The study ascertained the effect of corporate governance on public confidence in financial reporting of Nigerian banks. Hence, three specific objectives were formulated as guide which are: to ascertain the effect of Board size on public confidence in financial reporting of Nigerian banks; to ascertain the effect of Non-Executive Directors on public confidence in financial reporting of Nigerian banks and investigate the effect of Directors equity holdings on public confidence in financial reporting of Nigerian banks. The study adopted the ex- post facto research and analytical design. Data were obtained through the annual reports and accounts of the selected banks. The judgmental sampling technique was used to select five (5) Deposit Money Banks out of the fifteen (15) Deposit Money banks operating in Nigeria and listed on the Nigeria Stock Exchange for periods spanning from 2010-2014. Three hypotheses were formulated and tested using the Pooled Ordinary Least Squares Regression with the aid of E-view version 6. The findings revealed that Board size has no positive nor significant effect on the confidence of the public in financial reporting of Nigerian banks (r= 500032; p = 0.2825). Non-Executive Directors have a positive and significant effect on public confidence in financial reporting of Nigerian banks (r= 0.7121; p = 0.0103) and also, Directors’ equity holdings has a positive and significant effect on the confidence of the public in financial reporting of banks in Nigeria (r= 0.8682; p = 0.0080). The study recommends that a small Board size is preferred than a large Board size, the Board size should be more of non-Executive Directors and Directors should subscribe more to the shares of the banks.


Title                                                                                                                                        i

Declaration                                                                                                                ii

Approval                                                                                                                     iii

Dedication                                                                                                                   iv

Acknowledgments                                                                                                     v

Abstract                                                                                                                     vi

List of Tables                                                                                                           xi

List of Figures                                                                                                           xii


1.1    Background to the Study                                                                             1

1.2    Statement of the Problem                                                                           3

1.3       Objectives of the Study                                                                         4

1.4       Research Questions                                                                             4

1.5       Research Hypotheses                                                                         4

1.6       Significance of the Study                                                               5

1.7       Scope and Limitation of the Study                                                                       5

1.8       Operational Definition of Terms                                                          6

 References                                                                                                 7


2.1       Conceptual Framework                                                                          8

2.1.1   Historical Overview of Corporate Governance                                       9

2.1.2   Elements of Corporate Governance in Banks                                 10

2.1.3   Regulation and Suspension as Elements of Corporate Governance in Banks 12

2.1.4   Corporate Governance Mechanism                                                      13

2.1.5   Linkage between Corporate Governance and Public Confidence in Financial        Reporting                                                                                   17

2.1.6   The Role of Internal Corporate Mechanisms in Financial Reporting          18 Auditor                                                                                                     18 Auditor’s Report                                                                                    18 Board of Director’s Composition                                                             19 Chief Executive Officer                                                                        19 Board Size                                                                                                20 Non-Executive Directors                                                                         21 Directors Equity Holdings                                                                    21 Managers                                                                                                  21

2.1.7 Regulatory Environment for Banks in Nigeria                                     22

2.1.8 Governance Standards and Principles around the World                    24 United Kingdom                                                                                         24 The Cadbury Report (1992)                                                                 24 The Greenbury Report (1995)                                                                25 The Hampel Report (1998)                                                                25 The Higgs Report (2003)                                                                           25 The Combined Code of Corporate Governance                                26 Organisation for Economic Co-operation and Development (OECD)                       27 Australia                                                                                                         27 United States                                                                                           28 Standards and Principles Summary                                                     28

2.1.9 Corporate Governance and the Crisis in the Nigerian Banking Sector          29

2.1.10 The State of Corporate Governance in Nigerian Banks                         30

2.1.11 Information Disclosure and Transparency                                         32

2.2       Theoretical Framework                                                                            33

2.2.1   Stakeholder Theory                                                                                     33

2.2.2   Stewardship Theory                                                                                 34

2.2.3   Agency Theory                                                                                           35

2.2.4 Information Asymmetric Theory                                                              36

2.3       Empirical Framework                                                                             36

2.4      Summary                                                                                                    42

            References                                                                                                                44


3.1       Research Design                                                                                          51

3.2       Sources of Data                                                                                            51

3.3       Population of the Study                                                                     51

3.4       Sample Size Determination                                                                     51

3.5       Instrument for Data Collection                                                               51

3.6       Data Analysis Techniques                                                                      52

3.7       Description of Research Variables                                                       52

3.8       Model Specification                                                                              52

 References                                                                                                        54


4.1 Presentation of Data                                                               55

4.2 Test of Research Hypotheses                                                                         56

4.3 Discussion of Findings                                                                                    60

 References                                                                                                        62


5.1 Summary of Findings                                                                        63

5.2 Conclusion                                                                                                      63

5.3 Recommendations                                                                                      64

5.4 Contributions to Knowledge                                                                64

5.5 Suggestion for Further Studies                                                                     65

 Bibliography                                                                                                      66

