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CORPORATE
GOVERNANCE AND ORGANIZATIONAL PERFORMANCE IN BANKING INDUSTRY IN NIGERIA
ABSTRACT
This research paper reviews the
conceptual framework of corporate governance and Organizational Performance in
Banking Industry in Nigeria and seeks to understanding current best practice,
the challenges, the failure and offered recommendations for efficient
implementation of corporate governance best practice in the Nigerian banking
sector. Recent global events concerning high-profile corporate failures have
put back on the policy agenda and intensified debate on the efficacy of
corporate governance mechanisms as a means of increasing firm financial
performance. This study attempts to address this question using Spearman’s
Ranking Correlation Coefficient and SPSS for a sample of 15 banks for the
period 1985-210. Data collected from 70 respondents. The results are consistent
with existing literature; it was found that there is a strong and positive
relationship between the dimensions of Corporate Governance and Organizational
Performance. We but there is need to err on the side of caution in any attempt
to generalize the findings as the sample selection was determined by the
availability of data. We concluded that without governance mechanisms in
place-in particular, a board to direct and control managers might ‘run away
with the profits’. Understood in this way, good governance minimizes the
possibility of poor organizational performance. Good governance can make to
improved organizational performance by highlighting the strategic role of the
board. Legal compliance, ongoing financial scrutiny and control, and fulfilling
accountability and transparency requirements, as these are and fundamental
features of good corporate governance. Our recommendations include that banks
management should know that they are accountable to all stakeholders not just
the shareholders. E.g. their customers so that they don’t lose them. They must
ensure transparency in their dealings with all stakeholders. This will help
them retain their customers, which will in turn increase their profitability,
they must ensure adherence to polices on accountability and transparency in
information disclosure so as to retain and improve their market share, they
must improve on accountability and transparency, so that they can be trusted by
stakeholders for the realization of large market share, they must ensure
excellent relationship between the board, the management, the shareholders and
other stakeholders.
TABLES OF CONTENTS
CHAPTER
ONE: INTRODUCTION
1.1 Context
of the Problem 1-3
1.2 Statement
of the Problem 3-4
1.3 Purpose
and Objective of the Study 4-5
1.4 Research
questions 5
1.5 Conceptual
framework 6-7
1.6 Research
Hypotheses 7-8
1.7 Significance
of the study 8
1.8 Scope
of the study 9
1.9 limitation
of the study 9-10
1.10
definition of terms 9-11
1.11 Organization of the study 11
CHAPTER
TWO: REVIEW OF RELATED LITERATURE
2.0 Introduction 14
2.1 concept
of corporate governance 14-18
2.1.1 code of corporate governance 18-20
2.2 dimensions
of corporate governance 20-21
2.2.1 Accountability 21-24
2.2.2 Transparency 24-26
2.3 Concept
of organizational performance 26-31
2.4 Measures
of organizational performance 31-34
2.4.1 Profitability 34-35
2.4.2 Market
share 35
2.5 empirical
evidence between corporate governance
and organizational performance 35-27
2.5.1 relationship between accountability
and
Organizational performance 37-39
2.5.2 relationship between
transparency and
Organizational Performance 40-42
2.6 Contextual
factors organizational culture and size
Organization 42
2.6.1 Organizational culture 42-43
2.6.2 size of organization 44-45
2.7 organizational
culture as a moderating factor
Influencing the relationship between
corporate governance
and organizational performance 46-52
2.8 organizational size as a moderating factor influencing
The relationship between corporate
governance and
Organizational performance 52-54
2.9 Summary 55-56
CHAPTER
THREE- RESEARCH METHODOLOGY
3.0 Introduction 62
3.1 Research
Design 63
3.2 population
of the study and sampling procedure 64
3.3 sample
size determination 64-65
3.4 sources
of research data 65
3.5 operational
