Corporate governance quality, corporate life cycle and investor confidence in commercial banks: Evidence from Nigeria
-
Author(s)Tajudeen John AyoolaLink to ORCID Index: https://orcid.org/0000-0001-8133-7294
,
Omoneye Olufunke OlasanmiLink to ORCID Index: https://orcid.org/0000-0003-1719-0560
,
Eghosa Godwin InnehLink to ORCID Index: https://orcid.org/0000-0003-4636-9869
,
Adebukola Olubunmi AyoolaLink to ORCID Index: https://orcid.org/0000-0002-6006-2495
,
Christian EhiobucheLink to ORCID Index: https://orcid.org/0000-0002-5026-7534
-
DOIhttp://dx.doi.org/10.21511/bbs.18(3).2023.12
-
Article InfoVolume 18 2023, Issue #3, pp. 136-146
- Cited by
- 255 Views
-
128 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
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 audited 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.
- Keywords
-
JEL Classification (Paper profile tab)C23, G21, G34
-
References55
-
Tables6
-
Figures0
-
- Table 1. Definitions of variables of the study
- Table 2. Descriptive statistics
- Table 3. Correlation matrix
- Table 4. Diagnostic tests
- Table 5. Regression results of the interaction effect of the corporate life cycle and corporate governance quality on investor confidence
- Table 6. Pairwise comparisons of average marginal effects
-
- Agarwal, R., & Helfat, C. E. (2009). Strategic renewal of organizations. Organization Science, 20(2), 281-293.
- Aguilera, R. V., Filatotchev, I., Gospel, H., & Jackson, G. (2008). An organizational approach to comparative corporate governance: Costs, contingencies, and complementarities. Organization Science, 19(3), 475-492.
- Aguinis, H., Edwards, J. R., & Bradley, K. J. (2017). Improving our understanding of moderation and mediation in strategic management research. Organizational Research Methods, 20(4), 665-685.
- Ahrens, A., Hansen, C. B., & Schaffer, M. E. (2020). lassopack: Model selection and prediction with regularized regression in Stata. The Stata Journal, 20(1), 176-235.
- Akbar, S., Poletti-Hughes, J., El-Faitouri, R., & Shah, S. Z. A. (2016). More on the relationship between corporate governance and firm performance in the U.K.: Evidence from the application of generalized method of moments estimation. Research in International Business and Finance, 38, 417-429.
- Al-Gamrh, B., Ku Ismail, K. N. I., Ahsan, T., & Alquhaif, A. (2020). Investment opportunities, corporate governance quality, and firm performance in the UAE. Journal of Accounting in Emerging Economies, 10(2), 261-276.
- Ali, S., Liu, B., & Su, J. J. (2018). Does corporate governance quality affect default risk? The role of growth opportunities and stock liquidity. International Review of Economics and Finance, 58, 422-448.
- Alnaser, N., Shaban, O. S., & Al-Zubi, Z. (2014). The effect of effective corporate governance structure in improving investors’ confidence in the public financial information. International Journal of Academic Research in Business and Social Sciences, 4(1), 556-569.
- Amin, H. M., Mohamed, E. K. A., & Hussain, M. M. (2021). Corporate governance practices and firm performance: a configurational analysis across corporate life cycles. International Journal of Accounting and Information Management, 29(5), 669-697.
- Ayoola, T. J., Inneh, E. G., Obokoh, L. O., Kolawole, P. E., & Adeoye, E. T. (2022). Competition and efficiency in an oligopolistic audit market: Evidence from the Nigerian banking industry. Banks and Bank Systems, 17(4), 129-139.
- Bakarich, K. M., Hossain, M., & Weintrop, J. (2019). Different time, different tone: Company life cycle. Journal of Contemporary Accounting and Economics, 15(1), 69-86.
- Berle, A. A., & Means, G. C. (2017). The Modern Corporation and Private Property. In Modern Economic Classics-Evaluations Through Time (pp. 203-240). Taylor and Francis.
- Brambor, T., Clark, W. R., & Golder, M. (2006). Understanding interaction models: Improving empirical analyses. Political Analysis, 14(1), 63-82.
- Breusch, T. S., & Pagan, A. R. (1980). The Lagrange multiplier test and its applications to model specification in econometrics. The Review of Economic Studies, 47(1), 239.
- Brogi, M., & Lagasio, V. (2022). Better safe than sorry. Bank corporate governance, risk-taking, and performance. Finance Research Letters, 44.
- Busenbark, J. R., Graffin, S. D., Campbell, R. J., & Lee, E. Y. (2022). A marginal effects approach to interpreting main effects and moderation. Organizational Research Methods, 25(1), 147-169.
- Cheng, S., Lui, G., & Shum, C. (2015). Did corporate governance safeguard investor interest in the global financial crisis? Evidence from Hong Kong SAR. Asia Pacific Business Review, 21(4), 534-550.
- Claessens, S., Djankov, S., Fan, J. P. H., & Lang, L. H. P. (2002). Disentangling the incentive and entrenchment effects of large shareholdings. Journal of Finance, 57(6), 2741-2771.
