Corporate Governance And Financial Performance OF BANKS

Corporate Governance And Financial Performance Of Banks

Abstract

As distinctions between financial sectors and products have become increasingly hazy, the banking industry has been hit by an international wave of mergers and acquisitions. In order to strengthen and update the institution, countries must have solid, resilient financial institutions with good corporate governance in order to survive in an increasingly open world. New banking regulations were published in Nigeria by the Central Bank with the goal of merging and restructuring the sector. This was done to increase the capacity of Nigerian banks to compete on the world market. Despite all of its efforts, the Central Bank of Nigeria revealed that 741 cases of attempted fraud and forgery totalling N5.4 billion were detected after the consolidation in 2006. In light of the aforementioned, this study investigated the connections between the financial performance of the Nigerian consolidated banks’ governance procedures. Additionally, it was determined whether there was any correlation between the performance of Nigerian banks and the degree of corporate governance disclosure. In order to determine whether there is a correlation between the corporate governance characteristics and business performance, the Pearson Correlation and regression analysis were performed. Using the CBN code of governance as a guide and the papers the UN secretariat prepared for the 19th session of ISAR (International Standards of Accounting and Reporting), a disclosure index was created to evaluate the level of corporate governance disclosures made by the sampled banks. The study found that there is a significant but inverse relationship between board size, board composition, and these banks’ financial performance, as well as a significant but opposite relationship between directors’ equity interest, level of governance disclosure, and performance. The t-test result also showed that while there was no difference in the profitability of banks with foreign directors compared to institutions without foreign directors, there was a significant difference between the profitability of healthy banks and rescued banks. The analysis comes to the conclusion that the banks’ disclosure of their corporate governance processes is not consistent. In a similar vein, banks do not provide a statement that expresses outstanding debts in terms of their ages and due dates, so failing to indicate how their loans are performing generally. According to the study, efforts to enhance corporate governance should concentrate on the value of board members’ stock holdings. A strong legal framework that outlines the rights and obligations of a bank, its directors, shareholders, and other stakeholders as well as the precise disclosure requirements and provides for efficient enforcement of the law should also be developed.