Corporate Governance Quality and Financial Performance of International Commercial Banks in Nigeria

Abstract

This study examined the effect of corporate governance quality on the financial performance of international commercial banks in Nigeria. The study was motivated by the persistence of governance failures within the Nigerian banking sector and by the tendency of earlier studies to recycle a narrow set of governance proxies, principally board size, board independence and CEO duality, while neglecting the behavioural dimensions of board work. Three under-examined constructs were therefore specified: board control, understood as the formal evaluation by the board of its own performance, that of the chief executive and that of individual directors; board activities, captured by the frequency of board meetings; and the existence of important board committees, namely the audit, risk and remuneration committees. International commercial banks listed on the Nigerian Exchange Group were studied over the period 2014 to 2023 using a judgmental sampling technique and an ex-post facto research design, yielding 100 bank-year observations drawn from audited annual reports and Central Bank of Nigeria publications. Financial performance was disaggregated into capital adequacy, return on equity and shareholders' earnings, each matched to the governance construct most theoretically proximate to it. Data were analysed using Pearson correlation and ordinary least squares regression at the five per cent level of significance. The results showed that board control has a positive and significant effect on capital adequacy (β = 0.403, t = 2.819, p = 0.006), that board activities have a positive and significant effect on return on equity (β = 0.452, t = 3.330, p = 0.001), and that the existence of important board committees has a positive and significant effect on shareholders' earnings (β = 0.206, t = 2.045, p = 0.045). The explanatory power of the three models was nevertheless modest, ranging from 5.6 to 13.7 per cent, indicating that governance structures operate alongside, rather than in place of, macroeconomic and firm-specific determinants of bank performance. The study concludes that the behavioral and structural dimensions of board control, board activities, and board committees exert a measurable influence on distinct facets of bank performance, and recommends that bank board’s institutionalize formal self-evaluation, that regulators attend to the substance rather than the mere existence of board committees, and that investors treat evidence of active board engagement as a signal of governance quality.