Corporate Governance Mechanisms and Agency Cost in the Nigerian Banking Sector
Keywords:
Ownership concentration, Board Independence, Board Size
Abstract
The study examines corporate governance and agency cost of Deposit Money Banks (DMBs) listed in the Nigerian Stock Exchange during the period 2012 to 2022. The study is motivated by the dearth of prior empirics on the discourse, consequently impairing policy formulation. The study adopts longitudinal research design, a census of the thirteen DMBs is taken, secondary data source from the audited annual report of the sample DMBs. Using panel estimation technique, the result reveals that: ownership concentration has a positive impact (0.003) which is statistically insignificant (p=0.332) at 5% level; board size has a positive impact (0.004) and it is statistically significant at 10% (p=0.078); board independence has a positive impact (0.010) though not statistically significant at 5% (p=0.832); and managerial ownership has a positive impact (0.003) and it is statistically significant at 1% (p=0.000). The study concludes that variables being positively signed suggests to a large extent non conformity to theoretical expectation. This implies that corporate governance framework does not reduce agency cost in the Nigerian DMBs. The study recommends; block equity holders should be active in ensuring that corporate governance practices are adhered to by managers; non-executive directors should use their status as independent director to improve the board vigilant role.
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Osemeke, L., Alshatti, A., & Alharbi, K. (2019). Corporate governance mechanisms and agency
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in emerging markets. Emerging Markets Review, 3(4), 325–337.
Peter E.A, & Akwarandu, U.(2020). Agency cost and credit risk management: Empirical evidence from listed commercial banks in Nigeria. Asian Journal of Economics, Business and Accounting.17(2): 1-17
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Prugsamatz, N. C. (2010). Corporate governance effects on firm value and stock market performance: an empirical study of the Stock Exchange of Thailand100-index listed companies. AU-GSB e-Journal, 3(2), 35–49
Sanda, A., Mikailu, A. & Garba, T (2005). Corporate governance mechanisms and firm financial performance in Nigeria. AERC Research Paper 149, 1-50.
Shleifer, A., &Vishny, R. W. (1997). A survey of corporate governance. Journal of Finance, 52(2), 737–789.
Vijayakumaran, R. (2019). Ownership reform, state ownership, corporate governance, and agency costs: The case of Chinese listed companies. Research in World Economy, 10(1), 91-104.
Zondi, S., & Sibanda, M. (2015). Managerial ownership and firm performance on selected JSE listed firms. Spring, 12(3), 233-241.
Adams, R. & Mehran, H. (2015). Corporate performance, board structure and its determinants in the banking industry. Working paper, Federal Reserve Bank of New York.
Adeusi A. S., Igbekoyi O. E.,& Ologun O. V. (2019). Corporate governance mechanisms and employees' compensation. Accounting and Taxation Review,3(2): 66-84
Adeyemi, S. B., & Iwayemi, A. (2017). Board characteristics and bank stability: Evidence from
Nigerian banks. International Journal of Finance and Accounting, 6(1),
Adonu, G. (2016), "Corporate governance in small and medium scale enterprises: any relevance?", Available at SSRN 2839684, pp. 1-4
Aiken, L., & West, S. (1991). Multiple regression: Testing and interpreting interactions. Newbury Park, CA: Sage.
Akinkoye, E. Y. &Olasanmi, O. (2014). Corporate governance practice and level of compliance among firms in Nigeria: Industry analysis. Journal of Business and Retail Management Research (JBRMR), 9(1).
Ang, J.S., R.A. Cole & L.J. Wuh, 2000. Agency costs and ownership structure. Journal of Finance, 55(1): 81–106.
Bello, A. (2011). Corporate governance and accounting ethics in Nigeria. corporate finance: governance, corporate control & organization. e-Journal of Finance and Accounting, 11(25), 1-25.
Bello, A., Yusuf, I. M., & Shehu, A. H. (2018). Corporate governance mechanisms and risk-
taking in Nigerian banks. Cogent Economics & Finance, 6(1), 151-324
Binta A. N, Kabiru I., D., Lawal M.,Abdullahi B., A.& Umar F.,A.(2020).Impact of agency costs on the financial performance of listed consumer goods companies in Nigeria. Journal of Management Theory and Practice. 3(1).,2716-7089
Bouras, M., &Gallali, M. I. (2017). Managerial ownership, Board of directors, equity-based compensation and firm performance: A comparative study between France and the USMediterranean. Journal of Social Sciences, 8(1), 12-38
Central Bank of Nigeria (CBN, 2019). Report on Stress and Stability of the Nigerian Financial Sector, Abuja, 23-32..
