Abstract

The major concern of regulatory authority overtime is on the need to enhance sound practices among banks through the improvement of corporate governance; therefore this research examined the effect of corporate governance on commercial banks profitability in Nigeria. The study covered the period of 2009 to 2018 and secondary data were obtained from the audited financial statement of the selected banks which are Guarantee Trust Bank Nigeria PLC, Zenith Bank PLC and First Bank of Nigeria PLC. Fixed effect regression technique was used to examine the effect of Audit Committee Size (ACS), Board Size (BS), Audit Committee Number of Meeting (ACNM) and Board Number of Meeting (BNM) on earnings per share (EPS) of the selected banks. The independent variables results showed a positive and significant relationship on Earnings per share of the banks with coefficient and probability(prob.) value of the variables as follows: audit committee size(0.6241;0.0109), board size(0.4349;0.007) and board number of meeting(0.0356) had positive and significant effect on earnings per share of the banks respectively. However, negative and significant relationship was established between audit committee number of meeting and earnings per share with a coefficient and probability value of -1.0781 and 0.0001 respectively. With the F-Stat. of 2.84 and a prob. of 0.025, all the null hypotheses were rejected and the alternative hypotheses accepted, indicating that all the independent variables significantly affect the dependent variable. The study concluded that corporate governance enhances commercial banks performance in Nigeria. It therefore recommended that attention should be paid to the audit committee size, board size and board number of meetings since an increase in them leads to increase in the earnings per share while the audit committee number of meetings should be reduced as it affects the earnings per share negatively. The regulatory authority should formulate strong policy frameworks that would ensure that commercial banks constantly comply with corporate governance standard set by the authority.

Keywords: corporate governance, profitability, financial institutions, earnings per share.

JEL Classification: G30, G21, G28, G32.

Cite as: Oluwole, F. O. (2021). The Impact of Corporate Governance on Banks Profitability in Nigeria. Financial Markets, Institutions and Risks, 5(1), 18-28. https://doi.org/10.21272/fmir.5(1).18-28.2021

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

References

1. 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, 251-258. Retrieved from: https://www.mcser.org/journal/index.php/ajis/article/view/1411
2. Agbaeze, E.K & Ogosi, C.D (2018). Corporate governance and profitability of Nigerian banks. European Journal of Scientific Research, 148(3), 358-367. Retrieved from: https://www.europeanjournalofscienti ficresearch.com/issues/PDF/EJSR_148_3_05.pdf
3. Ahmed, E. & Hamdan, A. (2015). The effect of corporate governance on firm performance: Evidence from Bahrain Exchange. European Journal of Business and Innovation Research, 3(5), 25 – 48
4. Ajala, O. A., Amuda, T. & Arulogun, L. (2012). Evaluating the effects of corporate governance on the performance of Nigerian banking sector. Review of Contemporary Business Research, 1(1), 32-42. Retrieved from: http://rcbrnet.com/journals/rcbr/Vol_1_No_1_December_2012/4.pdf
5. Akingunola R.O, Adekunle O.A &Adedipe O.A. (2015). Corporate governance and bank’s performance in Nigeria. European Journal of Business and Social Sciences, 2(8), 89-111. Retrieved from: https://ir.unilag.edu.ng/bitstream/handle/123456789/3976/Corporate%20%20Governance%20%20Practices%20%20and%20%20Banks.pdf?sequence=1&isAllowed=y
