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NOVEMBER 2019

THE EFFECTS OF CONSOLIDATION AND CORPORATE GOVERNANCE ON FINANCIAL PERFORMANCE OF DEPOSIT MONEY BANKS IN NIGERIA

IBRAHIM AHMED OTHMAN UJ/2012/PGMS/0805. Final Presentation at the Departmental Level Supervisors: Prof Jane. O. M. Ande Dr. Emmanuel U. Oki

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CHAPTER ONE – INTRODUCTION CHAPTER TWO – LITERATURE REVIEW CHAPTER THREE – METHODOLOGY CHAPTER FOUR – RESULTS CHAPTER FIVE - SUMMARY, RECOMMENDATIONS AND CONCLUSION

THIS PRESENTATION IS DIVIDED INTO FIVE CHAPTERS

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CHAPTER ONE INTRODUCTION

BACKGROUND TO THE STUDY

The main themes of the the Backgpround to the Study

The Import of the Banking Industries in Nigeria

The Issues Encountered by the Banks over time

Various Measures made by CBN to Rescue the DMBs

Where the DMBs are today and what next?

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STATEMENT OF THE RESEARCH PROBLEM

The failure of Banks to meet their obligation, reduction in patronage and inability to meet customers’ demand

Empirical Results have yielded varying outcomes on CG and Bank Performance and hence this study

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To what extent does consolidation influence the financial performance of DMBs in Nigeria?

RESEARCH QUESTIONS

RESEARCH QUESTION ONE

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To what extent does consolidation influence CG Structure of DMBs in Nigeria?

RESEARCH QUESTIONS

RESEARCH QUESTION TWO

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To what extent does CG structure influence the financial Performance of DMBs in Nigeria?

RESEARCH QUESTIONS

RESEARCH QUESTION THREE

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Does CG mediate the relationship between consolidation and financial performance of DMBs in Nigeria?

RESEARCH QUESTIONS

RESEARCH QUESTION FOUR

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OBJECTIVES OF THE STUDY

To determine the extent to which consolidation influences financial performance of DMBs in Nigeria. To evaluate the influence of Consolidation on CG structure of DMBs in Nigeria. To ascertain the extent to which CG structure influences financial performance of DMBs in Nigeria. To determine whether CG mediates the relationship between consolidation and financial performance of DMBs.

ONE

TWO

THREE

FOUR

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STATEMENT OF HYPOTHESES

Consolidation has no significant influence on the Financial Performance of Deposit Money Banks in Nigeria. Consolidation does not significantly influence CG structure of Deposit Money Banks in Nigeria. CG structure has no significant influence on the financial performance of Deposit Money Banks in Nigeria. Corporate Governance does not significantly mediate the relationship between Consolidation and financial performance of Deposit Money Banks in Nigeria.

1. Ho:

2. Ho:

3. Ho:

4. Ho:

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SCOPE OF THE STUDY

14 Banks were used as the working Population out of the 19 DMBs that survived the mergers and acquisition exercise since the post-consolidation era from 2005 to 2017.

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Corporate Governance Board Composition Audit Composition Risk Committee

Consolidation Capital Base

Firm Financial Performance Return on Asset (ROA) Return on Equity (ROE) Return on Deposit (ROD)

DESCRIPTION OF THE CONCEPTUAL FRAMEWORK CHARTFLOW

Figure 1. Conceptual Framework Source: Developed from the Conceptual theories (2018)

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CHAPTER TWO LITERATURE REVIEW CONCEPTUAL REVIEW

CORPORATE: GOVERNANCE TYPES BOARD XTICS BOARD STRUCTURE BOARD C/POSITION

CONSOLIDATION: CAPITAL BASE SIZES SHAREHOLDERS REDUCTION IN NO. OF BANKS

BANK PERFORMANCE: RETURN ON ASSETS RETURN ON EQUITY RETURN ON DEPOSIT

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CHAPTER TWO LITERATURE REVIEW THEORETICAL REVIEW

Agency Theory Ethical Theories Stewardship Theory Resource Dependency Theory

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Population and Sample - 14 Banks with all the Data required Methods of Data Collection – Downloading of required info for analysis Methods of Data Analysis- This involves the use of STATA 14 Software Types and Sources of Data - Annual Reports of the Banks Philosophical Assumptions - Development of knowledge and its nature Research Design - A conceptual Structure of the Study

CHAPTER THREE METHODOLOGY

The Chapter Presents and Discusses

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???=?0+?1?/??+?2????+?3??+? … (1) ROE =? 1 + β4 E/TA + β5 SIZE + β6 L/TA + e … (2) ROD =α2 + β7 E/TA + β 8SIZE + β9 L/TA + e … (3)

METHODS OF DATA ANALYSIS

MULTIPLE REGRESSION MODEL

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METHODS OF DATA ANALYSIS Cont ’ d

The use of this STATA 14 electronic tools would ensure greater accuracy and reliability of the research results. The study adopts a model on the causal relationship between consolidation and the mediating variable corporate governance on one hand and financial performance of DMB in Nigeria on another.