 Appendix 1  75

Appendix 2                                                                                              75

Appendix 3                                                                                                          76

 Appendix 4                                                                                                 76

 Appendix 5                                                                                                       77

 Appendix 6                                                                                                 77

 Appendix 7                                                                                                          78

 Appendix 8                                                                                                    78

 Appendix 9                                                                                                          78

 Appendix 10                                                                                        79

 Appendix 11                                                                                      79


Table 4.1 Summary of Aggregate Values of Variables                                       55

Table 4.2.1 Pooled Panel Data Regression Analysis for Hypothesis One      56

Table 4.2.2 Pooled Panel Data Regression Analysis for Hypothesis Two       57

Table 4.2.3 Pooled Panel Data Regression Analysis for Hypothesis Three  58


Figure Corporate Governance Mechanisms for Outsiders                 16

Figure Corporate Governance Mechanisms for Outsiders                  16



  1. Background to the Study       

Corporate governance is all abouttransparent, effective and accountable control of affairs of an organisation by its Board and Management. With the increasing globalisation, the issues of corporate governance have continued to attract significant national and international interest. Corporate governance is about a decision-making process that holds individualsaccountable for work performed, encourages stakeholder’s participation and facilitates the flow of information (Ogbechie, 2011).The governance of firms’ especially thatof financial institutions, should always aim at protecting the interests of all stakeholders such as shareholders, depositors, regulators, creditors, and the public in general.

The corporate governance of banks is important for several reasons. Firstly, banks have an overwhelmingly dominant position in the financial systems of developing economies and are extremely important engines of economic growth (Ogbechie, 2011).Secondly, banks in developing economies are vital or main sources of finance for majority of firms. Thirdly, banks are also the main depository for the economy’s savings and provide the means for payment.

In view of the above, there have been series of corporate distress and failures of which include organisations likeEnron, the Houston(Texas based energy giant)Health South, Tyco, Parmalat, Vivendi, Ahold, Adecco, Tv Azteca, Royal Dutch Shell, China Aviation, Cendant and WorldCom. Italian companies like Hollinger Inc., Adelphia Communications Company, Global crossing limited and Tyco International Limited, revealed significant and deep rooted problems in their corporate governanceframework in the past. Even Dirk Grasso, the director of the prestigious New York Stock exchange was removed as a result of public outcry over excessive compensation (La Porta, Lopez &Shileifer, 1999). In 2008, the former Board and External Auditors of Cadbury Nigeria Plc. were sanctioned due to misleading financial reporting in the company’s 2006 audited accounts. This organisations surprised the business world with their unlawful and unethical operations.

Corporate governance is also important in the Nigerian banking Industry because a number of recent financial failures, fraud and doubtful business practices had adversely affected the public confidence in the affairs of the sector most especially in the issue of the quality of the financial reports published by the management of the banks. The Nigeria banking sector has also witnessed distress and failure of which include banks like the Alpha Merchant Bank Ltd, Savannah Bank Plc., Oceanic bank Plc. and the Societe General Bank Ltd. (Akpan, 2007). In recent times, mismanagement was seen as the reason in the near collapse of banks like Oceanic bank Plc., Union bank Plc., Intercontinental bank Plc., which led to their being bailed out by the Central bank of Nigeria in 2009 as well as some banks like Enterprise Bank limited (acquired by Skye Bank PLC) and Mainstreet Bank limited (acquired by Heritage Bank limited) being restructured by the Asset Management Corporation of Nigeria (AMCON) as a result of the Central Bank of Nigeria audit in 2009 which showed their poor financial standing in 2009. In 1995, several Chief Executive Officers and Directors of banks in Nigeria were arrested for non-performing loans that were given to themselves, relations and friends (Uwuigbe, 2011). In 2006, some of the banks that could not meet the Central Bank of Nigeria (CBN) recapitalization requirements were found to be saddled with non-performing loans that were given to Directors and their friends.

In 2003, the Nigerian Securities and Exchange Commission (SEC) adopted a code of best practices on corporate governance for publicly quoted companies in Nigeria and this code was replaced in 2011 by the Securities and Exchange Commission known as the Code of Corporate Governance (2011 SEC Code).

At the end of the consolidation exercise in the banking industry, the CBN, in March 2006, released the code of corporate governance for banks in Nigeria, to complement and enhance the effectiveness of the SEC code, which was implemented at the end of 2006. This code was also reviewed to the CBN Code of Corporate Governance for Banks and Discount Houses in Nigeria (the CBN code), 1 October, 2014.The CBN code requires among others that there should be annual Board and Directors’ appraisal covering all aspects of the Board’s structure and composition, responsibilities, processes and relationship, as well as individual members competence and respective roles in the Board’s performance. It could be said that the three major governance issues that attracted the attention of the regulators are related party transactions, conflict of interest and creative accounting (Ogbechie, 2011).

In view of the above, this study considers the effect of corporate governance on public confidence in financial reporting of Nigerian banks.