Corporate Governance and Operational Performance of Deposit Money Banks in Nigeria

• Post by: deqe
• August 7, 2022
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The study examined the relationship between internal governance mechanisms and the operational performance of deposit money banks in Nigeria. The objectives of the study were to ascertain the relationship between board size, board independence, frequency of board meetings, and return on capital employed by deposit money banks in Nigeria. Time series data for the sampled banks were collected from the annual report and accounts of the individual banks for 11 years (2011-2020). Covariance analysis was estimated to test the hypotheses. The study found that board size has a weak (4% approx.) and negative relationship with the return on capital employed by deposit money banks in Nigeria. There is a strong (55% approx.) and positive relationship between return on capital employed and board independence of deposit money banks in Nigeria. Board meetings have a strong (70% approx.) and negative relationship with the return on capital employed by deposit money banks in Nigeria. The findings implied that as board size and board meetings increase, the return on capital employed decreases. However, as board independence increases, the return on capital employed increases significantly. It was recommended therefore that deposit money banks in Nigeria should have a board size that is not more than 10. This will facilitate decision-making and affect their operational performance positively. The number of independent board members should be increased to at least 60% in the financial service firms. This will adequately eradicate agency problems associated with executive directors having a personal interest in the organization, thereby making policies that will benefit them individually and not the stakeholders at large. The number of board meetings in the industry should be reduced to 4 times a year. This is because the increase in board meetings affects operational performance negatively.

Keywords: Non-Performing Loans; Macroeconomic Variables; Nigeria

Authorship: Ezeugo, C. C., Prof. Okwor, M., and Iloeje, J. B. | FULL PDF