measures of study variables 66-69
3.6 Test
of validity and reliability of the variables 69
3.7 instrument
design 70
3.8 Data
analysis techniques 70-71
3.9 analytical
design 71
CHAPTER FOUR-DATA PRESENTATION, ANALYSIS AND
INTERPRETATION
4.0 Introduction 73
4.1 Questionnaire
distribution and collection 73-74
4.2 Analysis
of general characteristics of respondents 74-82
4.4 Hypotheses
testing 82-92
CHAPTER FIVE: DISCUSSION OF FINDINGS, CONCLUSION
AND RECOMMENDATION
5.0 Introduction
73
5.1 Discussion
of findings 94-102
5.2 Recommendations 102-104
5.3 Conclusion 104-105
5.4 Implication
of the study 105-106
5.5 Suggestion
for further study 106
Reference
Bibliography
Appendix 1
LIST OF TABLES
Table 4.1: Questionnaire distribution and collection
Table 4.2: Position in the company of respondents
Table 4.3: Gender of respondents
Table 4.4: Ages of respondents
Table 4.5: Duration of company of respondents
Table 4.6: Martial status of respondents
Table 4.7: Educational qualification of respondents
Table 4.8: Extent to which accountability affect profitability
Table 4.9: Extent to which transparency affects profitability
Table 4.10: Extent to which accountability affects market share
Table
4.11: Extent to which transparency
in the disclosure of information affect market share
Table
4.12: Extent to which organizational
culture moderate between corporate governance and organizational performance.
Table
4.13: Extent to which size of the
organization influence the relationship between corporate governance and
organizational performance.
Table
4.14: Table 4.19 SPSS and Spearman’s
Ranking correlation Coefficient hypotheses testing.
LIST OF FIGURES
Figure 1: Conceptual Framework
Figure 2: Levels of organizational culture
Figure 3: Flat organic structure
Figure4: Conceptual framework operationalized
CHAPTER ONE
INTRODUCTION
1.1
CONTEXT OF THE
PROBLEM
Success
in the effective and efficient management of organization resources is in part
a function of good corporate governance practices. Corporate governance
according to OECD (1999) is a principle which involves a set of relationships
between a company’s management, its board, its shareholders and other
stakeholders. Corporate governance also provides the structure through which the
objectives and monitoring performance are determined (Nicholson and Kiel 2004). Soludo (2001)
opined that good corporate governance should provide proper incentives for the
board and management to pursue objectives that are in the interest of the
company and its shareholders and should facilitate effective monitoring.
Corporate
governance as a concept can be viewed from two perspectives: the narrow and the
broad view. A narrow view, in which it is viewed merely as being concerned with
structure, which corporate entity or enterprise receives its basic orientation
and direction. The broad perspective, is regarded as being the heart of both a
market economy and democratic society. The narrow view perceive corporate
governance in terms of issues relating to shareholders protection, suppliers of
finance of corporations, management, the popular agency problems of economic
theory; roles of board of directors, the independence of external auditors,
audit committee, corporate meeting etc (Oyejide and Soyibo, 2001). For the
purpose of this study, it will be restricted to the narrow perspective.
However, the economic development of a nation depends largely on the state of
health of corporations and the process in which decisions are implemented
within the private sector. (Skelcher, 2004).
Corporate
governance has succeeded in attracting a great deal of public interest as a
result of its apparent importance in economic growth and in the management of
organization resources. Hence this study is intended to examine Corporate
Governance and Organizational Performance. According to a review of finance
literature, Soludo (2001) says that government in its effort to ensure good
corporate governance enacted the Company and Allied Matter Act (CAMA) of 1990
as well as other regulatory bodies such as Security Exchange Commission. This
is to ensure that companies are managed properly. Corporate governance is the
“system by which companies are directed and controlled” (Cadbury Committee,
1992).
