Effect of Corporate Governance on Performance of Deposit Money Banks in Nigeria.

The study examined the effect of Corporate Governance on the Performance of Deposit Money Banks in Nigeria. Ex-Post Facto research design was adopted and secondary data were obtained from Annual reports of selected Deposit Money Banks for a period of ten years (2009-2018). The objectives are to investigate the extent to which Board size affects Return on Equity and also to determine the effect of Board composition on the Net profit of Deposit Money Banks in Nigeria. Hypotheses were formulated and analyzed using Ordinary Least Square (OLS) regression method. The result reveals that the Board size has significant and positive effect on the Return on Equity (ROE) of Deposit Money Banks in Nigeria. It equally shows that Board composition has positive significant effect on their net profit as well. The study recommends that effort should be made to increase shareholders’ returns on investment by making sure that corporate organizations appoint Board members based on professional expertise and integrity. It also suggests that Board composition should be more of Non-executive directors to encourage Board independence, proper monitoring and management discipline. Keywords; Corporate governance, Board size, Net profit, Board of Directors, Deposit Money Banks. Introduction In Nigeria, the concept of corporate governance is increasingly recognized by the business community, financial regulators and capital market authorities as a fundamental driver of corporate performance. Jenkinson and Mayer (1992) posit that corporate governance can be referred to as the processes and structures by which businesses and affairs of institutions are directed and managed, in order to improve long term shareholders value by enhancing corporate performance and accountability, while taking into account the interest of other stakeholders. Basically, corporate governance in banking sector requires judicious and prudent management of resources and the preservation of assets of the corporate firm, ensuring ethical and professional standards and the pursuit of corporate objectives. It seeks to ensure customers satisfaction, increases employee morale and the maintenance of market discipline which stabilizes the bank, corporate governance has become important for companies as they play the role of reducing systemic risk in the economy (Kaur and Vij,2014). This subject has received great attention because of global financial crises and major corporate failures that shock major financial centre of the world (Imam and Malik, 2007) Corporate governance is patterned to achieve a diversified strong and reliable banking sector which will ensure the safety of depositors’ money as well as play active developmental roles in Nigeria’s economy. It ensures that the interests of all stakeholders are protected and also minimizes asymmetric information between directors, owners and customers. There has been renewed interest in the corporate governance practices of modern corporations, particularly after the high profile collapse of a number of large firms in U.S.A such as Enron Corporation and World Com (Akpan, 2007). The development has forced nations and regional economic organizations to come up with various guidelines and codes aimed at ensuring transparency and accountability in business. Recently, the board of directors of Diamond Bank Plc finally announced its merger with Access Bank Plc expected to be completed in first half of 2019. In consideration for the transfer of all assets, liabilities and undertakings, including real property and intellectual property rights of Diamond Bank and Access Bank, all shareholders of Diamond Bank at the effective date shall receive two ordinary shares of 50 kobo each in Access Bank credited as fully paid in exchange for every seven Diamond Bank ordinary shares of 50 kobo each held on the effective date and N1.00 per share hold on the effective date (scheme of merger, Diamond/Access). Statement of Problem In Nigeria, the banking industry over the past decades had suffered liquidity problems which led to the Central Bank of Nigeria’s requirement for banks to increase their capital base to a minimum level of twenty five billion naira (Ogbechie 2006). This triggered off several mergers and acquisitions that reduced the number of banks from eighty nine (89) to twenty five (25) banks at the beginning of 2006. Poor corporate governance was identified as one of the major factors in virtually all the cases, other forms of bad corporate governance were insider abuses, poor quality services and weak supervisory structures. © 2020 JETIR September 2020, Volume 7, Issue 9 www.jetir. org (ISSN-2349-5162) JETIR2009002 Journal of Emerging Technologies and Innovative Research (JETIR) www.jetir. org 10 Recently, the acquisition of Diamond Bank by Access Bank could be seen as one of the outcomes of poor corporate governance which resulted when the Chief Executive Officer (CEO) and Board of Directors (BOD) of the banks failed to recognize the interest of shareholders, creditors, employees, customers and society at large. A number of studies have been carried out on the impact of corporate governance on consumer goods sector, conglomerates sectors and banking sector in general. This study therefore aims at investigating the effect of corporate governance on selected deposits money banks in Nigeria. Objectives of the Study The main objective of this study is to examine the effect of corporate governance on the financial performance of deposit money banks in Nigeria. The specific objectives are 1 To investigate the extent to which board size affects return on equity of deposit money banks in Nigeria. 