“Corporate governance quality, corporate life cycle and investor confidence in commercial banks: Evidence from Nigeria”

A dominant strand of literature advances a positive association between corporate governance quality and investor confidence. However, the corporate life cycle may influence the relationship. Therefore, this study investigated the moderating role of the corporate life cycle in the association between corporate governance quality and investor confidence in the Nigerian banking industry. Corporate governance quality was proxied using a composite measure of board characteristics comprising board size, board meeting, independence, and board gender diversity, while investor confidence was proxied using the price-earnings ratio. Secondary data were obtained from the au-dited annual financial statements of 12 banks from 2006 to 2021. The study adopted a pooled regression model based on the results of Hausman, and the Breusch and Pagan Lagrangian multiplier test. The results showed that corporate governance quality positively and significantly impacted investor confidence at the introduction (coef = .318, p = 0.017) and decline (coef = 383, p = 0.011) phases of the life cycle. Banks at the introduction and decline phases of the life cycle were characterized by a narrow resource base, low profitability, and higher risky investments sufficient to attract investor confidence. The study concludes that corporate governance quality enhanced investor confidence at the introduction and decline phases of the banks’ life cycle.


INTRODUCTION
The banking industry worldwide has attracted much criticism and has been a subject of academic and professional discourse because of the many financial scandals that have bedeviled the industry and wiped off shareholders' funds. One of the profound consequences of these scandals is the erosion of investor confidence in the industry. Consequently, economies worldwide have implemented corporate governance codes to restore investor confidence, amongst other reforms. The importance of investor confidence cannot be over-emphasized; the investment of funds is a function of the level of confidence in the sector. Therefore, the extent to which corporate governance quality has impacted investor confidence continues to dominate discourse because of its relevance to the development of the financial sector and the economy.
Previous studies on the effect of corporate governance quality on investor confidence (e.g., Alnaser et al., 2014;Li et al., 2016) failed to examine the moderating effect of corporate life cycle on the association

