The Corporate Governance of Banks in Nigeria: How Effective are the Boards of Directors?

24 Pages Posted: 1 Mar 2009

See all articles by Ukpai Kama

Ukpai Kama

Central Bank of Nigeria

C. A. Chuku

University of Uyo

Date Written: January 28, 2009

Abstract

In the corporate governance of banks, bank boards of directors play a significant role by monitoring and advising management in the formulation and implementation of strategies. Our hypothesis is that certain characteristics of bank boards (size, composition and proactiveness) determine the effectiveness of the boards in carrying out its monitoring and advisory roles. After controlling for heterogeneity and endogeneity using the two-step system estimator, we find that admitting new members into the board improves bank performance up to a certain point 'efficient limit' where continuous increase of the board size begins to destroy value. We observe an inverse relation between board meetings and bank performance which suggest to us that bank boards that meet more often are only reacting to bank's poor performance. This challenges the widespread belief that frequent board meetings play a role that is more proactive than reactive. We agree that bank boards strategically alleviate the problems of governance in banks and reduce the weakness of other corporate governance mechanisms, especially the regulatory and external governance mechanism. Hence empowering boards through incentive packages and enlarged responsibilities with authority to monitor, sanction, reprimand and advise management will be the way forward for the Nigerian banking sector.

Keywords: Corporate governance, Board of directors, Banks in Nigeria, System estimator

JEL Classification: G32, G21, G28, K22

Suggested Citation

Kama, Ukpai and Chuku, Chuku Agbai, The Corporate Governance of Banks in Nigeria: How Effective are the Boards of Directors? (January 28, 2009). Available at SSRN: https://ssrn.com/abstract=1350735 or http://dx.doi.org/10.2139/ssrn.1350735

Ukpai Kama

Central Bank of Nigeria ( email )

Plot 33, Abubakar Tafawa Balewa Way
Central Business District, Cadastral Zone
Abuja
Nigeria

Chuku Agbai Chuku (Contact Author)

University of Uyo ( email )

Department of Economics, University of Uyo
Uyo, Akwa Ibom 520003
Nigeria
+2348067247177 (Phone)

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