6. Allen, F. & Gale, G. (2000). Comparing financial systems. Cambridge: MIT Press Massachusetts. Retrieved from: https://mitpress.mit.edu/books/comparing-financial-systems
7. Al-Moataz, E., & Hussainey, K. (2013). Determinants of corporate governance disclosure in Saudi Corporations. JKAU: Econ. & Adm., 27(2), 411-430. Retrieved from: https://www.kau.edu.sa/Files/1001002/Researches/66403_37943.pdf
8. Almoneef, A & Samontaray, P.D (2019). Corporate governance and firm performance in the Saudi banking industry. Banks and Bank Systems, 14(1), 147-158. http://dx.doi.org/10.21511/bbs.14(1).2019.13
9. Ammar, A. G, Saeed, A. & Abid, A. (2013). Corporate governance and performance: empirical evidence from textile sector of Pakistan. African Journal of Business Management, 7(22), 2112 – 2118. Retrieved from: https://academicjournals.org/article/article1380698681_Ammar%20et%20al.pdf
10. Andrew, B. (2015). Three pillars of corporate sustainability. Retrieved from: http://www.investopedia.com/articles/investing/100515/three-pillars-corporatesustainability
11. Anthony, K. C. (2007). Corporate governance and firm performance in Africa: A dynamic panel data analysis. A Paper presented for the International Conference on Corporate Governance in Emerging Markets. Organised By The Global Corporate Governance Forum (GCGF) And Asian Institute Of Corporate Governance (AICG), 15th – 17th, 2007, Sabanci University, Istanbul, Turkey. Retrieved from: https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1813-6982.2006.00097.x
12. Basel Committee on Banking Supervision, and Bank for International Settlements, (2004). International convergence of capital measurement and capital standards: a revised framework. Basel Committee on Banking Supervision. Retrieved from: https://www.bis.org/publ/bcbs128.htm
13. Basuony, A.M, Mohamed, A.K.E & Al-Baidhani M.A (2014). The effect of corporate governance on bank financial performance: Evidence from the Arabian Peninsula. Corporate Ownership & Control, 11(2), 178-191. https://www.virtusinterpress.org/IMG/pdf/10-22495cocv11i2c1p3.pdf
14. Becht, M., Bolton, P. & Röell, A. (2002). Corporate governance and control. (NBER Working Paper No. 9371). https://econpapers.repec.org/paper/nbrnberwo/9371.htm
15. Beiner, S., Drobetz, W., Schmid, F. & Zimmerman, H. (2003). Is board size independent corporate governance mechanism? National Centre of Competitive Research and Financial Valuation and Risk Management Working Paper. Retrieved from: www.nccr-finrisk.uzh.ch/media/pdf/wp/WP089_8.pdf
16. Buallay, A., Hamdan, A. & Zureigat, Q. (2017). Corporate governance and firm performance: Evidence from Saudi Arabia. Australasian Accounting, Business and Finance Journal, 11(1), 78-98. Retrieved from: https://ro.uow.edu.au/aabfj/vol11/iss1/5/
17. Bussoli, C. (2013). Corporate governance and bank performance in Italy. Financial Systems in Troubled Waters: Information, Strategies, and Governance to Enhance Performances in Risky Times, 40. Retrieved from: https://www.virtusinterpress.org/IMG/pdf/Corporate_Governance_and_Performance_in_Italian _Banking_Groups_by_Giulia_Romano_Paola_Ferretti_Alessandra_Rigolini.pdf
18. Calabrese, A., Costa, R., Menichini, T., Rosati, F. & Sanfelice, G. (2013). Turning corporate social responsibility-driven opportunities in competitive advantages: A two-dimensional Model. Knowledge and Process Management, 20(1), 50-58. Retrieved from: https://onlinelibrary.wiley.com/ doi/abs/10.1002/kpm.1401
19. Clarke, T. (2004). Theories of corporate governance: Oxon: Routledge. Retrieved from: https://www.routledge.com/Theories-of-Corporate-Governance/Clarke/p/book/9780415323079