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It involves the combination of time series and cross-sectional data and It is a repeated-observations on the same cross section, typically of individual variables observed for several time periods (Wooldridge, 2003 ). When applying panel data in a study like this, it calls for the need to make an informed choice from among three possibilities of: Pooled Regression Model, Fixed Effect Model, and the Random Effects Model. These three are commonly used in empirical studies (Greene, 2003).

Panel Regression Analysis

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Panel Regression Analysis Cont ’ d

This is also known as the Constant Coefficient Model (CCM). It is the simplest among the three models in panel data analysis. The intercept in the regression model is allowed to vary across space (individual company) as a result of the fact that, each cross-sectional unit may have some special characteristics. It is also known as the Error Components Model (ECM) being an alternative to FEM. The individual intercept is expressed as a deviation from the constant mean value.

Pooled Regression Model (PRM)

Fixed Effects Model (FEM)

Random Effect Model (REM)

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Panel Regression Analysis Cont ’ d

Following the various methods of panel data analysis available, there is the need to know which is the most appropriate or suitable. Therefore, some means of selecting the most suitable method among the different approaches especially between the FEM and REM is of essence. In literature, a basic test that has been employed by most empirical studies to choose the most appropriate method is the Hausman Chi-square (Gujarati 2005). Testing for random effects: Breusch-Pagan Lagrange multiplier (LM) or the LM test helps to decide between a random effect’s regression and the Pooled (simple OLS) regression.

Breusch-Pagan Lagrange multiplier (LM)

Hausman Test

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CHAPTER FOUR PRESENTATION OF RESULTS

DATA PRESENTATION In this chapter: Data was presented, analysed and interpreted. Data were collected from financial statements of fourteen (14) deposit money banks in Nigeria from 2005 to 2017, representing the period of post-consolidation and post-corporate governance reforms. Data collected for the dependent and independent variables include:- return on asset (ROA), return on equity (ROE), return on deposit (ROD), Board composition (BC), Audit committee (AC), Risk committee (RC), consolidation (CON) and corporate governance (CG)

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In this Chapter, data analyses were conducted hypothesis-by-hypothesis and there are four hypotheses raised and tested. Hypothesis one has three models Hypothesis two has a single model Hypothesis three has three models while Hypothesis four has six models due to the presence of mediating variable (corporate governance).

PRESENTATION OF RESULTS Cont D DATA ANALYSES

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PRESENTATION OF RESULTS Cont D

This condition exists when the independent variables are correlated with one another and the effect of multicollinearity is that, the estimated regression coefficients of the independent variables that are correlated tend to have large sampling errors. Descriptive Statistics are used to present quantitative descriptions in a manageable form. Descriptive statistics measures variability.

Test of Parametric Assumptions

Descriptive Statistics

Multicollinearity

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TEST OF HYPOTHESES

Hypothesis One and Objective one H 01 : Consolidation has no significant relationship with Financial Performance of Deposit Money Banks in Nigeria. Decision rule is that, If the p-value < 0.05, the null hypothesis will be rejected while the alternate hypothesis is accepted. While if the p-value > 0.05, accept the null hypothesis and reject the alternate. From the results of panel regression from Tables 4-6, the following conclusions are made: The relationship between consolidation and return on asset (ROA) is 0.0107 and the p-value is 0.000. which indicates a positive effect of consolidation (CONSO) on (ROA) of banks for the period of 2005 to 2017. Effect of the relationship between consolidation and return on equity (ROE) is negative with coefficient value of -0.04490 and the p-value of 0.809. The implication is that, consolidation brought about a decrease in return on equity of banks. The relationship between consolidation and return on deposit (ROD) is 0.0455 and the p-value is 0.372. The implication from this result is that consolidation improved on the deposit level of banks but did not show any significant increase in the deposit level.

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TEST OF HYPOTHESES

Hypothesis Two and Objective Two H 02 : Consolidation has no significant influence on the Corporate Governance of Deposit Money Banks in Nigeria. Decision rule If the p value is < 0.05, the null hypothesis is rejected while the alternate hypothesis is accepted. If the p value > 0.05, the null hypothesis is accepted and the alternate hypothesis is rejected. From the result of the p-value for consolidation is 0.010, is less than the level of significance of 0.05. Therefore, the null hypothesis is rejected while the alternate hypothesis is accepted thus, consolidation has a significant influence on the Corporate Governance of Deposit Money Banks in Nigeria.