- Cohen, P., Cohen, P., West, S. G., & Aiken, L. S. (2014). Applied Multiple Regression/Correlation Analysis for the Behavioral Sciences. Psychology Press.
- Crisóstomo, V. L., Brandão, I. de F., & López-Iturriaga, F. J. (2020). Large shareholders’ power and the quality of corporate governance: An analysis of Brazilian firms. Research in International Business and Finance, 51.
- Dickinson, V. (2011). Cash flow patterns as a proxy for firm life cycle. The Accounting Review, 86(6), 1969-1994.
- Donaldson, L. (2001). The contingency theory of organizations. Sage.
- Durnev, A., & Kim, E. H. (2005). To steal or not to steal: Firm attributes, legal environment, and valuation. Journal of Finance, 60(3), 1461-1493.
- Esqueda, O. A., & O’Connor, T. (2020). Corporate governance and life cycles in emerging markets. Research in International Business and Finance, 51.
- Faccio, M., Marchica, M. T., & Mura, R. (2011). Large shareholder diversification and corporate risk-taking. Review of Financial Studies, 24(11), 3601-3641.
- Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. The Journal of Law and Economics, 26(2), 301-325.
- Filatotchev, I., Toms, S., & Wright, M. (2006). The firm’s strategic dynamics and corporate governance life-cycle. International Journal of Managerial Finance, 2(4), 256-279.
- Gardner, R. G., Harris, T. B., Li, N., Kirkman, B. L., & Mathieu, J. E. (2017). Understanding “It depends” in organizational research: A theory-based taxonomy, review, and future research agenda concerning interactive and quadratic relationships. Organisational Research Methods, 20(4), 610-638.
- Habib, A., & Hasan, M. M. (2017). Firm life cycle, corporate risk-taking, and investor sentiment. Accounting and Finance, 57(2), 465-497.
- Habib, A., & Hasan, M. M. (2019). Corporate life cycle research in accounting, finance, and corporate governance: A survey, and directions for future research. International Review of Financial Analysis. Elsevier Inc.
- Hammond, P., Opoku, M. O., & Kwakwa, P. A. (2022). Relationship among corporate reporting, corporate governance, going concern, and investor confidence: Evidence from listed banks in sub-Saharan Africa. Cogent Business and Management, 9(1).
- Hausman, J. A. (1978). Specification tests in econometrics. Econometrica, 46(6), 1251-1271.
- Healy, P. M., & Palepu, K. G. (2001). Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature. Journal of Accounting and Economics, 31(1-3), 405-440.
- Helfat, C. E., & Peteraf, M. A. (2003). The dynamic resource-based view: Capability life-cycles. Strategic Management Journal, 24(10), 997-1010.
- Hillman, A. J., & Dalziel, T. (2003). Boards of directors and firm performance: Integrating agency and resource dependence perspectives. Academy of Management Review, 28(3), 383-396.
- Huang, R., & Tompkins, J. G. (2010). Corporate governance and investor reactions to seasoned equity offerings. Managerial Finance, 36(7), 603-628.
- Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3(4), 305-360.
- Klapper, L. F., & Love, I. (2004). Corporate governance, investor protection and performance in emerging markets. Journal of Corporate Finance, 10(5), 703-728.
- Kumar, P., & Zattoni, A. (2014). Corporate governance, information, and investor confidence. Corporate Governance: An International Review, 22(6), 437-439.
- La Porta, R., Lopez-De-Silanes, F., Shleifer, A., & Vishny, R. (2000). Investor protection and corporate governance. Journal of Financial Economics, 58(1-2), 3-27.
- Li, X. L., Lai, J. J., & Tang, J. (2016). Study of the influence of corporate governance level on investors’ confidence. Canadian Social Science, 12(5), 8-16.
- McClelland, G. H., & Judd, C. M. (1993). Statistical difficulties of detecting interactions and moderator effects. Psychological Bulletin, 114(2), 376.
- Miller, D., & Friesen, P. H. (1984). A longitudinal study of the corporate life cycle. Management Science, 30(10), 1161-1183.
- Nguyen, A., Nguyen, T., & Hoang, P. (2022). The impact of corporate governance quality on capital structure choices: does national governance quality matter? Cogent Economics & Finance, 10(1), 2073003.
- O’Connor, T., & Byrne, J. (2015). Governance and the corporate life-cycle. International Journal of Managerial Finance, 11(1), 23-43.
- Richardson, G., Lanis, R., & Taylor, G. (2015). Financial distress, outside directors and corporate tax aggressiveness spanning the global financial crisis: An empirical analysis. Journal of Banking & Finance, 52, 112-129.
- Richardson, S. (2006). Over-investment of free cash flow. Review of Accounting Studies, 11, 159-189.
- Schweizer, D., Walker, T., & Zhang, A. (2019). Cross-border acquisitions by Chinese enterprises: The benefits and disadvantages of political connections. Journal of Corporate Finance, 57, 63-85.