LITERATURE REVIEW
The theoretical and empirical literature on the association between corporate governance quality and investor confidence is limited. From the theoretical perspective, the agency theory is a dominant theory that underlies the association between corporate governance quality and investor confidence. The theory posits that corporate governance aligns the managers' interest with that of the shareholders, such that the managers engage in positive net present value (NPV) projects that will positively impact the firms' value (Jensen & Meckling, 1976;Shleifer & Vishny, 1997). This decision will improve a firm's value and attract investor confidence (Klapper & Love, 2004). Other theories applied to the governance-confidence relationship include agency theory, signaling theory, legitimacy theory, institutional theory, resource-based view, and stakeholder theory (Akbar et  From the empirical literature perspective, the consensus finding is a positive association between corporate governance and investor confidence (Claessens et al., 2002;Shleifer & Vishny, 1997), which indicates that investor confidence is improved because high corporate governance curbs self-serving managers from engaging in managerial opportunism. Durnev and Kim (2005) examined the corporate governance quality of firms in 27 countries. Corporate governance quality was proxied using the Credit Lyonnais Securities Asia (CLSA) and Standard and Poor's (S & P) indices based on disclosure, board structure, ownership structure, and accountability. The study applied cross-sectional country random-effect regression to analyze the data. The study found that firms with higher corporate governance quality attract investor confidence in weak legal regimes.
Huang and Tompkins (2010) examined the role of corporate governance on investor confidence via reactions to seasoned equity offerings. The study was conducted in publicly traded US firms from 2002 to 2004. A cross-sectional regression model was used to analyze the data. The results showed that investors react positively to firms with effective corporate governance structures. Alnaser et al. (2014) examined the effect of an effective corporate governance structure on investor confidence. A survey instrument was administered to 50 Amman Stock Exchange Market traders in Jordan in 2013. The reliability of the research instrument was carried out using Cronbach's alpha. The findings indicated a positive association between corporate governance and investor confidence. Cheng et al. (2015) examined the effect of corporate governance on investor interest during the global financial crisis in 976 companies listed on the Hong Kong Stock Exchange between 2008 and 2009. The corporate governance variable was proxied using chairman characteristics, board structure, board independence, and ownership structure, while investor confidence was proxied using share performance. The results show that a good corporate governance structure can constrain huge executive compensation, and excessive risk-taking, which are necessary for enhancing investor confidence. Li et al. (2016) investigated the effect of corporate governance on investor confidence in A-share companies listed on the Shanghai Stock Exchange of China between 2011 and 2013. Investor confidence was proxied using a substitution index of the Price-Book (P.B.) ratio, while corporate governance was also proxied using an index. The fixed effect regression model was used to analyze the data. The findings indicated a positive association between corporate governance and investor confidence.
Shahid and Abbas (2019) investigated corporate governance's impact on investor confidence of 230 non-financial firms in Pakistan and Bombay Stock Exchanges from 2008 to 2017. Investor confidence was measured using the investor sentiment index (ISI), while corporate governance was measured using board size, board independence, and an internal audit committee. The findings indicated that corporate governance enhanced investor confidence. Hammond et al. (2022) examined the relationship among corporate reporting, corporate governance, going concern, and investor confidence. Data comprising 350 firm-year observations were extracted from listed banks in Ghana, Nigeria, and South Africa between 2011 and 2020. Corporate governance practice was proxied using board size, board independence, and board gender diversity, while investor confidence was proxied using deposits, total equities, and total share capital. The Partial Least Square-Structural Equation Modelling (PLS-SEM) was used to analyze the data. The results showed that corporate governance positively impacted investor confidence as investors regard firms with good corporate governance practices.
Empirical studies depicting a negative association between corporate governance quality and investor confidence are not common, though possible. Shank et al. (2013) assessed investors' benefits from good corporate governance. They argued that an attempt to improve corporate governance structure has positive and negative implications. While investors benefit from good corporate governance, the cost of improving governance mechanisms will result in additional agency (monitoring and bonding) costs.
A review of these studies shows three critical gaps. First, most empirical studies have been conducted in developed economies with effective corporate governance structures and consequences for violations of governance codes (Nguyen et al., 2022). However, the corporate governance structure and the regulatory framework in developing economies are not well-developed, and the results in developed economies cannot be generalized to developing economies (Amin et al., 2021). Second, studies have been restricted to individual elements rather than a composite measure of corporate governance (Al-Gamrh et al., 2020). The quality of corporate governance, measured on a composite level, is more relevant than individual elements. The board of directors, being the apex authority, is now regarded as an ideal proxy for corporate governance quality on the bases of many theories, such as agency, resource dependence, dynamic capability, and dynamic managerial capability theories ( Third, most empirical studies have been underpinned by the 'static' theories (e.g., agency theory, legitimacy theory), which are considered outdated to accommodate the complexity of the business environment. Thus, given the dynamism in the marketplace, companies can no longer be static but adapt to changing contingency factors, such as the life cycle, that may impact performance. Therefore, companies need to enact a dynamic and adaptive corporate governance structure that reflects alignment with the varying stages of the firm life cycle ( Therefore, three theories adopted in this study to complement existing theories are the corporate governance life cycle theory, dynamic resource-based theory, and contingency theory. According to Esqueda and O'Connor (2020, p. 1), the corporate governance life cycle theory postulates that "the role of corporate governance serves different purposes along the life cycle, suggesting an optimal level of corporate governance at each life cycle stage." The dynamic resource-based theory posits that a firm's resource base develops and transits over the life cycle phases (Helfat & Peteraf, 2003). The contingency theory postulates that there is no best governance structure, but the structure's design should consider critical contextual factors for which the structure is designed (Donaldson, 2001). Thus, within the context of this study, the governance structure should be designed to align with the realities of the life cycle phases. Furthermore, the contingency theory argues that the corporate governance structure, primarily the board, performs monitoring and strategic roles (Aguilera et al., 2008). However, a firm has to switch between corporate governance's monitoring and strategic roles to align with environmental dynamism's realities.
This study differs from prior literature by adopting a composite measure of corporate governance quality based on the board characteristics and analyzing the effect of corporate governance quality on investor confidence at different stages of the banks' life cycle. Thus, this study examines the moderating role of the corporate life cycle on the association between corporate governance quality and investor confidence. The study's hypothesis in the null form is as follows: The effect of corporate governance quality on investor confidence is moderated by all the phases in the corporate life cycle.