However,
previous studies in corporate governance have focused on financial management,
auditing and methodology, although not much has been done in the area of
services sector such as banks and organization performance. Thus, there is a
lack of research on how corporate governance affects or influence
organization’s performance in the banking sector in Nigeria. This is the focus
of this study.
I
recommend, for further findings, dimensions of corporate governance like Nature
of board policy, corporate external auditors’ role etc and measures of organizational
performance like sales volume, shareholders value, on investment, sales volume,
productivity, quality of service etc to be looked into. Also, areas like
Corporate Governance and Employee relations should be looked into. This is my
suggestion for further findings.
1.2
STATEMENTS
OF THE PROBLEM
Quality
management practices in any organization globally, constitute much on the
growth and success of its operations. A critical observation on the total
management of most organizations or corporate such as banks and other financial
institutions reveals that, owing to the technical incompetence of board
management, inadequate management capacity, wrong disclosure of vital
information or annual statement of account and misappropriation of funds, bank
are losing customers and profit day by day due to its inability in meeting the
needs (cash demands) of customers and this has led to the collapse of a number
of banks (Bhagat, Sanjai & Black, Bernad, 2002). The researcher opined that
this problem may have resulted due to lack of effective corporate governance practices
that emails total control of firms or organization’s resources.
Therefore,
if organization performance must be optimal, there is need to address or
effectively employ or install corporate governance principles that will enhance
the management of organization resources in order to attain its objective or
goal (Heinrich and Laurence, 2001).
Based
on this, the study seeks to identify the effect of Accountability on
profitability, the influence of Accountability of Market Share, the
relationship between Transparency and Profitability, the association between
Transparency and Market Share and the
Contextual factors like Culture and Size as they moderate the relationship
between Corporate Governance and Organizational Performance. This is our point
of departure.
1.3 PURPOSE AND OBJECTIVES OF THE
STUDY
The
purpose of this study is to determine the effect of corporate governance on
organizational performance of Banks in Banking Industry. Thus, the specific
objectives of the study are:
(a) To examine the influence of accountability
on profitability
(b) To investigate the effect of transparency on
profitability
(c) To ascertain the effect of accountability on
market share.
(d) To assess the influence of transparency on
market share.
(e) To
investigate into how organizational culture moderate the relationship between
corporate governance and organizational performance.
(f) To
examine into how size of organization moderates the relationship between
corporate governance and organizational performance.
1.4 RESEARCH
QUESTIONS
Going
by the specific of the study, the following research questions were addressed.
(a) To
what extent does accountability influence organizational profitability in your
bank?
(b) To
what extent does transparency influence organizational profitability in your
bank?
(c) To
what extent dos accountability influence market share in your bank?
(d) To
what extent does transparency influence market share in your bank? To what
extent does organizational culture influence the relationship between corporate
governance and organizational performance in your bank?
(e) To
what extent does organizational size influence the relationship between
corporate governance and organizational performance in your bank?
1.5 CONCEPTUAL
FRAMEWORK FOR THE STUDY
According
to Brown and Caylor, (2004) the absence of a strategic framework for corporate
governance from which to define success is one major reason for the
disappointing results of many corporate governance principles. Coles,
McWilliams and Sen, (2001) opined that conceptual framework and theory are
typically based on combination of previous literature, common sense and
experience. However, the conceptual framework for this study emerges from the
review of related literature on corporate governance and organizational
performance and observation/studies from banks related activities.
The
above conceptual framework seeks to examine the interactive relationship of the
dimensions of the independent variable and the measures of the dependent
variables. The independent variable is corporate governance, which has
Accountability and Transparency as its dimensions. The dependent variable is
organizational performance (performance of banks), and its measures are
profitability and market share.
Figure
1: Conceptual Framework |
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 |
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Researcher’s Conceptual Model, 2011
Source: Review of related literature (2011)
1.6 RESEARCH
HYPOTHESES
Using
the conceptual framework as the keystone of this study, the following
hypotheses were formulated.
