MODELING CORPORATE GOVERNANCE AND ITS EFFECTIVENESS ON BANK PROFITABILITY IN NIGERIA: ECM APPROACH

Files

MODELING CORPORATE GOVERNANCE...........pdf (3.36 MB)

Date

2014-10-05

Authors

Journal Title

Journal ISSN

Volume Title

Publisher

Department of banking and finance, nasarawa state university keffi

Abstract

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.

Description

Article

Keywords

Return on Assets (ROA), Board responsibility (BR), Transparency (TR), Shareholder rights (SR), Profitability

Citation

"Clive Granger", Microsoft Encarta 2009 [DVD]. Redmond, WA: Microsoft Corporation, 1 2008. "Enron Corporation", Microsoft Encarta 2009 [DVD]. Redmond, WA: Microsoft Corporation, 2008. Adam, C.S. (1992):Recent developments ’in econometric methods: An application to the demand for money in Kenya. African Econ. Res.Consortium (AERC), 15: 1-52. Akingunola &Adekunle (2013): Corporate governance and Bank’s performance in Nigeria (post-bank’s consolidation). European Journal of Business and Social Sciences, 2(8). November. Retrieved from URL: http://www.eibss.cdm/recent.aspx Alexander, C.A. (2006)\Central Implication of the Banks Consolidation Exercise in Nigeria. The Nigerian Bankers. July-Sept. 2006. Alo, O. (2001):Corporate Governance in Nigeria: An Overview. Bullion, publication of the ’ Analysis of the 2009 Intervention and Operators Behavior. Anichebe, Alphonsus S. (2011): The Role of External Auditors in Corporate Governance in Nigeria.The Certified National Accountant. A Quarterly Journal of Association of National Accontants ofNigeria, 19(1),17-21. Ayorinde,A.O.&Amuda,T.&Arulogun,L. (2012 ):Evaluating the Effects of Corporate Governance on the Performance of Nigerian Banking Sector. Review of Contemporary : Business Research 1(1); December Bathala, C.T. and Rao, R.P. (1995): The Determinants of Board Composition: An Agency TheoiyPerspective, Managerial and Decision Economics, 16, 59-69. Blair, M.M. (1995): Ownership and Control: Re-thinking Corporate Governance for the • Twenty-first Century. Brookings Institution’s Press, USA. Brickley, J.A. and James, C.M. (1987): The Takeover Market, Corporate Board composition, and Ownership Structure: The Case of Banking, Journal of Law and Economics, 30, 161- 181. Brickley, J.A., Coles, J.L. and .Terry, R.L. (1994): Outside Directors and the Adpption of Poison Pills,Journal of Financial Economics, 35, 371-390. Byrd, J.W. and Hickman, K.A. (1992): Do outside Directors Monitor Managers: * Evidence form Tender Offer Birds, Journal of Financial Economics, 32(2), 195-221. Cadbury, S.A. (2002): Report of the Committee on the Financial Aspects of Corporate Governance. Gee Ltd. (Professional Publishing Ltd.), London Central Bank of Nigeria, 31(3). Chienjien, F. (2010):Corporate Governance in the Nigerian Financial Sector: An Ethical Issues &Problems. Ogun, Nigeria. Chung, K.H., Wright, P. and Kedia, B.B. (2003): Corporate Governance and Market Valuation of Capital andR&D Investment, Review of Financial Economics, 12, 161-172 Donaldson, L. and Davis, J.H. (1994):Stewardship Theory or Agency Theory: CEO Governance and Shareholder Returns, Australian Journal of Management, 16(1), 50-65 Engel, R.F. & Granger, C.W.J. (\981):Cointegration and Error Correction: Representation. Estimation and Testing. Econometrica, 55(2):251-276 Gani, L. and Jermias, J. (2006): Investigating the Effect of Board Independence on Performance across Different Strategies.The International Journal of Accounting, 41, 295-

URI

https://keffi.nsuk.edu.ng/handle/20.500.14448/897

Collections

Articles