20. Coleman, K. (2008). Corporate governance and firm performance in Africa: A dynamic panel data analysis. Studies in Economics and Econometrics, 19(2), 350-367. Retrieved from: https://www.semanticscholar.org/paper/Corporate-governance-and-firm-performance-in-a-data-Kyereboah-Coleman/14ae1ccbacaced1dce3c9003b61e3f73
21. Danoshana, S., & Ravivathani, T. (2013). The impact of the corporate governance on firm performance: A study on financial institutions in Sri Lanka. Merit Research Journal of Accounting, Auditing, Economics and Finance, 1(6), 118-121. Retrieved from: https://meritresearchjournals.org/aaef/Content/2013/ December/Danoshana%20and%20Ravivathani.pdf
22. Dar, L. A., Naseem, M. A. Rehman, R. U. & Niazi, G. S. K. (2011). Corporate governance and firm performance: A case study of Pakistan Oil and Gas Companies listed in Karachi Sick Exchange. Global Journal of Management and Business Research, 11(8). Retrieved from: https://www.journalofbusiness.org/index.php/GJMBR/article/view/527
23. Davis, J.H., Schoorman, F.D. & Donald, L. (1997). Towards a stewardship theory of management. Academy of Management Review, 22(1), 20-34. Retrieved from: https://journals.aom.org/ doi/abs/10.5465/amr.1997.9707180258
24. Donaldson, L. & Davis, J.H. (1991). Stewardship theory or agency theory: CEO governance and shareholder returns. Australian Journal of Management, 16(1), 49-64. Retrieved from: http://faculty.wwu.edu/dunnc3/rprnts.stewardshiporagency.pdf
25. Donaldson, L. & Davis, J.H. (2003). Board and companies performance-research challenges and the conventional wisdom, corporate governance: An International Review, 2(3), 60-151. Retrieved from: https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1467-8683.1994.tb00071.x
26. Effiok, S. O., Effiong, C., & Usoro, A. A. (2012). Corporate governance, corporate strategy and corporate performance: Evidence from the financial institutions listed on the Nigerian Stock Exchange. European Journal of Business and Management, 4(18), 84-95. Retrieved from: https://www.iiste.org/Journals/index.php/EJBM/article/view/3226
27. Emeka, E.E & Alem, I.E.B (2016). The effect of corporate governance on bank’s financial performance in Nigeria. IOSR Journal of Business and Management, 18(11), 99-107. Retrieved from: http://www.iosrjournals.org/iosr-jbm/papers/Vol18-issue11/Version-3/M18110399107.pdf
28. Fama, E.F. & Jensen, M. (1983). Separation of ownership and control. Journal of Law and Economics, 26, 301-325. Retrieved from: https://www.jstor.org/stable/725104
29. Filatotcher, I. & Wright, M. (2011). Agency perspectives on corporate governance of multination enterprise. Journal of Management Studies, 48(2), 471-486. Retrieved from: https://onlinelibrary.wiley.com/doi/full/10.1111/j.1467-6486.2010.00921.x
30. Ghalib, S. (2018). Good corporate governance rating and bank profitability in Indonesia: Evidence from panel data. International Journal of Business and Society, 19 (3),570-586. Retrieved from: http://www.ijbs.unimas.my/index.php/content-abstract/all-issues/63-vol-19-no-3-2018/503-good-corporate-governance-rating-and-bank-profitability-in-indonesia-evidence-from-panel-data
31. Ghalid, S. (2018). Good corporate governance rating and bank profitability in Indonesia: Evidence from panel data.  International Journal of Business and Society, 19(3), 570-586. Retrieved from: http://www.ijbs.unimas.my/index.php/content-abstract/all-issues/63-vol-19-no-3-2018/503-good-corporate-governance-rating-and-bank-profitability-in-indonesia-evidence-from-panel-data
32. Heremans, D. (2007). Corporate governance issues for banks: A financial stability perspective. Working Paper. Retrieved from: https://core.ac.uk/download/pdf/6978897.pdf
33. Hermalin, B. & Wezbach, B. (2001). The effect of board composition and direct incentives on firm performance. Financial Management, 20(4), 101-112. Retrieved from: https://ideas.repec.org/a/fma/fmanag/hermalin91.html