METHODS
The study adopts a longitudinal research design comprising data at both time and cross-sectional levels.
where CONF represents investor confidence, CGQ is an index that represents corporate governance

Dependent variable
Investor confidence (CONF) This is proxied by the price-earnings (P.E.) ratio, which is the ratio for evaluating the over-and-under valuation of firms. An increasing P.E. ratio suggests increasing investor confidence

Independent variables
Corporate governance quality (CGQ) is measured as a composite index comprising four elements of the board of directors as follows: where BSIZ represents board size, measured as the total number of the members of the board; BMET represents board meeting, measured as the number of board meetings per year; BIND represents board independence, measured as the total number of independent directors to the total number of directors; and BDIV represents board gender diversity, measured as the percentage of women on the board Firm/Corporate life cycle (CYC) is measured based on a 5-phase cash-flow pattern as follows: (v) Shake-out (CYC_Shake): if CFO < or > 0, CFI < or > 0, and CFF < or > 0 (coded as 5), where CFO represents cash flow from operating activities; CFI represents cash flows from investing activities; and CFF represents cash flows from financing activities. Shake-out phase is the reference point for assessing other life cycle phases

Control variables
Firm size (SIZ) This is measured as the logarithm of the client's total assets Leverage (LEV) This is measured as the total liabilities divided by the total assets

Client importance (CIMP)
This is measured as the Central Bank of Nigeria's classification of banks into banks with international operations (measured as one) and banks with regional operations (measured as zero)

International Financial Reporting Standards (IFRS)
This is measured as the year of adoption of International Financial Reporting Quality as one, and zero otherwise quality, and CYC represents the firm life cycle. CGQ • CYC represents the interaction between corporate governance quality and firm life cycle, SIZ represents the bank's size, and LEV represents the bank's leverage. CIMP represents client importance, IFRS represents the adoption of International Financial Reporting Standards, and e it represents the stochastic error term.
The model is subjected to the Hausman specification test (Hausman, 1978) to determine the suitability of either the fixed or random effect regression model. The results of the Hausman test (chi2 = 12.60, p = 0.2469) favor the random effect regression model. Furthermore, the Breusch and Pagan Lagrangian multiplier test (Breusch & Pagan, 1980) for random effects is conducted, and the results favor the pooled regression model. Table 1 shows the definitions of the variables of the study.

