Corporate Governance on Profitability of Bank Performance in Nigeria

ABSTRACT The main objective of this study is to ascertain the impact of corporate governance on bank performance in Nigeria. The data used for the study were gathered from a random sample of ten (10) banks. The data were extracted from the annual reports of these banks from 2005 – 2014. Pearson Correlation and the regression analysis were used. Regression analysis was used to analyze the relationship that exists between corporate governance and the financial performance of the studied banks while Pearson correlation measures the degree of association between the considered variables. The profitability variables used to measure the financial performance of the banks is the accounting measures of performance such as Return on Equity (ROE) and Return on Asset (ROA). The results of this study revealed a positive relationship between the directors’ equity holdings, corporate governance disclosure and bank performance, while board size, board composition with proportion to non-executive directors and audit committee size have negative significant relationship with bank performance in Nigeria. Director’s equity holdings revealed a positive relationship with bank performance and this shows that individuals with stock ownership who are also part of the bank management have compelling business interest to run them well. Corporate governance disclosure index also shows a positive relationship with bank performance and this shows that bank which disclose more perform better. The results are consistent with previous literature that the correlation between corporate governance and bank performance is still not clearly established and the impact of corporate governance on bank performance in Nigeria is still relatively scarce. The study recommends that board size should not be neglected even though the relationship is not significant statistically, it is important to consider board size when taking financial decisions. The study also suggests that efforts to improve corporate governance should focus on the value of the stock ownership of board members since it relates positively to both the probability of disciplinary management turnover and future operating performance in poorly performing banks. The study evolves two models to examine the relationship that exists between corporate governance and performance of banks in Nigeria. The study developed a unique corporate governance index as its study specific to ascertain the level of compliance by the studied banks.