34. Hitt, M., Ireland, R.D. & Hoskisson, R. (2012). Strategic management laws: Competitiveness globalization. Boulevard: Engage, Learning. Retrieved from: http://www.microlinkcolleges.net/ elib/files/postgraduate/Master%20of%20Business%20Administration/strategic%20management%20concepts.pdf
35. Ibitamuno, A.D, Onuchuku O & Nteegah, A. (2018).  Corporate governance and banking sector performance in Nigeria. Journal of Applied Economics and Business, 6(4), 35-50.Retrieved from: http://www.aebjournal.org/articles/0604/060403.pdf
36. International Finance Corporation. (2004). The Russia corporate governance manual: Corporate governance introduced. Alpina Business Books, Moscow. Retrieved from: https://www.ifc.org/wps/wcm/connect/5ea2b35e-a475-43be-a7a4-e7df49fb2a9e/CG_Manual_Russian_ Eng.pdf?MOD=AJPERES&CVID=kiUrgcy
37. Jensen, M. & Meckling, W. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Cambridge University Press. Retrieved from: https://josephmahoney.web.illinois.edu/ BA549_Fall%202012/Session%205/5_Jensen_Meckling%20(1976).pdf
38. Johnson, G., Scholes, K. & Whittington, R. (2008). Exploring corporate strategy. England: Pearson Education Limited, Essex. Retrieved from: http://www.mim.ac.mw/books/Johnson%20and% 20Scholes%20Exploring%20Corporate%20Strategy,%20Text%20and%20Cases.pdf
39. 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. Retrieved from: https://onlinelibrary.wiley.com/doi/abs/10.1002/csr.196
40. Mason, E.S. (1960). The Meaning of Modern Business: An Introduction to the Philosophy of Large Corporate Enterprise. The ANNALS of the American Academy of Political and Social Science, 33(1), 167-168. Retrieved from: https://www.worldcat.org/title/meaning-of-modern-business-an-introduction-to-the-philosophy-of-large-corporate-enterprise/oclc/231285
41. Mohamed, S., Ahmad, K. & Khai, K. (2016). Corporate governance practices and firm performance: Evidence from top 100 public listed companies in Malaysia. Procedia Economics and Finance, 35, 287–296. Retrieved from: https://www.sciencedirect.com/science/article/pii/S2212567116000368
42. 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. Retrieved from: https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.300.9453&rep=rep1&type=pdf
43. Muth, M. M, & Donaldson, L. (1998). Stewardship theory and board structure: A contingency approach. Corporate Governance: An International Review, 6(1), 5-28. Retrieved from: https://econpapers.repec.org/RePEc:bla:corgov:v:6:y:1998:i:1:p:5-28
44. Nmehielle, V.O. & Nwauche, E.S.  (2004). External-internal standards in corporate governance in Nigeria. Public Law and Legal Theory Working Paper NO. 115, George Washington University Law School. Retrieved from: http://www.sciepub.com/reference/284099
45. Odiwo, W. O., Chukwuma, C. S. & Kifordu, A. A. (2013). The impact of corporate governance on the performance of manufacturing firms in Nigeria. International Journal of Science and Research, 5(9), 924 – 933. Retrieved from: https://www.ijsr.net/archive/v5i9/ART20161412.pdf
46. Ogbechie, C. & Koufopoulos, D, N. (2007). Corporate governance practices in publicly quoted companies in Nigeria. presented at the 4th World Congress on Corporate Governance jointly sponsored by the Management of Innovation and New Technology (MINT) Research Centre, the Directors College and the DeGroote School of Business, McMaster University, Hamilton, Ontario, Canada, January 24-26. Retrieved from: https://ideas.repec.org/a/ids/ijbget/v3y2007i4p350-381.html
47. Ogbechie, C. (2006). Corporate governance: A challenge for Nigerian banks. Retrieved from: https://www.ajol.info/index.php/epr/article/view/39246
