Effect of corporate governance on the financial performance of commercial banks in Nigeria
-
Author(s)Lawrence Uchenna OkoyeLink to ORCID Index: https://orcid.org/0000-0001-6999-0100
,
Felicia OlokoyoLink to ORCID Index: https://orcid.org/0000-0003-0176-0194
,
Johnson I. Okoh
,
Felix Ezeji
,
Rhoda Uzohue
-
DOIhttp://dx.doi.org/10.21511/bbs.15(3).2020.06
-
Article InfoVolume 15 2020, Issue #3, pp. 55-69
- Cited by
- 2597 Views
-
1995 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
Banks are expected to operate within acceptable standards of governance for consistent profitable operations. They run heavily on customer deposits, which is confidence-driven. Since the quality of governance is critical to winning and retaining customer confidence and patronage, the imperative for good governance practices in banks cannot be overemphasized. This research paper explores the nexus between governance practices and bank profitability in Nigeria. It adopts the size of bank board and directors’ stake as proxies for corporate governance, with return on assets and return on equity as representations for financial performance. The research incorporates firm size as a controlled variable. The estimation technique of the Generalized Method of Moments was employed. Evidence from the research reveals that board size, directors’ equity, and firm size substantially affect Nigerian banks’ financial performance. Besides, the study shows a robust effect of lagged return on equity on the current level of performance. Therefore, the study asserts that governance in business entities strongly affects their financial performance and recommends maintaining optimum board size to minimize boardroom conflicts. It further prescribes that the requirement for substantial equity stake by directors of banking institutions be sustained, as it secures commitment to governance practices that support profitability.
Acknowledgment
The authors acknowledge the support of Covenant University towards the publication of this paper.
- Keywords
-
JEL Classification (Paper profile tab)C14, C23, G21, G34
-
References86
-
Tables0
-
Figures0
-
- Adekunle, S. A., & Aghedo, E. M. (2014). Corporate governance and financial performance of selected quoted companies in Nigeria. European Journal of Business and Management, 6(9), 4-16.
- Adeusi, S., Akeke, N., Aribaba, F., & Adebisi, O. (2013). Corporate governance and firm financial performance: Do ownership and board size matter? Academic Journal of Interdisciplinary Studies, 2(3), 251-258.
- 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.
- Agrawal, A., & Chadha, S. (2005). Corporate governance and accounting scandals. Journal of Law and Economics, 48(1), 371-406.
- Ajala, O. A., Amuda, T., & Arulogun, L. (2012). Evaluating the effects of corporate governance on the performance of the Nigerian banking sector. Review of Contemporary Business Research, 1(1), 32-42.
- Akiyomi, O. J., & Olutoye, E. A. (2015). Corporate governance and profitability of Nigerian banks. Asian Journal of Finance and Accounting, 7(1), 172-182.
- Akpan, E. S., & Riman, H. B. (2012). Does corporate governance affect bank profitability? Evidence from Nigeria. American International Journal of Contemporary Research, 2(7), 135-145.
- Aromona, J., Erin, O., Onmonya, L., & Omotayo, V. (2019). Board financial education and firm performance: Evidence from the healthcare sector in Nigeria. Academy of Strategic Management Journal, 18(4).
- Ayorinde, A. O., Toyin, A., & Leye, A. (2012). Evaluating the effect corporate governance on the performance of the Nigerian banking sector. Review of Contemporary Business Research, 1(1), 32-42.
- Bae, K. H., & Goyal, V. K. (2010). Equity market liberalization and corporate governance. Journal of Corporate Finance, 16(5), 609-621.
- Barus, J. J., Muturi, W., Kibati, P., & Koima, J. (2017). Effect of management efficiency on financial performance of savings and credit societies in Kenya. Journal of Strategic Management, 2(1), 92-104.
- 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.
- Belkhir, M. (2009). Board of director’s size and performance in the banking industry. International Journal of Managerial Finance, 5(2), 201-221.
- Botosan, C. A. (2006). Disclosure and the cost of capital: What do we know? Accounting and Business Research, 36(1), 31-40.
- Boussaada, R., & Karmani, M. (2015). Did board of directors have an impact on MENA bank performance? International Journal of Economics and Finance, 7(4), 46-56.
- Carter, D. A., D’Souza, F. D., Simkins, B. J., & Simpson, W. G. (2007). The Diversity of Corporate Board Committees and Firm Financial Performance.
