EFFECT OF CORPORATE GOVERNANCE ON FINANCIAL PERFORMANCE OF SELECTED DEPOSIT MONEY BANKS QUOTED ON THE NIGERIAN STOCK EXCHANGE (2005 – 2017)
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
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DOI: http://dx.doi.org/10.46827/ejefr.v0i0.793
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