IMPLICATIONS OF POOR CORPORATE GOVERNANCE PRACTICE ON BANKING SYSTEM STABILITY IN NIGERIA

ABSTRACT

The broad objective of this study is to investigate the implications of poor corporate governance practice on the banking system stability in Nigeria. Specifically, the study sought to; examine the effect of board composition on the banking system stability in Nigeria; to evaluate the effect of board size on the banking system stability in Nigeria; to ascertain the effect of bank size on the banking system stability in Nigeria. To achieve these objectives, ex-post facto research design and panel regression analysis were adopted. The dependent variable is non-performing loan to total assets and the independent variables are board composition, board size, bank size, and net income; the data generated from individual bank audited financial reports were analyzed using panel regression models. With respect to the analyses done, the following findings were made at 5 percent level of significance, the study accepted the first alternate hypothesis that board composition has no significant effect on banking system stability in Nigeria. For the second hypothesis, the study accepted the second null hypothesis and rejected the alternate hypothesis that board size has significant effect on banking system stability in Nigeria. The study rejected the third hypothesis which states that bank size has no significant effect on banking system stability in Nigeria. The implication of these findings is that when the composition of the board increases, it affects the banking system stability so much as it increases the allowances to be paid thereby increasing the expenses to be incurred by banks. It was also seen that stability of the banking system does not really rely on the size of a bank. Higher number of non- executive independent directors promotes rational decisions and creates value for the shareholders. The role of independent directors is very important and improves the value of a bank as it shows that they can monitor the bank and help the managers to take unbiased decisions. Based on the above findings, it was recommended that the regulatory and supervisory authorities should monitor banks closely to ensure that banks comply with the corporate governance codes especially when it has to do with board size since it has a significant effect on stability of the banking system and board of directors should ensure the implementation of existing regulation such as lending exposure to an individual and make corporate governance practices a priority for the banks.

 

 

 

TABLE OF CONTENTS

Title Page                                                                                                                                i

Approval                                                                                                                                 ii

Certification                                                                                                                            iii

Dedication                                                                                                                              iv

Acknowledgment                                                                                                                   v

Abstract                                                                                                                                  vi

CHAPTER ONE: INTRODUCTION

1.1   Background of the Study                                                                                               1

1.2    Statement of Problem                                                                                                    7

1.3    Objectives of the Study                                                                                                 9

1.4    Research Questions                                                                                                        10

1.5    Research Hypothesis                                                                                                      10

1.6    Scope of the Study                                                                                                        11

1.7    Significance of the Study                                                                                              12

1.8    Limitations of the Study                                                                                                12

 

CHAPTER TWO: REVIEW OF RELATED LITERATURE

2.1    Conceptual Review                                                                                                        14

2.1.1    Emergency of corporate governance  Debate                                                             19

2.1.2    Basic elements in the new code of corporate governance for banks in Nigeria         22

2.1.3    Principles of corporate governance                                                                             24

2.1.4   Importance of good corporate governance                                                                  25

2.1.5    Implications of poor corporate governance practice                                                   28

2.1.6    Need for Corporate Governance in Banking System                                                 29

2.1.7    Corporate Governance and Banking  System Stability                                              32

2.1.8    Sources and Manifestation of Corporate Governance Practice in Nigerian Banks    34

2.2      Empirical Review                                                                                                         37

2.3       Theoretical framework                                                                                                40       

CHAPTER THREE: METHODOLOGY

3.1       Research Design                                                                                                         43

3.2       Population and Sample Size of the Study                                                                  43

3.3       Source of Data                                                                                                                        44

3.4       Description of Research Variables                                                                             44

3.5       Application of Regression Model for the Study                                                        46

3.6       Techniques for Data Analysis                                                                                     47

3.7       Reliability and Validity of the Model                                                                                    49

3.8 Hypothesis Testing Technique                                                                                          49

 

CHAPTER FOUR: FINDINGS

4.1       Descriptive Statistics                                                                                                  51

4.2       Result of the Correlation Analysis                                                                              55                                                                                           

4.3       Test of Research Hypotheses                                                                                     60

 

CHAPTER FIVE: DISCUSSION OF FINDINGS

5.1       Discussion of Result from Descriptive Analysis                                                       64

5.2       Discussion of Findings Correlation Analysis                                                              65

5.3       Discussion of Results from the Hypotheses Tests                                                      65

5.4       Policy Implication of the Findings                                                                            67       

5.5       Major Contribution of the Study to Knowledge Development                                 68       

CAPTER SIX: SUMMARY, CONCLUSION AND RECOMMENDATION

6.1       Summary                                                                                                                     69

6.2       Conclusion                                                                                                                  72

6.3       Recommendations                                                                                                      72

6.4       Suggestions for further study                                                                                     73                    References                                                                                                                        74

            Appendix                                                                                                                   

 

APPENDIX

 

Appendix A1:  DATA FOR ANALYSIS

Appendix A2:  POOLED EFFECT MODEL

Appendix A3:  FIXED EFFECT MODEL

Appendix A4: RANDOM EFFECT MODEL