- Cheema, K. U., & Din, M. S. (2013). Impact of corporate governance on the profitability of firms: A case study of cement industry in Pakistan. Journal of Business Management Sciences, 1(4), 44-46.
- Choi, S., & Hasan, I. (2005). Ownership, Governance, and Bank Performance: Korean Experience. Financial Markets, Institutions and Instruments, 14(4), 215-242.
- Dalton, C. M., & Dalton, D. R. (2005). Board of directors: Utilizing empirical evidence in developing practical prescriptions. British Journal of Management, 16(1), 91-97.
- Davis, J. H., Schoorman, F. D., & Donaldson, L. (1997). Toward a stewardship theory of management. Academy of Management Review, 22(1), 20-47.
- Dua, P., & Dua, S. (2015). A review article on corporate governance reforms in India. International Journal of Research, 2(2), 806-835.
- Eluyela, D. F., Akintimehin, O. O., Okere, W., Ozordi, E., Osuma, G. O., Ilogho, S. E., & Oladipo, O. A. (2018). Board meeting frequency and firm performance: Examining the nexus in the Nigerian deposit money banks. Heliyon, 4(10).
- Ene, E. E., & Bello, A. I. E. (2016). The effect of corporate governance on bank’s financial performance in Nigeria. IOSR Journal of Business and Management (IOSR-JBM), 18(11), 99-107.
- Faber, D. (2009). And Then The Roof Caved In. New Jersey: John Wiley and Sons Inc.
- Fallatah, Y., & Dickins, D. (2012). Corporate governance and firm performance and value in Saudi Arabia. African Journal of Business Management, 6(36), 10025-10034.
- Filip, F., Vesna, M., & Kiril, S. (2014). Corporate governance and bank performance: Evidence from Macedonia. Economic Analysis, 47(1-2), 76-99.
- Gallego-Álvarez, I., García-Sánchez, I. M., & Rodríguez-Dominguez, L. (2010). The influence of gender diversity on corporate performance. Revista de Contabilidad, 13(1), 53-88.
- Goel, P. (2018). Implications of corporate governance on financial performance: An analytical review of governance and social reporting reforms in India. Asian Journal of Sustainability and Social Responsibility, 3(4), 1-21.
- Green, C. P., & Homroy, S. (2018). Female directors, board committees and firm performance. European Economic Review, 102(C), 19-38.
- Harun, A. (2017). Corporate Governance and its Effect on Financial Performance of the Ethiopian Private Commercial Banks (Master’s Thesis). Addis Ababa University.
- Isik, O., & Ince, A. R. (2016). Board size, board composition and performance: An investigation on Turkish banks. International Business Research, 9(2), 74-84.
- Jadah, H. M., Murugiah, L. A/P., & Adzis, A. B. (2016). The effect of board characteristics on Iraqi banks performance. International Journal of Academic Research in Accounting, Finance and Management Sciences, 6(4), 205-214.
- Jensen, M. C., & Meckling, W. H. (1979). Theory of the firm: managerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3(4), 305-360.
- Jizi, M. I., Salama, A., Dixon, R., & Stratling, R. (2014). Corporate governance and corporate social responsibility disclosure: Evidence from the US banking sector. Journal of Business Ethics, 125(4), 601-615.
- John, E. I., & Ibenta, S. N. (2016). Corporate governance and the performance of Nigerian banks. International Journal of Economics, Finance and Management Sciences, 4(2), 39-45.
- Julizaerma, M. K., & Sori, Z. M. (2012). Gender diversity in the boardroom and firm performance of Malaysian public listed companies. Procedia-Social and Behavioral Sciences, 65, 1077-1085.
- Kılıç, M., & Kuzey, C. (2016). The effect of board gender diversity on firm performance: evidence from Turkey. Gender in Management: An International Journal, 31(7), 434-455.
- Klapper, L. F., & Love, I. (2002). Corporate governance, investor protection and performance in emerging markets (Policy Research Paper No. 2818). World Bank.
- Kolk, A., & Pinkse, J. (2010). The integration of corporate governance in corporate social responsibility disclosures. Corporate Social Responsibility and Environmental Management, 17(1), 15-26.
