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THE RELATIONSHIP BETWEEN BOARD SIZE & FIRM PERFORMANCE

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CHAPTER ONE
INTRODUCTION
1.1 Background to the study

Given the fury of activities that have affected the effects of banks to comply the various consolidation policies and the antecedents of some operators in the system, there are concerns on the need to strength corporate governance in banks. This will boost public confidence and ensure efficient and effective functioning of the banking system (Soludo, 2004). Banking supervision cannot function well if sound corporate governance is not in place (Heidi and Marleen, 2003). As a result, banking supervisors have strong interest in ensuring that there is effective corporate governance at every banking organization in an increasingly open environment (Kashif, 2008). Several events are therefore responsible for the heightened interest in corporate governance especially in both developed and developing countries. This concept of corporate governance of banks and every large firm have been a priority on the policy agenda in developed market economics for over a decade.
Further to that, the concept is gradually warming itself as a priority in the African continent (Uwuigbe, 2011). Indeed, in developing economics, the banking sector among other sectors has also witnessed several cases of collapses, some of which include Savannah Bank Plc and Society Generale Bank Ltd among others (Akpan, 2007). Although corporate governance in developing economies has recently received a lot of attention, yet corporate governance of banks in developing economies as it relates to financial performance has almost been ignored by researchers (Ntim, 2009). Even in developed economies the corporate governance of banks and their financial performances has only been discussed recently in literature (Macey and O’ Hara, 2011).
In Nigeria, the issue of corporate governance has been given the front burner status by all sectors of the . This is in recognition of the failure of the critical of corporate governance in the success or failure of companies (Ogbechie, 2006). Corporate governance is about building credibility, ensuring transparency and accountability as well as maintaining an effective channel of information disclosure that will foster good corporate performance. Corporate governance therefore refers to the processes and structures by which the business and affairs of institutions are directed and managed in order to improve long term shareholders’ value by enhancing corporate performance and accountability while taking into account the interest of other stakeholders

1.2 Statement of the Problem
The few studies on bank corporate governance normally focused on a single aspect of governance, such as the of directors or that of shareholders while omitting other factors and interactions that may be important within the governance framework. Feasible among these few studies is the one by Adams and Mehran (2000) for a sample of US companies, where they examined the effects of board size and composition on value. Another weakness is that such research is often limited to the largest, actively traded organizations, many of which show little variation in their ownership, management and board structure and also measure performance as market value. In Nigeria, among the few empirically feasible studies on corporate governance are the studies by Sanda et al (2005) and Ogbechie (2006) that studied the corporate governance mechanisms and firms’ performance. In order to address these deficiencies, this study is not restricted to the framework of the organization for Economic Co-operation and Development principle, which is based primarily on shareholder sovereignty. It analyzed the level of compliance of code of corporate governance in Nigerian banks with the Central Bank of Nigeria code of corporate governance.
Finally, while other studies on corporate governance neglected the operating performance variable as proxies for performance, this study employed the accounting operating performance variables to investigate the existence if any relationship between corporate governance and firm performance of banking sector in Nigeria.

1.3 Objective of the Study
The major purpose of this study is to examine some components of corporate governance that influences firm performance of banking sector in Nigeria. Specifically, this study aims to achieve the following objectives:
To examine the relationship between board size and firm performance in Nigerian banking sector
To investigate if there is any significant relationship between directors’ equity interest and the firm performance in Nigerian banking sector
To determine empirically if there is any significant relationship between the level of corporate governance disclosure and the firm performance in Nigerian banking sector

1.4 Research Questions
The following research questions were developed to guide the researcher in achieving the objectives of this study;
What is the relationship between Board size on firm performance in Nigerian banking sector?
What is the relationship between directors’ equity interest and firm performance in Nigerian banking sector?
To what extent does the level of corporate governance disclosure affect firm performance in Nigerian banking sector?

1.5 Statement of Hypothesis
Ho: There is no significant relationship between Board size on firm financial performance in Nigerian banking sector.
Ho: There is no significant relationship between directors’ equity interest on firm financial performance in Nigerian banking sector
Ho: There is no significant relationship between level of corporate governance disclosure on firm performance in Nigerian banking sector.

1.6 Significance of the Study
The finding of this study poses a lot of benefit to both practitioners and academicians which relates to the subject matter in this research work. Specifically, the study will help expose governance issues relating to firm performance and financial institutions in Nigeria. It would also help Shareholders, investors and other stakeholders to know how qualitative firms and financial institutions are and avert pitfalls of the past. In addition, the study would assist board of directors in policy formulations regarding corporate governance challenges. The finding of this study would assist to bridge the gap between the general public and accountants in terms of restoring the public confidence on financial reports prepared by accountants.
The result of this study is expected to contribute to the reduction in the gap in the literature of corporate governance and firm financial performance nationally and internationally. Finally, it will provide a pointer to that require further research in Nigeria and other countries and also aid in course structuring as regards ethics and corporate governance.

1.7 Scope of the Study
This study is concerned with portraying how well corporate governance attributes helps in bringing about improvement in the firm financial performance in the Nigerian banking industry. The banking industry was selected worthy for this research due its adherence to corporate governance laws and policies. Nonetheless, due to the logical point that the entire Nigerian banking industry cannot be studied, this research was limited to the southern region of Nigeria. Based on the author’s location while conducting the research and capability as well, this research was further delimited to Akwa Ibom State. Five banks were selected as the case study for this research from two local government which include; Abak and Uyo and the banks selected include; First Bank Plc Abak, Union Bank Abak, Diamond Bank Abak, Guarantee Trust Bank Uyo, Zenith Bank Uyo. Though the components or attributes of corporate governance are numerous, this study is focused only three of those attributes which includes; Board size, directors’ equity interest and level of corporate governance disclosure.

THE RELATIONSH BETWEEN BOARD SIZE AND FIRM PERFORMANCE IN BANKING SECTOR

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