- Shahid, M. S., & Abbas, M. (2019). Does corporate governance play any role in investor confidence, corporate investment decisions relationship? Evidence from Pakistan and India. Journal of Economics and Business, 105.
- Shank, T., Hill, R. P., & Stang, J. (2013). Do investors benefit from good corporate governance? Corporate Governance (Bingley), 13(4), 384-396.
- Shieh, G. (2009). Detecting interaction effects in moderated multiple regression with continuous variables power and sample size considerations. Organizational Research Methods, 12(3), 510-528.
- Shleifer, A., & Vishny, R. W. (1997). A survey of corporate governance. Journal of Finance, 52(2), 737-783.
- Teece, D. J. (2007). Explicating dynamic capabilities: the nature and micro-foundations of (sustainable) enterprise performance. Strategic Management Journal, 28(13), 1319-1350.
- Teece, D. J. (2016). Dynamic capabilities and entrepreneurial management in large organizations: Toward a theory of the (entrepreneurial) firm. European Economic Review, 86, 202-216.
- Zaidirina, N. A., & Lindrianasari, N. A. (2015). Corporate governance perception index, performance, and value of the firm in Indonesia. International Journal of Monetary Economics and Finance, 8(4), 385-397.
-
Does board composition have an impact on CSR reporting?
Patrick Velte
doi: http://dx.doi.org/10.21511/ppm.15(2).2017.02
Problems and Perspectives in Management Volume 15, 2017 Issue #2 pp. 19-35 Views: 4187 Downloads: 1614 TO CITE АНОТАЦІЯCorporate social responsibility (CSR) reporting plays a key role in management control, particularly in light of the increased demand for non-financial reporting after the financial crisis of 2008–2009. This literature review evaluates 47 empirical studies that concentrate on the influence of several board composition variables on the quantity and quality of CSR reporting. The author briefly introduces the research framework that underpins current empirical studies in this field. This is followed by a discussion of the main variables of board composition: (1) committees (audit and CSR committees), (2) board independence, (3) board expertise, (4) CEO duality, (5) board diversity (gender and foreign diversity), (6) board activity, and (7) board size. The author, then, summarizes the key findings, discusses the limitations of the existing research and offers useful recommendations for researchers, firm practice and regulators.
-
Evaluating the nationalization & privatization effect: a case of Indian banking industry
Manju Rajan Babu ,
Ashok Kumar M.
doi: http://dx.doi.org/10.21511/bbs.13(1).2018.02
Banks and Bank Systems Volume 13, 2018 Issue #1 pp. 11-21 Views: 2671 Downloads: 355 TO CITE АНОТАЦІЯThe facilitation of economic transactions and friendly investor environment is undertaken through effective performance of financial systems. Mobilization of savings and funding the profitable business opportunities are essential in improving the efficiency of intermediation. The study aims to evaluate the effects of nationalization and privatization on Indian banks. Various factors have been considered to examine the effects of privatization and nationalization, including sources of public sector inefficiency, measures of firm performance, econometric issues, and the mode of privatization. The data was collected for the period of 1998 to 2016 from Indian banks. Data Envelopment Analysis (DEA) was used to evaluate the financial reports of the banks selected to evaluate the efficiency of input and output variables. Positive results were observed, concerning the efficiency and profitability of banking industry after banks’ privatization. Performance of private banks has been observed effective and efficient as compared to the public sector banks. Privatization of banks must be increased and maintained to sustain the efficiency of the banks and implement strategies to maintain the assets. Future studies may recruit more appropriate sample size to evaluate the privatization and nationalization effects of Indian banking industry. Greater number of banks will provide more precise results, using data envelopment analysis.
-
ERP implementation in banks: success factors & impact on financial performance
Banks and Bank Systems Volume 12, 2017 Issue #4 pp. 17-30 Views: 2448 Downloads: 1062 TO CITE АНОТАЦІЯThe study aims to measure the extent of implementing ERP systems in the banking sector in Jordan, and identify the main factors that influence the implementation decision, in addition to measure the impact of the post-implementation of the ERP system on the financial performance. The study utilized a content analysis as a research instrument. The study of population consisted of all the banks in Jordan, where the study applied ‘Purposive Sample’ type. Therefore, the study included 11 banks from 2011 to 2016.
The study indicated that the implementation year of the ERP system started in most of the Jordanian banks in 2013, and the rates vary from bank to bank according to their importance and the level of awareness. Training courses are considered the main variable that these banks face in the process of implementation. In addition, awareness of the advantages, the cost, and supporting the infrastructure are the core factors needed to influence the implementation decision.
There is no impact when implementing an ERP system on the financial performance of the Jordanian banks in regard to the ROI and the DPS; on the other hand, there is an impact of the ERP system on the overall performance of the banks.
The study recommends to disseminate knowledge on the advantages of implementing of ERP system in Jordanian banks and to develop the IT department efficiency. Moreover, it will be worthwhile to examine the effect of ERP systems by utilizing financial and non-financial measurements.