H01: There is no is
significant relationship between Accountability and Organizational
Profitability.
H02: There is no
significant relationship between Transparency and Organizational Profitability.
H03: There is no
significant relationship between Accountability and Market Share.
H04: There is no
significant relationship between Transparency and Market Share.
H05: Organizational
culture does not significantly influence the relationship between Corporate
Governance and Organizational Performance.
H06: Size of organization
does not significantly influence the relationship between Corporate Governance
and Organizational Performance.
1.7 SIGNIFICANCE
OF THE STUDY
The
study will be significant to the management and owners of any establishment in
both the public and the private sector of the Nigerian economy. The study will
be of immense benefits to managers, investors, students and lecturers in the
field of business policy and strategic management.
The
study will be useful on issues regarding corporate governance and
organizational performance.
It
will create awareness about the components of corporate governance and
organizational performance for owners of business.
The
study will also useful and add new information to the already existing body of
knowledge. It will stimulate thoughts in creative minds for the execution of
further studies.
1.8 SCOPE
OF THE STUDY
This
study investigate the effect of corporate governance on organizational
performance in the banking sector in Nigeria. It will specifically investigate
the activities of the fifteen (15) major banks in Nigeria that have no issue
with the Central Bank of Nigeria. They are; Access Bank, Citibank, Diamond
Bank, Ecobank Nigeria, Fidelity Bank Nigeria, First Bank of Nigeria, Guaranty
Trust Bank, Skye Bank, Stanbic IBTC Bank Nigeria Limited, Standard Chartered
Bank, Sterling Bank, United Bank for Africa, Unity Bank Plc., Wema Bank, Zenith
Bank. The respondents are the bank managers of the banks who are regarded as
information of the organization (and they constitute the Branch managers
operations managers, Marketing managers, Human Resources Managers, Customer
Service managers and Information technology manager) of each of these banks.
The study focuses on the activities of these banks in terms of corporate
governance and organizational performance from 1985 to 2010.
1.9 LIMITATION
OF THE STUDY
The
researcher encountered some limitations in the course of executing this
research. Firstly, the study was meant to cover all the banks in Nigeria so as
to have more facts on the subject matter; however this intended scope could not
be achieved due to cost of collecting data.
Secondly,
a lot of managers who were administered questionnaire did not complete them
because of fear of giving out valuable information and business secrets to
competitors.
Thirdly,
most manages are unable to attend to questionnaire administered due to their
tight schedules.
Fourthly,
the findings of this study were used as a generalization of the other parts not
covered in this study.
1.10 DEFINITIONS
OF TERMS
To
avoid possible confusion, the key terms that relate to the subject matter will
be operationally define thus.
Bank: Is an organization that receives demand
deposit and honour instruments. (Crest, 2002).
Corporate:
an organization
Corporate
Governance: The
system by which companies are directed and controlled (Bebchuk, Lucian, Cohen
and Allen, 2004).
Performance:
The achievement of set results. (Bhagat, Dennis and Charles, 1999)
Organization: A company or firm
with people who work collectively for common goals.
1.11
ORGANIZATION OF THE STUDY
The
study will be prepared in five chapters ranging from chapters one to five.
Chapter
one will provide the introductory aspects which will include context of the
problem, statement of the problem, purpose of the study and research questions.
Others are, conceptual framework, research hypotheses, scope and limitations of
the study, significance of the study, definition of terms and organization of
the study.
Chapter
two focuses on the literature review which will provide useful information on
the attributes of the study which is “Corporate governance and organizational
performance”.
Chapter
three focuses on the research methodology, which will cover issues on the
research design, sampling procedure and sample size determination; population
of the study, sources of research data, operational measures of variables, test
of validity test of reliability, instrumentation and data analysis techniques.
Chapter
four will provide details of the presentation and analysis of data for the
study. And chapter five will focus on the discussion of findings, conclusion
and recommendations as well as the suggestions for further studies.
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