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APPRAISAL OF NIGERIAN BANKS COMPLIANCE WITH CBN CODE OF CORPORATE GOVERNANCE AND IT’S EFFECT ON BANK PERFORMANCE

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APPRAISAL OF NIGERIAN BANKS COMPLIANCE WITH CBN CODE OF CORPORATE GOVERNANCE AND IT’S EFFECT ON BANK PERFORMANCE
 
ABSTRACT
In the immediate past two decades the financial services industry has experienced fluctuating fortunes leading to high profile cases of corporate failure and consequent near loss of public confidence and hence, the banking reform kick starts in 2004. The industry’s problems in Nigeria are consequences (directly or indirectly) of bad corporate governance. The lack of effective corporate governance in Nigeria has worked to the decrement of shareholders and created a class of stakeholder who has lost interest in the banking system. The study therefore appraised Nigerian banks’ compliance to the CBN code of Corporate Governance as well as its effect on bank performance. Analysis of variance (ANOVA) was used to measure Nigerian bank’s compliance to the CBN code of corporate governance, while the panel data ordinary least square regression to measure the compliance effect on bank’s profitability. Among other codes of corporate governance for board size, audit committee, board diversity, and power separation. Nigerian commercial banks’ compliance to CBN best practice for board size was statistically insignificant. Therefore, commercial banks in Nigeria were up till the date of this study non-compliant with the CBN best practice for board size. The same was discovered for board diversity, audit committee, and power separation as the f-statistics evidenced in analysis of Variance showed a significant variance between the Nigerian commercial banks’ observed practices and the best practice code as dictated by the Central Bank of Nigeria (CBN). Nonetheless, Nigerian commercial banks significantly complied with the CBN best practice code for commercial banks’ board composition. This was evidenced in the analysis of variance as the f- calculated was less than the f- critical, signifying very little variance between commercial banks’ observed practices and the CBN best practice code for corporate board composition. It was recommended that Central Bank of Nigeria should strictly monitor Nigerian banks’ compliance to the code of corporate governance, especially board size, audit committee, board diversity, power separation, as a percentage increase in general compliance to the best practice. In conclusion, Compliance to Central Bank of Nigeria code of corporate governance significantly impacted on banks’ profitability in Nigeria. CBN code of corporate governance raises profitability of Nigerian banks by 3.53 percent. The direct relationship between general compliance to CBN code of corporate governance and profit of commercial banks will boost the profitability of the commercial banks.
 
TABLE OF CONTENTS
Title page                                                                                                                    i
Declaration                                                                                                                  ii
Approval                                                                                                                     iii
Dedication                                                                                                                  iv
Acknowledge                                                                                                              v
Abstract                                                                                                                      vi
Table of Content                                                                                                         vii
List of Tables                                                                                                              viii
List of Figures                                                                                                             ix
 
CHAPTER ONE: INTRODUCTION

  • Background of the Study 1
  • Statement of the problem 4
  • Research objectives 5

1.4.      Research Hypotheses                                                                                      5
1.5.      Scope of the Study                                                                                         6
1.6.      Significance of the Study                                                                              6
References                                                                                                      8
 
 
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 CONCEPTUAL FRAMEWORK                                                                                    10
2.1.1The Concept of Corporate Governance                                                              10
2.1.2 Corporate Governance in Banking Sector                                                         12
2.1.3 External Corporate Governance Mechanism                                                     13
2.1.4 Internal Corporate Governance Mechanism                                                      14
2.1.5 Corporate Governance in Nigeria                                                                      15
2.1.6 Key Areas of Failure of Corporate Governance in Banks                                 17
2.1.7 Enhancing Corporate Governance in Banks in Nigeria                                     22
2.2. THEORETICAL FRAMEWORK                                                                      34
2.2.1 Agency theory and the study of corporate governance                                     36
2.2.2 Agency Costs and Corporate Governance Solutions (Origin and
Development)                                                                                                 40
2.2.3 Agency Problems and Corporate Governance Solutions                                   41
2.3 REVIEW OF EMPIRICAL LITERATURE                                                       43
2.3.1 Corporate Governance and Bank Performance.                                                            46
2.3.2 Board Structure and Corporate Financial Performance in Nigeria.                   52
2.3.3 Corporate Performance and Executive Compensation                                      55
2.3.4. Existence of Audit Committee and Bank Performance                                   55
2.3.5. Separation of Functions of the Chairman and the CEO and Bank
Performance                                                                                                    56
2.3.6. Board Diversity and Bank Performance                                                           57
2.3.7 Board Activity and Bank Performance                                                             57
2.3.8 Board Size and Bank Performance                                                                    58
2.4.      SUMMARY                                                                                                   59
References                                                                                                                  61
 
CHAPTER THREE: METHODOLOGY                        

  • Research Design 68
  • Nature and sources of data 68
  • Population Size 68

3.4       Sample Size                                                                                                     69
3.5       Data Analysis Technique                                                                                69
3.6       Operationalization of the Variables                                                                71
3.7       Model Specification                                                                                        73
References                                                                                                      75
 
CHAPTER FOUR: DATA PRESENTATION AND ANALYSES
4.1.      Data Presentation                                                                                            76
 
4.2       Commercial Bank’s Compliance to CBN Code of Corporate Governance   77
4.3       General Compliance to Code of Corporate Governance (COMP)
and Profit after Tax (PAT)                                                                             84
4.4       Test of Hypotheses                                                                                         90
 
 
 
 
 
 
 
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND
RECOMMENDATIONS
5.1       Summary                                                                                                         93
5.2       Conclusion                                                                                                      96
5.3.      Recommendations                                                                                          96
5.4       Contribution to Knowledge                                                                           97
5.5       Suggested Future Research Areas                                                                 97
Bibliography                                                                                                   98
Appendices

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