: Evidence from Sri Lankan financial services industry. Journal of Economics and Sustainable Development, 4(17), 103-109.

Ujunwa, A. (2012). Board characteristics and financial performance of Nigerian quoted firms. Corporate Governance, 12 (5), 656 – 674.

Utama, C. A. & Musa, H. (2011). The Causality between corporate governance practice and bank performance: Empirical evidence from Indonesia. Gadjah Mada International Journal of Business, 13(3), 227 – 247.

Uwuigbe, O. R. & Fakile, A. S. (2012). The effect of board size on financial performance of banks in Nigeria. International Journal of Economics and Finance, 4(20), 260 – 267.

Uwuigbe, O. R. (2011). Corporate governance and financial performance of banks: a study of listed banks in Nigeria, (A doctoral thesis Covenant University, Ota, Ogun State).

Xavier, M. S., Shukla, J., Oduor, J. & Mbabazize, M. (2015). Effect of corporate governance on the financial performance of banking industry in Rwanda: (a case study-commercial banks in Rwanda). International Journal of Small Business and Entrepreneurship Research, 3(6), 29-43.




DOI: http://dx.doi.org/10.46827/ejefr.v0i0.793

Refbacks

  • There are currently no refbacks.


Copyright (c) 2020 Benson Aisagbonbuomwan Esan, Amalachukwu Chijindu Ananwude, Ijeoma Chinwe Okeke

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.

The research works published in this journal are free to be accessed. They can be shared (copied and redistributed in any medium or format) and\or adapted (remixed, transformed, and built upon the material for any purpose, commercially and\or not commercially) under the following terms: attribution (appropriate credit must be given indicating original authors, research work name and publication name mentioning if changes were made) and without adding additional restrictions (without restricting others from doing anything the actual license permits). Authors retain the full copyright of their published research works and cannot revoke these freedoms as long as the license terms are followed.

Copyright © 2015 - 2018. European Journal of Economic and Financial Research (ISSN 2501-9430) is a registered trademark of Open Access Publishing GroupAll rights reserved.

This journal is a serial publication uniquely identified by an International Standard Serial Number (ISSN) serial number certificate issued by Romanian National Library. All the research works are uniquely identified by a CrossRef DOI digital object identifier supplied by indexing and repository platforms. All the research works published on this journal are meeting the Open Access Publishing requirements and standards formulated by Budapest Open Access Initiative (2002), the Bethesda Statement on Open Access Publishing (2003) and  Berlin Declaration on Open Access to Knowledge in the Sciences and Humanities (2003) and can be freely accessed, shared, modified, distributed and used in educational, commercial and non-commercial purposes under a Creative Commons Attribution 4.0 International License. Copyrights of the published research works are retained by authors.