- Kumar, J. (2004). Does corporate governance influence firm value? Evidence from Indian firms. The Journal of Entrepreneurial Finance & Business Ventures, 9(2), 61-91.
- Kutubi, S. S. (2001). Board of director’s size, independence and performance: An analysis of private commercial banks in Bangladeshi. World Journal of Social Sciences, 1(4), 159-178.
- Kyereboah-Coleman, A., & Biekpe, N. (2006a). Do boards and CEOs matter for bank performance: A comparative analysis of banks in Ghana.
- Kyereboah-Coleman, A., & Biekpe, N. (2006b). Corporate governance and the performance of microfinance institutions in Ghana (Working Paper No. 4330-05). UGBS Legon.
- Kyereboah-Coleman, A. (2007). Corporate governance and firm performance in Africa: A dynamic panel analysis. Paper prepared for the International Conference on Corporate Governance in Emerging Markets, Global Corporate Governance Forum (GCGF) and Asian Institute of Corporate Governance (AICG). Sabanci University, Istanbul, Turkey.
- Lahart, J. (2009, July 8). The current recession: A downturn sized up. The Wall Street Journal.
- Le, N. N. D., & Thi, N. N. D. (2016). An examination of the relationship of corporate governance to firm performance: Empirical evidence from Vietnamese listed companies. International Journal of Financial Research, 7(4), 190-197.
- Lefort, F., & Urzúa, F. (2008). Board independence, firm performance and ownership concentration: Evidence from Chile. Journal of Business Research, 61(6), 615-622.
- Liang, Q., Xu, P., & Jiraporn, P. (2013). Board characteristics and Chinese bank performance. Journal of Banking and Finance, 37(8), 2953-2968.
- Milliken, F. J., & Martins, L. L. (1996). Searching for common threads: Understanding the multiple effects of diversity in organizational groups. Academic Management Review, 21(2), 402-433.
- Miyajima, H., Omi, Y., & Sato, N. (2003). Corporate governance and performance in twentieth century Japan. Business and Economic History, 1(1), 1-36.
- Monda, B., & Giorgino, M. (2013). Corporate governance and shareholder value in listed firms: An empirical analysis in five countries (France, Japan, Italy, UK, USA). Corporate Ownership & Control, 10(3), 36-50.
- Mutuku, D. M. (2016). Effects of corporate governance on financial performance of savings and credit cooperative societies in Machakos and Athi river sub-counties (Master’s Thesis).
- Narwal, K. P., & Jindal, S. (2015). The impact of corporate governance on the profitability: An empirical study of Indian textile industry. International Journal of Research in Management, Science & Technology, 3(2), 81-85.
- Ojeka, S. A., Iyoha, F. O., Ikpefan, O. A., & Osakwe, C. (2017). Does reformed code of corporate governance 2011enhance the market performance of the firms in Nigeria? International Journal of Economic Performance, 11(1), 155-164.
- Okafor, F. O. (2011). Fifty Years of Banking Sector Reforms in Nigeria (1960–2010) (Past Lessons – Future Imperatives). Enugu, Nigeria: Ezu Books Ltd.
- Okoye, L. U., Erin, O. A., Ahmed, A., & Areghan, I. (2017). Corporate governance and financial sustainability if microfinance institutions in Nigeria. In Proceedings of the 29th International Business Information Management Association (IBIMA) Conference (pp. 4035-4045). Vienna, Austria.
- 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), 281-292.
- Olayiwola, K. T. (2018). The effect of corporate governance on financial performance of listed companies in Nigeria. European Journal of Accounting, Auditing, and Finance Research, 6(9), 85-98.
- Olokoyo, F. O., Adegboye, F. B., Okoye, L. U., Evbuomwan, G. O., & Adebo, A. E. (2019). Corporate governance and deposit money banks performance in Nigeria. In Proceedings of INTCESS 2019 – 6th International Conference on Education and Social Sciences. Dubai, UAE.
- Ongore, V. O., Peter, O. K., Ogutu, M., & Bosire, E. M. (2015). Board composition and financial performance: Empirical analysis of companies listed at the Nairobi Securities Exchange. International Journal of Economics and Financial Issues, 5(1), 23-43.
- Orozco, L. A., & Vargas, J. (2018). Trends on the relationship between board size and financial and reputational corporate performance: The Colombian case. European Journal of Management and Business Economics, 27(2), 183-197.
