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

decisions in the best interest of the principal may be expecting too much. Jensen & Meckling’s (1976) agency theory highlighted the new economic order which the Modern Corporation present. While the agency theory defines the contractual arrangement between the principal and agent, it still does not 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. adopted as regulatory CG mechanism, and Return on Assets (ROA) for measuring financial performance. Findings show that CAR has significant positive relationship with the financial performance of the selected banks. While board size and board independence show no significant relationship with the performance of the banks. The study findings amplify the need for more regulatory involvement in the banking sector by ensuring strict compliance and enforcement of policies and guidelines on corporate governance by financial institutions. using while it a negative relationship on Internal Control Monitoring was not statistically significant relationship on both Tobin’s Q and ROA, the Regulatory and Disclosure Monitoring Mechanisms reveal a statistically positive relationship on financial performance of the banks both on Tobin’s Q and ROA. duality, corporate governance on the performance of banks. Board size, board composition, board committee and board diversity served as independent variables while ROE was used as a measure of performance. Findings reveal that board composition and board diversity have significant positive relationship with performance of the banks while board size and board committee show negative effect on the performance of the studied banks. The researchers recommended that to improve performance banks must adopt good corporate governance practices, which includes improved board structure, full disclosure, and fiduciary duties of directors must be strictly adhered. of the firm for their impact to be felt. The researchers recommended for an increase in board size and a decrease in board composition, as measured by the number of outsider directors to the total number of directors.