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Corporate Governance Practices and Financial Performance of Deposit Money Banks

Project Topic:

Corporate Governance Practices and Financial Performance of Deposit Money Banks

This study aims to investigate the corporate governance practices and financial performance of Deposit Money Banks in Nigeria. This study addressed performing an in-depth analysis of the dynamics of corporate governance practices mechanisms and financial performance of DMBs in Nigeria, with a special emphasis on financial measures such as ROA, ROE, and EPS. The study adopted an ex-post facto research design to investigate the causal relationship between credit management and the financial performance of Nigerian Deposit Money Banks (DMBs) over a ten-year period from 2013 to 2022. The population encompassed all operational DMBs in Nigeria during this period. A purposive sample of nine DMBs was selected for in-depth analysis. Data for this study was sourced from the annual reports of nine selected DMBs. Panel data analysis, employing OLS regression, descriptive statistics, and correlation analysis, was conducted using EViews software. Findings reveal a strong model fit for return on assets (ROA), with an R-squared value of 0.989, indicating that 98.9% of the variance in ROA is explained by the independent variables. The F-statistic (F(6, 7) = 899.01, p = 0.0000) confirms the model's significance, showing that executive compensation, board size, board gender diversity, contraventions penalty, and corporate size significantly affect ROA. Conversely, the model fit for return on equity (ROE) is low, with an R-squared value of 0.138, meaning only 13.8% of the variance in ROE is explained by the variables. However, the F-statistic (F(6, 93) = 4.54, p = 0.0002) indicates that the model is statistically significant. For earnings per share (EPS), the model fit is moderate, with an R-squared value of 0.364, explaining 36.4% of the variance. The F-statistic (F(6, 93) = 2.80, p = 0.0109) suggests that the variables significantly influence EPS. Effective corporate governance is crucial for Nigerian deposit money banks' financial performance and sustainability. Strong board composition, transparent compensation, and robust risk management are key. Regulatory support for governance codes and bank-led initiatives for board diversity, stakeholder engagement, and director development are essential to navigate challenges and drive sustainable performance growth.

 

Keywords: Corporate Governance Practices and Financial Performance, Board Composition, Transparent Compensation.

Project Body:

Table of Contents

Title                                                                                                                                     Page

Title                                                                                                                                         i

Certification                                                                                                                            ii

Dedication                                                                                                                               iii

Acknowledgment                                                                                                                   iv

Abstract                                                                                                                                   v

Tables  of Contents                                                                                                                 vi

List of Tables                                                                                                                          x

List of Figures                                                                                                                         xi

List of Appendices                                                                                                                  xii

List of Acronyms                                                                                                                  xiii

Chapter One: Introduction

1.1         Background to the Study                                                                                          1

1.2         Statement of the Problem                                                                                          7

1.3         Aim and Objectives of the Study                                                                             9

1.4         Research Questions                                                                                                  9

1.5         Hypothesis                                                                                                                10

1.6         Significance of the Study                                                                                         10

1.7         Scope of the Study                                                                                                   10

1.8         Operational Definition of Terms                                                                               11

1.9         Operationasation of Variables                                                                                  12

      Endnotes

Chapter Two: Literature Review

2.1         Conceptual Review                                                                                                   16

2.1.1      Financial Performance                                                                                              16

2.1.1.1   Return on Asset                                                                                                        19

2.1.1.2   Return on Equity                                                                                                      21

2.1.1.3   Net Profit Margin                                                                                                      22

2.1.2      Credit and Credit Management                                                                                25

2.1.2.1   Non-Performing Loans (NPLs) in Banks                                                                 41

2.1.2.2   Secure and Unsecured Loan                                                                                                 43

2.1.2.3   Loan and Advance                                                                                                    44

2.1.2.4   Loan Loss Provision                                                                                                 45

2.2         Theoretical Framework                                                                                            46

2.2.1      Information Asymmetry Theory                                                                               46

2.2.2      Transaction Cost Theory                                                                                           50

2.3         Review of Empirical Studies                                                                                    51

2.3.1      Credit Management and Financial Performance                                                      51

2.3.2      Credit Management and Return on Asset                                                                 62

2.3.3      Credit Management and Firm’s Return on Equity                                                   68

2.3.4      Credit Management and Net Profit Margin                                                              70

2.4         Conceptual Model                                                                                                    77

2.5         Summary of the Gaps in the Literature Reviewed                                                   80

              Endnotes

 

Chapter Three: Methodology

3.1        Research Design                                                                                                        91

3.2        Population                                                                                                                  91

3.3        Sample Size and Sampling Technique                                                                       93

3.4        Description of Research Instrument                                                                          93

3.5        Validity of Research Instrument                                                                               97

3.6        Reliability of Research Instrument                                                                            97

3.7        Method of Data Collection                                                                                        97

3.8        Method of Data Analysis                                                                                           98

             Endnotes

Chapter Four: Results and Discussion of Findings

4.1        Analysis of Diagnostic test                                                                                        99

4.2        Analysis of Descriptive Statistics                                                                             101

4.3.1     Testing of Hypotheses                                                                                               109

4.3        Discussion of Findings                                                                                              119

             Endnotes

Chapter Five: Conclusion

5.1        Summary of Findings                                                                                                131

5.2        Conclusion                                                                                                                 132

5.3        Recommendations                                                                                                     134

5.4        Contribution to Knowledge                                                                                       135

5.5        Suggested Areas for Further Research                                                                      137

             Bibliography                                                                                                             139