Corporate Governance and Financial Performance of Listed Banks in Nigeria
Abstract
This research examined the efficacy of corporate governance mechanisms in predicting financial performance of listed banks in Nigeria. The study employed dynamic panel models to examine the influence of four board attributes (size, independence, diligence, and diversity), and two control variables (firm size and firm age) on financial performance, measured by the cost of capital, liquidity, and return on assets. These variables were selected and included in models based on the postulates of the agency theory. The data series collected on each variable were sourced from the annual audited accounts and reports of 12 purposively selected listed banks over the years 2011 to 2023. The study employed the generalized method of moments (GMM) technique to estimate panel regression models after testing for normality, multicollinearity, heteroscedasticity and endogeneity problems.
The results sustained that the significant effect of board attributes such as board independence, and board diligence was more pronounced on the liquidity position of the banks than other measures of financial performance. Moreover, the presence of boards of governance alone is insufficient; the quality, composition, and effectiveness of the boards truly matter as far as financial performance is concerned. These findings provided support for agency theory as the problems between the shareholders and the managers could be reduced with quality and effective boards of directors. As liquidity risk is very germane for the survival and sustainable performance of financial institutions, the banks whose goal is to maximize its liquidity position in a bid to reduce its liquidity risk should increase its corporate governance practices in the area of size, independence, diligence, and gender diversity of their boards.
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