48. Ogunbunka, N.M. (2002). Risk and internal control management in financial institutions. Lagos, Nigeria: The Chartered Institute of Bankers of Nigeria. Retrieved from: http://mail.cibng.org/cb_bookonline. asp?x_isn=978363660&idcat=1
49. Olabisi, J & Omoyele, O. (2011). Corporate governance and the performance of Nigerian banking sector. International Journal of Development and Management Review, 6, 72-84. Retrieved from: https://www.ajol.info/index.php/ijdmr/article/view/66985
50. 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. Retrieved from: https://www.eajournals.org/wp-content/uploads/The-Effect-of-Corporate-Governance-on-Financial-Performance-of-Listed-Companies-in-Nigeria.pdf
51. Olumuyiwa, Y. & Babalola, Y. A. (2012). Impact of corporate governance on capital structure decision of Nigerian Firms. Research Journal in Organizational Psychology and Educational Studies, 1(2), 121 – 128. Retrieved from: https://www.academia.edu/4018022/THE_IMPACT_OF_CORPORATE_GOVERNA NCE_ON_CAPITAL_STRUCTURE_DECISION_OF_NIGRIAN_FIRMS
52. Pandey, I.M. (2006). Financial management. India: Vikas Publishing House R.T Ltd. Retrieved from: https://ru.scribd.com/document/427578457/Pandey-I-Financial-Management-11ed-2018-pdf
53. Rimon, E., Aiman R. & Sandy, K. (2014). The effect of corporate governance on firm performance: Evidence from Egypt. Asian Economic and Financial Review, 4(12), 1865-1877 Retrieved from: https://ideas.repec.org/a/asi/aeafrj/2014p1865-1877.html
54. Romano, G., Ferretti, P. & Quirici, M.C. (2012). Corporate governance and efficiency of Italian bank holding Companies during the financial crisis: an empirical analysis. Virtusinterpress Sumy, 98, 128-140. Retrieved from: https://www.virtusinterpress.org/IMG/pdf/Corporate_Governance_and_Performance_in _Italian_Banking_Groups_by_Giulia_Romano_Paola_Ferretti_Alessandra_Rigolini.pdf
55. Sanda, A., Mikailu, S. A., & Garba, T. (2011). Corporate governance mechanisms and firm performance in Nigeria. Nairobi: African Economic Research Consortium (AERC) Research Paper 149, AERC. Retrieved from: http://opendocs.ids.ac.uk/opendocs/bitstream/handle/123456789/ 2258/RP%20149.pdf ?sequence=1
56. 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. Retrieved from: https://www.mcser.org/journal/index.php/mjss/article/view/3211
57. Soludo, C.C. (2004). Consolidating the Nigerian banking industry to meet the development challenges of the 21st century. Being an Address to the Special Meeting of Bankers Committee, Held on July 6. Retrieved from: https://www.scirp.org/(S(351jmbntvnsjt1aadkposzje))/reference/ReferencesPapers.aspx? ReferenceID=2056738
58. Sundaram, A.K. & Inkpen, A.C. (2004). The corporate objective revisited. Organization Science, 15(3), 350-363. Retrieved from: https://pubsonline.informs.org/doi/abs/10.1287/orsc.1040.0068
59. Tirole, J. (2006). The theory of corporate finance. New Jersey: Princeton University Press. Retrieved from:
60. Tricker, B. (2012). Corporate governance: Principles, politics and practices. (2nd edition). Oxford: Oxford University press. Retrieved from: http://www.library.fa.ru/files/tirole-theory-corporate.pdf
61. Wan, F., Wan, Y. & Idris, A. A. (2012). Corporate governance and firm performance of listed companies in Malaysia. Trends and Development in Management Studies, 1. 43-65. Retrieved from: http://jyotiacademicpress.net/corporate_governance_and_firm.pdf
62. Williamson, O.E. (1957). Markets and hierarchies: Analysis and antitrust implication. New York: The Free Press. Retrieved from: https://www.oxfordhandbooks.com/view/10.1093/oxfordhb/9780199646135.001. 0001/oxfordhb-9780199646135-e-12
Xavier, S.M., 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. Retrieved from: http://erepo.usiu.ac.ke/bitstream/handle/11732/3364/CHRISTELLE%20GATCHERIMA%20UMUTESI%20MBA%202017.pdf?sequence=1&isAllowed=y