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TEST OF HYPOTHESES

Hypothesis Three and Objective Three H 03 : Corporate Governance has no significant influence on the financial performance of Deposit Money Banks in Nigeria. Decision rule If the p value is < 0.05, the null hypothesis is rejected while the alternate hypothesis is accepted. If the p > 0.05, the null hypothesis is accepted and the alternate hypothesis is rejected. From the result of Summary of results from Tables 8-10 The relationship between (CG) and (ROA) is 0.0626 and the p-value is 0.002. This indicated that there is a positive effect of corporate governance (CG) on Return on Assets (ROA) of banks under study for the period of 2005 to 2017. Null Hypothesis rejected and Alternate accepted. Effect of the relationship between (CG) and (ROE) is negative with coefficient value of -1.0466 and the p-value of 0.372. The implication is that (CG) brought about a decrease in (ROE) of banks. The relationship between corporate governance (CG) and (ROD) is -0.0614 and the p-value is 0.892. The implication from this result is that corporate governance (CG) did not improve on the deposit level of banks.

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Mediation test In applying the Sobel test, a variable may be considered a mediator to the extent to which it carries the influence of a given independent variable (IV) to a given dependent variable (DV). Mediation can be said to occur when: the IV significantly affects the mediator, the IV significantly affects the DV in the absence of the mediator, the mediator has a significant unique effect on the DV, and the effect of the IV on the DV shrinks upon the addition of the mediator to the model.

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TEST OF HYPOTHESES

Hypothesis Four and Objective Four H 04 : CG does not significantly mediate the relationship between Consolidation and the Financial Performance of DMBs in Nigeria. Decision rule  If the p value is < 0.05, the null hypothesis is rejected while the alternate hypothesis is accepted. The following results were obtained: Sobel z-Test = 1.7726, P-value = 0.07629 Given that the p-value > 0.05, it shows that (CG) is not a good mediator between consolidation and (ROA) Sobel z-Test = -0.6967, P-value = 0.4859 Since the p-value > 0.05, it shows that (CG) is not a good mediator between consolidation and (ROE) Sobel z-Test = -0.6690, P-value = 0.5034 Given that the p-value > 0.05, it shows that (CG) is not a good mediator between consolidation and (ROD) From the results of the Sobel test, the p-values for mediator (CG) are (0.07629, 0.4859 and 0.5034) > 0.05 level of significance. We accept null hypothesis while the alternate hypothesis is rejected therefore, CG does not significantly mediate the relationship between Consolidation the Financial Performance of Deposit Money Banks in Nigeria.

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DISCUSSION OF FINDINGS

Consolidation and Firm Performance The result of testing hypothesis one indicates that Consolidation has no significant relationship with Financial Performance of DMBs in Nigeria.

Consolidation could be achieved by way of M/A, recapitalization and proactive regulation but bank consolidation is more than mere shrinking of the number of banks in any banking industry. The main motivation behind consolidation is to maximize shareholders’ value.

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DISCUSSION OF FINDINGS

Consolidation and Corporate Governance The test of hypothesis two revealed that consolidation has a significant influence on the Corporate Governance of Deposit Money Banks in Nigeria. Poor corporate governance has been the root cause of most corporate failures worldwide. Recent examples of massive corporate collapse resulting from weak systems of corporate governance have highlighted the need to improve and reform corporate governance at both the domestic and international levels.

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DISCUSSION OF FINDINGS

Corporate Governance and Firm Performance The test of hypothesis three shows that corporate governance has no significant influence on the financial performance of Deposit Money Banks in Nigeria. There is also lack of a well developed and implemented policy of CG in most organizations. The CBN in trying to address this issue in the process had to overhaul the corporate governance for banks in 2006.

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DISCUSSION OF FINDINGS

Mediating Role of Corporate Governance The test of hypothesis four established that Corporate Governance does not significantly mediate the relationship between consolidation and the Financial Performance of Deposit Money Banks in Nigeria. In investigating board characteristics and financial performance of deposit money banks in Nigeria, the mediating effects linking board characteristics to bank performance comprises mostly five variables namely: Executive Directors, Non-Executive Directors, Board Diversity (Women Directors), Foreign Directors and Grey Directors. However, the link between board characteristics and financial performance is usually affected by some other important variables such as: return on equity (ROE) and return on asset (ROA).

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