APPRAISAL OF NIGERIAN BANKS COMPLIANCE WITH CBN CODE OF CORPORATE GOVERNANCE AND IT’S EFFECT ON BANK PERFORMANCE
ABSTRACT
In the immediate past two decades the financial services industry has experienced fluctuating fortunes leading to high profile cases of corporate failure and consequent near loss of public confidence and hence, the banking reform kick starts in 2004. The industry’s problems in Nigeria are consequences (directly or indirectly) of bad corporate governance. The lack of effective corporate governance in Nigeria has worked to the decrement of shareholders and created a class of stakeholder who has lost interest in the banking system. The study therefore appraised Nigerian banks’ compliance to the CBN code of Corporate Governance as well as its effect on bank performance. Analysis of variance (ANOVA) was used to measure Nigerian bank’s compliance to the CBN code of corporate governance, while the panel data ordinary least square regression to measure the compliance effect on bank’s profitability. Among other codes of corporate governance for board size, audit committee, board diversity, and power separation. Nigerian commercial banks’ compliance to CBN best practice for board size was statistically insignificant. Therefore, commercial banks in Nigeria were up till the date of this study non-compliant with the CBN best practice for board size. The same was discovered for board diversity, audit committee, and power separation as the f-statistics evidenced in analysis of Variance showed a significant variance between the Nigerian commercial banks’ observed practices and the best practice code as dictated by the Central Bank of Nigeria (CBN). Nonetheless, Nigerian commercial banks significantly complied with the CBN best practice code for commercial banks’ board composition. This was evidenced in the analysis of variance as the f- calculated was less than the f- critical, signifying very little variance between commercial banks’ observed practices and the CBN best practice code for corporate board composition. It was recommended that Central Bank of Nigeria should strictly monitor Nigerian banks’ compliance to the code of corporate governance, especially board size, audit committee, board diversity, power separation, as a percentage increase in general compliance to the best practice. In conclusion, Compliance to Central Bank of Nigeria code of corporate governance significantly impacted on banks’ profitability in Nigeria. CBN code of corporate governance raises profitability of Nigerian banks by 3.53 percent. The direct relationship between general compliance to CBN code of corporate governance and profit of commercial banks will boost the profitability of the commercial banks.
TABLE OF CONTENTS
Title page i
Declaration ii
Approval iii
Dedication iv
Acknowledge v
Abstract vi
Table of Content vii
List of Tables viii
List of Figures ix
CHAPTER ONE: INTRODUCTION
- Background of the Study 1
- Statement of the problem 4
- Research objectives 5
1.4. Research Hypotheses 5
1.5. Scope of the Study 6
1.6. Significance of the Study 6
References 8
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 CONCEPTUAL FRAMEWORK 10
2.1.1The Concept of Corporate Governance 10
2.1.2 Corporate Governance in Banking Sector 12
2.1.3 External Corporate Governance Mechanism 13
2.1.4 Internal Corporate Governance Mechanism 14
2.1.5 Corporate Governance in Nigeria 15
2.1.6 Key Areas of Failure of Corporate Governance in Banks 17
2.1.7 Enhancing Corporate Governance in Banks in Nigeria 22
2.2. THEORETICAL FRAMEWORK 34
2.2.1 Agency theory and the study of corporate governance 36
2.2.2 Agency Costs and Corporate Governance Solutions (Origin and
Development) 40
2.2.3 Agency Problems and Corporate Governance Solutions 41
2.3 REVIEW OF EMPIRICAL LITERATURE 43
2.3.1 Corporate Governance and Bank Performance. 46
2.3.2 Board Structure and Corporate Financial Performance in Nigeria. 52
2.3.3 Corporate Performance and Executive Compensation 55
2.3.4. Existence of Audit Committee and Bank Performance 55
2.3.5. Separation of Functions of the Chairman and the CEO and Bank
Performance 56
2.3.6. Board Diversity and Bank Performance 57
2.3.7 Board Activity and Bank Performance 57
2.3.8 Board Size and Bank Performance 58
2.4. SUMMARY 59
References 61
CHAPTER THREE: METHODOLOGY
- Research Design 68
- Nature and sources of data 68
- Population Size 68
3.4 Sample Size 69
3.5 Data Analysis Technique 69
3.6 Operationalization of the Variables 71
3.7 Model Specification 73
References 75
CHAPTER FOUR: DATA PRESENTATION AND ANALYSES
4.1. Data Presentation 76
4.2 Commercial Bank’s Compliance to CBN Code of Corporate Governance 77
4.3 General Compliance to Code of Corporate Governance (COMP)
and Profit after Tax (PAT) 84
4.4 Test of Hypotheses 90
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND
RECOMMENDATIONS
5.1 Summary 93
5.2 Conclusion 96
5.3. Recommendations 96
5.4 Contribution to Knowledge 97
5.5 Suggested Future Research Areas 97
Bibliography 98
Appendices
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