Corporate Governance and Banking Sector Performance in Nigeria

Odekunle, L.A (2015)

A Thesis Submitted to the School of Postgraduate Studies, University of Lagos

Thesis

The failure of many Nigerian banks in recent times may be said to stem from weaknesses in the corporate governance of the sector. In spite of various regulatory frameworks which have been instituted toward ensuring compliance with ordinances, there are indications of increasing crisis in the banking sector of the Nigeria economy. Literature has paid little attention as to how corporate governance may have contributed to the waves of crisis in the sector. The purpose of this thesis is to examine the relationship between corporate governance and banking sector performance in Nigeria. The thesis investigated the influence of block holdings or ownership concentration and bank performance; the influence of directors’ or insiders’ shareholdings on bank performance and the influence of corporate reporting on bank performance. Based on stakeholders’ theory, the thesis used data from sixteen (16) of the registered banks in Nigeria, selected on basis of data availability for the period covering 2000-2012. The data were analysed using panel data estimators of ordinary least squares (OLS), fixed and random effects respectively, for multiple regression models and run on STATA. Choice of panel data estimation technique is justified by its ability to allow for cross-sectional time series analysis. Given that there could be disparity in practices across the banks, panel data allows for issues of heterogeneity and endogeneity. The performance measures (dependent variables) adopted are the Return on Assets (ROA), Return on Equity (ROE), the Net Interest Margin (NIM), and Tobin’s Q. The estimated parameters used (independent variables) are ownership concentration, directors’ shareholding, and corporate reporting. The thesis extended the empirical literature to cover corporate reporting having significant influence on performance. The thesis found that ownership concentration does not significantly affect banks’ performance in terms of return on assets, return on equity and net interest margin. However, it is found to significantly influence banks’ market valuation with Tobin’s Q. Directors’ shareholdings do not significantly impact on banks’ performance as was observed in respect of return on assets, and return on equity, but they significantly impact on net interest margin and Tobin’s Q. The results obtained from the study’s analysis indicate that corporate reporting exerts significant influence on the performance of the banking sector. As a policy suggestion, the thesis recommends the enforcement of unified corporate reporting, entrenchment of best practice for market discipline, extensive disclosure and discouragement of insider-dominated boards as ways of curtailing bank liquidation.

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