Impact of Corporate Governance on the Financial Performance of Tier-One Banks in Nigeria

Abstract

Following the consolidation exercise in the banking sector in 2006 in Nigeria, Corporate Governance practices in the banking sector have received significant attention. The 2009 banking crisis underscores the need for financial regulators to take more than a cursory look at corporate governance practices in the sector. Previous studies on corporate governance and bank performance have mixed outcomes. Premise on this, this study examines the impact of corporate governance on the financial performance of tier-one banks in Nigeria. Corporate governance was operationalized using; board size, board composition, board (gender) diversity, and board meetings. While Return on Equity (ROE) and Return on Asset (ROA) were proxies for financial performance. The annual reports of five sampled banks over a period of ten years (2009-2018) were used to collect secondary data, while primary data was obtained via a survey of 115 respondents. Descriptive (Min., Max., Mean, Standard Deviation, Skewness and Kurtosis) and Inferential (Pearson Correlation, ANOVA, and Multiple Regression) statistical tools were used to measure the relationship between the corporate governance variables and financial performance. The study findings reveal that the four corporate governance mechanisms accounted for 9% and 15% of the variances in ROE and ROA respectively. Specifically, the results show that board size and board meetings have a negative but statistically significant relationship with financial performance. While board composition and board (gender) diversity show a positive relationship with performance, the relationship is not statistically significant with ROE and ROA for board composition. Though board (gender) diversity reveals a statistically significant relationship with only Return on Equity, the study recommends that stakeholders must ensure that bank board's operate with the optimal board size, and also effort must be made to improve board composition and board (gender) diversity; as these will increase investors' confidence and impact positively on the performance of the banks.