THE IMPACT OF CORPORATE GOVERNANCE ON COMPANIES PROFITABILITY IN NIGERIA (A STUDY OF FIVE LISTED BANKS IN NIGERIA)

The regulatory authority has been consistently focusing on the improvement of corporate governance to enhance sound practices among banks in Nigeria. Therefore, this research aimed to investigate the impact of corporate governance on the profitability of five listed commercial banks in Nigeria from 2012 to 2021. Secondary data from the annual financial reports of Fidelity Bank Plc, Guarantee Trust Bank Nigeria Plc, United Bank for Africa Plc, Zenith Bank Plc, and Access Bank of Nigeria Plc were used. The study employed quantitative research techniques, including descriptive statistics, correlation matrix, and regression estimates to analyze the data. Descriptive statistics provided a quantitative summary of the data, while the correlation matrix assessed the level of correlation between the governance and profitability variables. Regression analysis was used examine the effect of corporate governance proxy by Board Size (BSZ), Board Composition (BCOM) and Corporate Governance Disclosure Index (CGDI) on Profitability proxy by Return on Assets (RoA) and Return on Equity (RoE), it was also used to test the three formulated hypotheses. The study found a significant negative relationship between board size and composition and the profitability of Nigerian banks. However, corporate governance disclosure had a positive but insignificant relationship with Return on Assets (RoA) and a negative but insignificant relationship with Return on Equity (RoE). The study concluded that corporate governance plays a significant role in enhancing commercial banks' performance in Nigeria and recommended that banks prioritize appointing resourceful individuals to the board and reduce the proportion of non-executive directors on their boards to improve profitability and reduce agency costs

Keywords: corporate governance, board size, board composition, profitability

2.1.1.2 Elements of Corporate Governance

2.1.1.3 Corporate Governance Codes in Nigeria

2.1.2.1 Return on Assets (ROA) 

2.1.2.2 Return on Equity (ROE) 

References

Corporate governance has become increasingly important due to the rise in corporate bankruptcies and fraudulent activities. Extensive research has been conducted to identify the best codes of conduct to improve a company's ability to thrive. The board of directors plays a crucial role in implementing an efficient system of corporate governance by supervising and regulating management's operations and making strategic decisions for the company (Chatchawanchanchanakij et al., 2019; Puangyanee, et al., 2019).

A strong and profitable banking sector is crucial for a country's economy, as banks are its support system. Good corporate governance is essential for the banking sector, and inadequate governance can have severe consequences, such as bank insolvencies and a loss of public confidence in the banks' ability to manage their assets and liabilities.

The Nigerian banking industry had around 89 players prior to consolidation, resulting in declining customer confidence due to ethical violations, inadequate regulatory frameworks, and reckless actions by managers and directors. Poor corporate governance has been identified as a primary cause of banking issues in Nigeria, including ineffective internal controls, unnecessary risks, circumvention of controls, lack of approval limits, disregard for reasonable lending rates, absence of risk management procedures, internal abuses, and fraud. This has been a concerning issue in the financial sector in Nigeria (Soludo, 2004b).

The Central Bank of Nigeria proposed the consolidation of banks through mergers and acquisitions in 2004 to improve their competitiveness in the international market. Corporate governance practices in Nigerian banks were overhauled in 2006 to achieve this goal, but issues with corporate governance persist, leading to an increase in fraud. Governance misconduct has been linked to the current banking crisis in Nigeria, according to Soludo, 2004b). This research aims to examine the impact of corporate governance on the profitability of five listed banks in Nigeria, given the existing issues.

This study generally aimed to investigate the connection between Governance Practices and Profitability in the Nigerian banking sector. However, it is planned to accomplish the following particular goals: 

This study focused on the following significant concerns that were growing within the study's domain:

The following hypotheses were examined in order to provide relevant answers to the research questions and achieve the study's objectives:

Banking industry regulators, investors, academics, and other relevant stakeholders will greatly benefit from this study. It will give a picture of where banks stand in relation to the corporate governance regulations and standards established by the Central Bank of Nigeria. Directors' boards will find value in comparing the overall performance of their banks to that of their competitors. The results of this study could be used as a reference for other researchers interested in the same topic.  

Corporate governance is crucial since misuse can have disastrous consequences, especially in the banking sector, which plays a significant role in a country's monetary system. Poor corporate governance can lead to financial institution failures, which can have significant impacts on the economy. The Nigerian financial system is essential to sub-Saharan Africa, with banks dominating the sector, and traditional bank deposits being the primary source of savings. As a result, commercial banks in Nigeria are suitable for research into the impact of corporate governance on profitability.

This study examined the relationship between corporate governance and bank profitability in the Nigerian banking sector, which is critical for sustaining the economy's payment system and ensuring the stability of the financial sector. The study focused on five listed banks, including Zenith Bank, Access Bank, United Bank for Africa, Sterling Bank, and Fidelity Bank, out of the 24 universal banks operating in Nigeria, to include both giant and medium-sized banks. The study examines the activities of these banks over a twenty-year period from 2002 to 2021.