2 To determine the extent to which Board composition affects net profit of deposit money banks in Nigeria Research Questions 1 To what extent does Board size affects return on equity of deposit money banks in Nigeria? 2 Does Board composition have any significant effect on net profit of deposit money banks in Nigeria? Hypotheses of the Study The following hypotheses were stated in their Null form to guide the investigation of this work: Hypothesis 1: Ho: Board size has no significant effect on firm performance using return on equity of deposit money banks in Nigeria. Hypothesis 2: Ho : There is no significant relationship between Board composition and net profit of deposit money banks in Nigeria. Conceptual framework Corporate Governance: According to Garuba and Otomewo (2010), corporate governance is the system of internal controls and procedures by which individual companies are managed. It provides a framework that defines the rights, roles and responsibilities of different groups; the management, board, shareholders and employees within an organization. It can also be defined as the manner in which the power of a corporation is exercised in the stewardship on the corporation’s total portfolio of assets and resources with the objective of maintaining and increasing shareholders fund in the context of its corporate mission (Okoi,Stephen and Sani 2014) Shlefier and Vishny (1997) see corporate governance as a way in which suppliers of finance to corporations are assured of getting a return on their investment. It is generally difficult for principals in a large public firm to be charged with responsibility for corporate operations hence they delegate agents to manage operations in their interest. In the Organization for Economic Cooperation and Development (OECD), principles of Corporate Governance Report which was first published in 2004 (OECD 2015). It states that the corporate governance framework should promote transparent and efficient markets, be consistent with the rule of law and clearly state the division of responsibilities among different supervisory, regulatory and enforcement authorities. This study therefore adopts a broader view which defines corporate governance in the context of banking as the protection of investors’ interest and a sound risk management system. Board of Directors Board of directors is a group of people who jointly supervise the activities of an organization, which can be either forprofit business, non-profit organization or a government agency. Such a board’s powers, duties and responsibilities are determined by government regulations (including the jurisdiction’s corporation law) and the organization’s own constitution and by-laws. These authorities may specify the number of the board, how they are chosen and how often they are to meet (WIKIPEDIA). In organizations with voting members, the board is accountable to and might be subordinate to the organizations full membership, which usually vote for the members of the board. In a Limited Public Companies, non executive directors are voted for by the shareholders, with the board having ultimate responsibility for the management of the company. The BOD appoints the Chief Executive Officer and sets out the overall strategic direction of the company. Duties of BOD include -governing the organization by establishing board policies and setting out strategic objectives. -select, appoint, support and review of performance of the chief executive. -terminating the appointment of CEO. -ensuring the availability of adequate financial resources. -approving annual budgets. -accounting organization’s performance to the shareholders. -fix the salaries, compensations and benefits of senior management officers. © 2020 JETIR September 2020, Volume 7, Issue 9 www.jetir. org (ISSN-2349-5162) JETIR2009002 Journal of Emerging Technologies and Innovative Research (JETIR) www.jetir. org 11 A high level of independence is important for it to perform its monitoring duties more effectively. The standard view is that board of directors is not likely to self-monitor effectively the performance of the CEO because their career is closely tied to the incumbent CEO (Jensen 1993). Composition of board members Board composition is the heart beat of good corporate governance and high performance. The comp