RESULTS
This section focuses on descriptive statistics, correlation, diagnostic tests, and regression results. The study conducts initial tests (univariate and bivariate) to gain insights into the nature of the data. It also conducts robustness tests to ensure that the data fits the model. Subsequently, the study applies pooled regression to achieve the objective and conducts post-regression analyses. In the initial test analysis, Table 2 shows the descriptive statistics of the variables. The results show the mean and median values of all the variables. On the analysis of the life cycle phases, the results show that the growth stage (CYC_Growth), with a value of 75.9%, is the most prominent phase of the life cycle, while the shake-out stage (CYC_Shakeout), with a value of 42.1% is the least prominent. Table  3 also shows the correlation among the variables.
The results show an absence of multicollinearity, as no correlation exceeds a benchmark of 0.7. , "any apparent multicollinearity created by the interaction does not cause problems for moderation tests, provided such tests include the focal variable and the moderator along the interacting variables as a predictor in the regression." Finally, a power analysis is also conducted to confirm if a sample size of 192 has sufficient power to detect an interaction (Aguinis et al., 2017); the results show that a sample of 60 is needed to achieve a statistical power of 0.90 and above. The low sample size aligns with the arguments of prior studies (e.g., McClelland & Judd, 1993) that the power for testing an interaction effect is generally low. However, the sample size adopted in this study is above Shieh's (2009) recommendation that a sample size between 137 and 154 is required to detect a significant effect with a statistical power of 90%.   The results in Panels B (using the random slope regression) and C (using the generalized estimation technique) are substantially the same as those of the main regression results.
Concerning the control variables, evidence shows that larger banks have poor corporate governance quality, given the negative and statistically significant coefficient of bank size (SIZ; coef = -0.163, p = 0.046). The results also show that adopting IFRS negatively impacted investor confidence (coef = -0.499, p = 0.000). On the other hand, the coefficient of client importance (CIMP) is positive and significantly related to investor confidence (coef = 0.463, p = 0.006), presumably on the ground that banks with international operations are subjected to pressure from local and international investors to adopt corporate governance best practices. Table 6 presents the results of pairwise comparisons of the average marginal effect. The results show that the confidence interval for the difference between the mean of the decline phase and that of the shake-out, growth, and maturity phases do not contain zero, which indicates that these means are significantly different from zero. In addition, the confidence intervals for the difference between the mean of the introduction phase and that of the shake-out, growth, and maturity phases do not contain zero, indicating that these means significantly differ from zero. The results show that the average marginal effect of corporate governance quality is 0.066 higher for banks in the decline phase than the introduction phase; Table 3. Correlation matrix  0.226 higher than the maturity phase; 0.277 higher than the growth phase; and 0.383 higher than the shake-out phase of the life cycle. The average marginal effect of corporate governance quality is 0.160 higher for banks at the introduction phase than the maturity phase, 0.211 higher than the growth phase, and 0.318 higher than the shakeout phase of the life cycle. Note: The dependent variable is investor confidence (CONF), measured as the price-earnings ratio. CGQ represents corporate governance quality, while CYC represents the corporate life cycle. In the regression results, the indicator for the shake-out stage is the reference point used to assess the other life cycle stages. It is therefore omitted. The t-statistics are shown in parentheses, while the signs ***, **, and * reflect the significance level at 1, 5, and 10%, respectively.

DISCUSSION
The results of the main empirical analysis show that corporate governance quality had a positive and significant effect on investor confidence at the introduction phase of the life cycle. This result corroborates the findings of Habib and Hassan (2017), and Miller and Friesen (1984), which posit that firms at the introduction phase are characterized by a fluid resource base that enables them to invest heavily in massive projects, irrespective of the attendant risks. The massive investments in risky projects to gain market share aligns with the interests of investors, who are wealth creators and experts in risk diversification (Faccio et al., 2011 The results also suggest that the moderating effect of the corporate life cycle is a buffering (compensatory) interaction because the negative impact of corporate governance quality on investor confidence is weakened by the introduction and decline phases of the life cycle (Cohen et al., 2014;Richardson et al., 2015). The results of the positive effect of corporate governance quality on investor confidence at the introduction and decline phases of the life cycle may be attributed to management's massive investment in projects irrespective of the level of risks, to achieve market share, expand the resource base, build up capacity, and attain high profitability. This decision by management aligns with the interest of the investors, who are wealth creators and experts in risk diversification (Faccio et al. 2011).
The results reject the hypothesis that the effect of corporate governance quality on investor confidence is moderated by all the phases in the corporate life cycle. These results also lend credence to the multi-theoretical underpinnings of the study. The results support the contingency, dynamic resource-based view, and the corporate life cycle theories, which argue that firms' performance is a product governance structure, resources, and environmental factors along the life cycle stages.

CONCLUSION
This study investigates the moderating role of the corporate life cycle in the association between corporate governance quality and investor confidence in the Nigerian banking sector. The results reveal that at the 5 percent level of significance, corporate governance quality positively and significantly enhanced investor confidence at the introduction and decline phases of the life cycle, and not at the maturity and growth phases. The moderating effect of the corporate life cycle compensated for the negative effect of corporate governance quality on investor confidence. Thus, the corporate life cycle acts as a variable that moderates the effect of corporate governance quality on investor confidence. The findings of this study suggest that the life cycle phases influence the effect of corporate governance quality on investor confidence in line with the contingency, dynamic resource-based, and corporate governance life cycle theories. The practical implication of the findings is related to bank governance; bank management should have a dynamic and flexible structure that will harness the capabilities and resources of the bank along its life cycle to create value and attract investor confidence.