- Oyarzún, C. A. (2011). Institutional shareholders and corporate governance: Do institutional shareholders have an active participation in preventive governance in the United Kingdom? And if so, how? Revista Chilena de Derecho, 38(1), 9-32.
- Pathan, S., Skully, M., & Wickremanayake, J. (2007). Board size, independence and performance: An analysis of Thai banks. Asia-Pacific Financial Markets, 14, 211-227.
- Patibandla, M. (2006). Equity pattern, corporate governance and performance: A study of India’s corporate sector. Journal of Economic Behavior and Organization, 59(1), 29-44.
- Pfeffer, J., & Salancik, G. R. (1978). The External Control of Organizations: A Resource Dependence Perspective. Harper & Row, New York, NY.
- Raihan, M. Z., & Hoque, K. E. (2013). Impact of corporate governance practices in some selected private banks in Bangladesh. Actual Problems of Economics, 11(149), 484-493.
- Roodposhti, F. R., & Chashmi, S. N. (2010). The effect of board composition and ownership concentration on earnings management: Evidence from Iran, World Academy of Science. International Journal of Economics and Management Engineering, 4(6), 673-679.
- Salim, S. I. A., & Iskandar, T. B. M. (2017). The effect of corporate governance on the financial performance of Jordanian corporations insurance sector. International Sciences of Management Journal, 2(2), 5-15.
- Sanan, N. K. (2016). Board Gender Diversity, Financial and Social Performance of Indian Firms. Vision, 20(4), 361-367.
- Sani, A. B., Aliyu, A. A., & Bakare, T. O. (2019). Effect of corporate governance on financial performance of deposit money banks in Nigeria. Asian Journal of Economics, Business and Accounting, 13(3), 1-11.
- Sarpal, S., & Singh, F. (2013). Board Size and Corporate Performance: An Empirical Investigation. International Journal of Business Ethics in Developing Economies, 2(1), 1-8.
- Shivaani, M. V., Jain, P. K., & Yadav, S. S. (2017). Perceptual Mapping of Capital Budgeting Techniques: Empirical Evidence from Corporate Enterprises in India. Research Bulletin, 42(4), 106-112.
- Soludo, C. C. (2004). Consolidating the Nigerian banking industry to meet the challenges of the 21st century. Address to a special meeting of the Bankers Committee, Abuja, 6th July 2004. BIS Review.
- Spanos, L. J. (2005). Corporate governance in Greece: Developments and policy implications. Corporate Governance: The International Journal of Business in Society, 5(1), 15-30.
- Strøm, R. Ø., D’Espallier, B., & Mersland, R. (2014). Female leadership, performance, and governance in microfinance institutions. Journal of Banking and Finance, 42, 60-75.
- Surya, B. G. C. (2016). Corporate governance and firm performance: Empirical evidence from India. Journal of Business Management Research, 1(2), 48-65.
- Tata, S. V., & Sharma, M. (2012). Corporate governance mechanisms and firm performance: A study of Indian firms. Journal of Commerce and Accounting Research, 1(1), 11-17.
- Thuraisingam, M. 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.
- Usman, S. H., & Yero, J. I. (2012). Ownership concentration and earnings management practice of Nigerian listed conglomerates. American International Journal of Contemporary Research, 2(7), 157-171.
- Uwuigbe, O. R. (2011). Corporate governance and financial performance of banks: A study of listed banks in Nigeria (Ph.D. Thesis). Covenant University, Ota, Nigeria.
- Van Ness, R. K., Miesing, P., & Kang, J. (2010). Board of director composition and financial performance in a Sarbanes-Oxley world. Academy of Business and Economics Journal, 10(5), 56-74.
- Vo, D., & Phan, T. (2013). Corporate governance and firm performance: Empirical evidence from Vietnam.
- Yang, I. H., Yan, L.I., Li, Y., & Yang, H. (2012). Disclosure and the cost of equity capital: An analysis at the market level.
- Yauri, M. N., Muhammad, K., & Kaoje, N. A. (2013). Corporate governance and performance of Nigerian deposit money banks in post-consolidation era. International Journal of Current Research, 5(6), 1389-1397.
- Zandi, M. (2009). Financial Shock. New Jersey: Pearson Education Inc.
- Zsohar, P. (2012). Short introduction to the generalized method of moments. Hungarian Statistic Review (Special Number), 16, 150-170.
