Department of Banking and Finance

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Browsing Department of Banking and Finance by Author "Adigizey, John Dollay"

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    MODELING CORPORATE GOVERNANCE AND ITS EFFECTIVENESS ON BANK PROFITABILITY IN NIGERIA: ECM APPROACH
    (Department of banking and finance, nasarawa state university keffi, 2014-10-05) Adigizey, John Dollay; Andah, Riith
    An organization with effective corporate governance structure is likely to perform favourably. This paper undertakes an econometric research to examine corporate governance effectiveness on bank profitability in Nigeria using annual data of 2003 to 2012. We used specification tests to reduce the number of lags on the explanatory variables, and considered parameter restrictions that lead to error-correctior models. The usual approach was to first test individual variables for the presence of unit r a>ts, then to estimate the cointegrating equation or equations of the set of variables that possess unit roots. The variables (ROA, BR, TR and SR) were however found stationary after first difference using ADF approach, and were then, used for the regression analysis. As all the variables turn out that they are all stationary after first difference (that is. they are all integrated of order one (1(1)), then it was safe to proceed with Johansen Cointegration Test. The cointegration result showed that the variables used in the model have a long term, or equilibrium relationship between them. Thus, our parsimonious e-ror correction reduction process made use of a stepwise regression procedure (through the elimination 'of those variables and their lags that are highly not significqnt), before finally arriving at an interpretable model. The results showed that board responsibility (BR) does not have a significant impact on banks profitability. This insignificant impact could be deduced from poor monitor*? of naKO.gr.ment and ineffective strategic guidance by the board. More so, high quality account*'? standards are not being applied; governance and performance of the organization ore not being disclosed, and this explains why the transparency/disclosure (TR) had an inverse relationship with bank profitability. Finally, the rights of shareholders (SR) are not acknowledged timely and regularly, thus resulting in poor profitability. The study thus recommends that banks must embrace fiduciary duties which include transparency, honesty and fairness in dealing with all its stakeholders. Internal discipline and a strong operational agenda rooted in corporate governance, strong leadership, strengthened by moral questions bordering on integrity to carry> out functions as appropriate should be put in •• place in the banking sector.