CORPORATE GOVERNANCE MECHANISMS AND BANK FINANCIAL PERFORMANCE

ABSTRACT

The objective of this research is to examine corporate Governance mechanisms on financial performance. The study is also aimed at: Studying the relationship between corporate governance mechanisms and financial performance, Determining if corporate governance has positive effects on directors, and also ascertain the relationship between effectiveness and financial performance of the selected banks. These are the areas that the researcher concentrated while carrying out this research work. The first chapter is the introductory part of the research work. This chapter also contains the background of the study, statement of problems, research Question etc. Data for the study was sourced from two main sources which include Primary and Secondary sources of data collection. Primary data: Questionnaires and oral interviews were used to collect information from the respondents. Secondary data : Journals, magazine and other relevant materials relating to the area of my investigation will be review. Extensive literature review was carried out on direct literature and indirect literature on books, journals and past works. The research instrument  used in this study includes oral interview and questionnaire.  The questionnaire is structural as to contain both close and open ended question. Simple tables and percentages were used in treatment of data while chi-square was used in the research work. Based on the findings, conclusions were drawn and the following recommendations were also made in the last chapter of this work which is the fifth chapter: Supervisory and regulatory agencies should improve on supervision of organizations through improved use of their machinery. Organizations should ensure that there is rotational leadership of the board. There should be separation of power between the CEO and the board chairman and that an audit committee should be commissioned in organizations to ensure that proper things are done.

CHAPTER ONE

INTRODUCTION

1.1  BACKGROUND OF THE STUDY

Corporate governance mechanisms is concerned with the intrinsic nature, purpose, integrity, and identity of the institution with a primary focus on the entity’s irrelevance, continuity and judiciary aspects. It means that the governance involves monitoring and overseeing strategic direction, socio economic and cultural context, externalities and constituencies of the institution.

Corporate governance mechanisms is also includes the relationship among the stakeholders involved in the goal for which the corporation is governed.

Bank financial performance on the other hand, is the presentation of the summarized result of operation of an organization, this summarized result has helped to know the improvement of many banks in Enugu metropolis and also helps in relation of the financial aspect of corporate existence in Enugu metropolis.

Sound corporate governance has becomes imperative for bank stability because it improve the performance of monetary polices in Enugu metropolis, especially in commercial banks of the metropolis which render retail-banking services and also provides current account that allow the use of cheques to the metropolis.

Government in order to maintain macroeconomic stability, provide regulatory agencies that surprise and regulate some organization through the corporate affairs commission and other regulatory agencies like Central bank of Nigeria, securities and Exchange commission, Nigerian Deposit Insurance Commission, etc, but some of these regulatory agenesis have failed to carryout their responsibilities effectively.

There has been greater demand for transparency requiring more requiring more reliable and accountable financial reporting that would ensure adequate protection of corporate stakeholders. This was because it was generally believed that the financial scandals in which people lost billions of dollars were caused by distortion in the corporate governance structure and financial performance of the affected organization operations leading to inefficient financial decision making.

The fundamental concern of corporate governance mechanisms is to ensure the conditions whereby organizations directors act in the interest of there shareholders and to ensure that managers are held accountable to capital provides for use of assets. Therefore, it becomes a crucial element and necessary for the corporate governance system to function effectively (Wikipedia, free encydopedia 2006).

1.2 STATEMENT OF THE PROBLEM

Sound corporate governance is crucial for stability of corporate organization and markets that make up the economy. Corporate governance mechanisms is sustained by full disclosures, check and balances. Full disclosure by organizations also builds and sustains confidence in investors, shareholders, customers and regulators. So where there are corrupt and self-interest directors, managers and international auditors, financial performance position of an organization at any given point in time.

Laxity of supervisor and regulatory agencies (CBN, SEC, NSE, NDIC, and CAC) on ensuring that corporate governance principles are adhered to in financial performance, also contribute to problems of poor financial performance and governance practice in organization. Many organization have corporate governance code and principle and sill fail to practice them. In some organizations, the overbearing attitude of organization CEO negatively affects organizations performance as they dictate what happens in the organization.

1.3 OBJECTIVES OF THE STUDY

The objective of this research is to study the corporate Governance mechanisms on financial performance.

Other specific objectives are;

1.  To study the relationship between board structure and financial performance.

2.  Determine if corporate governance has positive effects on directors effectiveness.

3.  To ascertain the relationship between board effectiveness and financial performance of the selected banks.

1.4 RESEARCH QUESTIONS

To carry out this study, the researcher raised the following research questions

1.  What is the relationship between board structure and financial performance of the bank?

2.  Does corporate governance have positive effect on the director’s effectiveness?

3.  What is the relationship between directors effectiveness and financial performance of the bank?

1.5  RESEARCH HYPOTHESIS

Hypothesis is an intelligent guess about the solution to a problem whose validity is to be established. The researcher therefore formulated the following hypothesis for the study.

HYPOTHESIS ONE

Ho: There is no relationship between board structure and performance of the bank.

H1: There is significant relationship between board structure and performance of the bank.

HYPOTHESIS TWO

Ho: corporate governance does not have positive effect on director’s effectiveness.

H1: corporate governance has positive effect on director’s effectiveness.

HYPOTHESIS THREE

Ho: There is no significant relationship between director’s effectiveness and financial performance of the bank.

H1: There is significant relationship between director’s effectiveness and financial performance of the bank

1.6  SIGNIFICANCE OF THE STUDY

It is expected that the findings of this study will give an insight on the importance or otherwise of corporate governance mechanisms and financial performance. The findings of this study will benefit the following:

·                    It will be beneficial to banks and management as it will broaden their knowledge on the role of corporate governance mechanisms on financial performance and help them to perform better their duties to the banks.

·                    Government and policy makers will benefit from this research as it will enable them bridge the gap in formulating legislations and policies that will protect organizations and investors by ensuring that best corporate governance practices are embraced and sustained.

·                    Regulatory bodies will benefit from this study as it will enable them carryout their oversight functions more effectively and efficiently if they adopt suggestions made by the researcher.

·                    Individuals and institutional investors will also benefit from this research work as they will be better informed and enlightened on their expectations of management and the board of directors will know what to expect from financial performance they receive on yearly basis.

·                    Finally, the research will serve as literature for further studies by individuals and gaps with interest in corporate governance mechanisms and financial performance issues.

1.7  DEFINITION OF TERMS

Corporate governance mechanisms: It is the process by which a board of directors working through management guides an institution in fulfilling its corporate mission and protecting the institutions or organization’s assets.

Financial performance: It is the presentation of summarized results of operations of an organization by the management team for a specific period of time to the banks in any metropolis.

CAMA: Companies and Allied Matters Act

NDIC: Nigerian Deposit Insurance Commission.

SEC: Securities and Exchange commission

IAS: International Accounting Standard

GAAP: Generally Accepted Accounting Principles

IFRS: International Financial Reporting Standards

BOARD OF DIRECTORS: They are a group of persons who run the affairs of the companies on behalf of the owners (shareholder).