Chinelo, E. O., &Iyiegbuniwe, W. (2018), Ownership structure, corporate governance, and agency costof manufacturing companies in Nigeria. Research Journal of Finance and Accounting, 9(16), 23-49
Davis, J., Frankforter, S., Vollrath, D., & Hill, V. (2007). An empirical test of stewardship theory. Journal of Business & Leadership: Research, Practice, and Teaching (2005–2012), 3(1), 4–50.
Donaldson, L., & Davis, J. H. (1989). CEO governance and shareholder returns Agency theory or stewardship theory. Paper presented at the annual meeting of the Academy of Management, Washington, DC
Ferdous, C. (2018). Corporate governance in Bangladesh: Evidence of compliance. International Journal of Business Research, 11(3),1-25.
Florackis, C. &Ozkan A. (2004). Agency costs and corporate governance mechanisms: evidence for UK firms, working paper, University of York, UK. 49(2): 139-58.
Gichana, O. E. (2012). Relationship between managerial ownership and agency cost of listed companies at the Nairobi Securities Exchange (Doctoral dissertation). School of Business, University of Nairobi
Grigore, MZ. & Stefan-Duicu, V.M, (2013). Agency Theory and Optimal Capital Structure. CKS2013economy art004.
Hermalin, B. E., & Weisbach, M. S. (1991). The effects of board composition and direct incentives on firm performance. Financial management, 100-112.
ICAN. (2014). ICAN study pack, Management, Governance and Ethics. United Kingdom: Emile Woolf International.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3(4), 305-360.
McKnight, P.J. & C. Weir, 2009. Agency costs, corporate governance mechanisms and ownership structure in the large UK publicly quoted companies: A panel data analysis. The Quarterly Review of Economics and Finance, 49(2): 139-158
Miko, N. & Kamardin, H, (2016). Prospect and challenges of corporate governance development
in Nigeria: Pre- and Post- Independence. Academic Journal of Management Science Research, 1(1); 33-39.
Monks, R. & N. Minow, 2004. Corporate governance. 3rd Edn., Boston, MA: Blackwell Publishing.
Nguyen, A. H., Doan, D. T., & Nguyen, L. H. (2020). Corporate governance and agency cost: Empirical evidence from Vietnam. Journal of Risk and Financial Management, 13, (103).
Nigerian Corporate Governance Codes (2018) Available at https://nambnigeria.org/Nig_Code_of_Corp._Governance_2018.pdf
Noradiva, A., Parastou, A., &Azlina, A. (2016). The effects of managerial ownership on the relationship between intellectual capital performance and firm value. International Journal of Social Science and Humanity, 6(7), 37-67
Nworji, I., Olagunji, A. &Adeyanju, O. D. (2011). Corporate governance and bank failure in
Nigeria; issues, challenges and opportunities. Journal of finance and accounting, 2(2)
Okolo, C., & Agboola, A. A. (2015). Corporate governance and financial performance of banks
in Nigeria. Journal of Accounting and Financial Management, 1(2), 1-10.
Osemeke, L., Alshatti, A., & Alharbi, K. (2019). Corporate governance mechanisms and agency
costs in the Nigerian banking sector. International Journal of Accounting and Financial
Reporting, 9(2), 40-60
Patel, S., Balic, A. &Bwakira, L. (2002). Measuring transparency and disclosure at the firm-level
in emerging markets. Emerging Markets Review, 3(4), 325–337.
Peter E.A, & Akwarandu, U.(2020). Agency cost and credit risk management: Empirical evidence from listed commercial banks in Nigeria. Asian Journal of Economics, Business and Accounting.17(2): 1-17
Pratheepkanth, Balaputhiran, and Velnampy (2020) in their work Corporate Governance, Ownership Structure and Agency Costs: Evidence from Sri Lanka. Indonesian Management and Accounting Research. 02.(19). 2441-9724
Prugsamatz, N. C. (2010). Corporate governance effects on firm value and stock market performance: an empirical study of the Stock Exchange of Thailand100-index listed companies. AU-GSB e-Journal, 3(2), 35–49
Sanda, A., Mikailu, A. & Garba, T (2005). Corporate governance mechanisms and firm financial performance in Nigeria. AERC Research Paper 149, 1-50.
Shleifer, A., &Vishny, R. W. (1997). A survey of corporate governance. Journal of Finance, 52(2), 737–789.
Vijayakumaran, R. (2019). Ownership reform, state ownership, corporate governance, and agency costs: The case of Chinese listed companies. Research in World Economy, 10(1), 91-104.
Zondi, S., & Sibanda, M. (2015). Managerial ownership and firm performance on selected JSE listed firms. Spring, 12(3), 233-241.
Published
2023-07-21
Section
Articles