-
Determinants of financing decision: empirical evidence on manufacturing firms in Indonesia
Sutomo Sutomo , Sugeng Wahyudi ,
Irene Rini Demi Pangestuti ,
Harjum Muharam
doi: http://dx.doi.org/10.21511/imfi.16(2).2019.14
Investment Management and Financial Innovations Volume 16, 2019 Issue #2 pp. 159-170 Views: 2324 Downloads: 327 TO CITE АНОТАЦІЯThis study aims to contribute to the emergence of the literature focusing on exploring the factors influencing the financing decision, as well as examining the relationship between the firm size, profitability and firm growth towards the corporate debt. Questions such as how relevant firm size, profitability and firm growth to debt are, quantitatively, had not been fully answered in the business literature. The purpose of this study is to fill this large gap by examining the role of the firm size, profitability, investment and firm growth for the corporate debt. This study tries to examine the determinants of debt in the financial literature which include size, growth, business risk, and profitability in accordance with the capital structure theory, in manufacturing firms in Indonesia. The sample contained financial data from 150 firms for the period 2012–2017. The results showed that the manufacturing firms in Indonesia had high debt levels, especially the size, profitability, firm growth and profitability had proven to be the debt determinants, which also confirmed the Pecking Order Theory. This study also found that the management preference of manufacturing firms in Indonesia for risk was the risk-seeker or risk-neutral ones. This finding implies that the choice of funding sources originating from debt still provided greater returns compared to the capital cost needed due to business uncertainties.
-
Corporate governance quality, firm size and earnings management: empirical study in Indonesia Stock Exchange
Yulia Saftiana , Mukhtaruddin ,
Krisna Winda Putri ,
Ika Sasti Ferina
doi: http://dx.doi.org/10.21511/imfi.14(4).2017.10
Investment Management and Financial Innovations Volume 14, 2017 Issue #4 pp. 105-120 Views: 1946 Downloads: 517 TO CITE АНОТАЦІЯEarnings management (EM) is manipulation done by management in preparing financial statement in order to gain management advantages or to increase the firm value. EM can reduce the quality of financial statements because it does not show the real earning periodical. This research aims to identify the effect of good corporate governance (GCG) (institutional ownership, managerial ownership, frequency of board meetings, frequency of audit committee (AC) meetings), firm size, and leverage on the EM. Population comprises the companies in LQ 45 index of Iindonesia Stock Exchange (IDX) for the period 2010–2014. Samples of the research were taken using purposive sampling method, and the variables are tested using multiple linear regression analysis. The results of the research show that partially, only leverage has significant effect on EM, while institutional ownership, managerial ownership, frequency of board meeting, frequency of AC meetings, and firm size have no significant effect on EM, but all of the variables have simultaneously significant effect on EM. Limitations of the research are the only used 6 independent variables and 21 companies as samples of the research.
-
The impact of working capital management on cash holdings of large and small firms: evidence from Jordan
Mohammad Fawzi Shubita
doi: http://dx.doi.org/10.21511/imfi.16(3).2019.08
Investment Management and Financial Innovations Volume 16, 2019 Issue #3 pp. 76-86 Views: 1770 Downloads: 1141 TO CITE АНОТАЦІЯLiquidity is a firm’s ability to pay its current obligations as they come due and thus remain in business in the short run, which reflects the ease with which assets can be converted to cash. The objective of working capital management (WCM) is to minimize the cost of maintaining liquidity while guarding against the risk of insolvency, working capital policy applies to short-term decisions, and capital structure finance applies to long-term decisions.
Several studies have been conducted on the impact of WCM on cash holding levels. The impact of WCM on liquidity and cash holding levels is analyzed in this study. The study also makes a comparison between large- and small-scale firms. Panel data for 62 Jordanian industrial firms covering an eleven-year period (2006–2016) have been analyzed. The descriptive analysis indicates that large firms hold more cash than small firms, as well as more debt, cash flow and growth.
The findings of the data set indicate that WCM, as a variable (working capital net of cash), is a strong predictor of firm cash holding levels. When a firm has several cash substitutes, it will maintain low cash levels. The separate analysis shows that there are significant differences between small- and large-scale firms for determinates related to cash holding levels. Firm size and cash flow ratios were strong predictors of cash holding levels for both samples.
