Do board characteristics and risk management disclosure have any effect on firm performance? Empirical evidence from Deposit Money Banks (DMBs) in Nigeria

• Authors: Kakanda Mohammed Mahmud , Salim Basariah , Chandren Sitraselvi
• Languages of publication: EN

Abstracts

EN

This study examines the relationship between board characteristics, risk management disclosure and performance of Deposit Money Banks (DMBs) in Nigeria. Data were obtained from the annual accounts and reports of the 15 DMBs listed on the Nigerian Stock Exchange (NSE) covering 2012 to 2016. For the purpose of testing the relationship between the dependent variable (return on asset [ROA]) and the explanatory variables in this study, Random Effect (RE) regression model was employed. The study finds that board size, board composition, and risk management disclosure have a significant positive effect on ROA, whereas, board meeting has a significant negative influence on ROA. Moreover, the study documents that board expertise has a negative, but an insignificant association with ROA. The finding of this study is essential to both corporate authorities and other corporate stakeholders in Nigeria. The study concludes by providing an agenda for future research in a similar domain.

Keywords

EN

Board characteristics; risk management disclosure; firm performance; Deposit Money Banks; Nigerian Code of Corporate Governance

Discipline

• ECONOMICS: ECONOMICS

• Publisher: Prague Development Center, Czech Republic
• Journal: Business and Economic Horizons
• Year: 2017
• Volume: Volume 13
• Issue: Issue 4
• Pages: 506-521

Dates

published

2017-10-12

Contributors

author

Kakanda Mohammed Mahmud

• Department of Accountancy, School of Management and Information Technology, Modibbo Adama University of Technology Yola, Nigeria

author

Salim Basariah

• Tunku Puteri Intan Safinaz-School of Accounting (SOA), Universiti Utara Malaysia (UUM) Sintok, Malaysia

author

Chandren Sitraselvi

• Tunku Puteri Intan Safinaz-School of Accounting (SOA), Universiti Utara Malaysia (UUM) Sintok, Malaysia

References

• Abraham, S., & Shrives, P. J. (2014). Improving the relevance of risk factor disclosure in corporate annual reports. The British Accounting Review, 46(1), 91-107.
• Abraham, S., & Shrives, P. J. (2014). Improving the relevance of risk factor disclosure in corporate annual reports. The British Accounting Review, 46(1), 91-107.
• Abraham, S., & Shrives, P. J. (2014). Improving the relevance of risk factor disclosure in corporate annual reports. The British Accounting Review, 46(1), 91-107.
• Agrawal, A., & Knoeber, C. R. (1996). Firm performance and mechanisms to control agency problems between managers and shareholders. Journal of Financial and Quantitative Analysis, 31(103), 377-397.
• Akbar, A. (2015). The role of corporate governance mechanism in optimizing firm performance: a conceptual model for corporate sector of Pakistan. Journal of Asian Business Strategy, 5(6), 109-115.
• Akintoye, I. R. (2008). Effect of capital structure on firms’ performance: The Nigerian experience. European Journal of Economics, Finance and Administrative Sciences, 10, 233-243.
• Akpan, N. (2007). Internal control and bank fraud in Nigeria, Economic Journal, 5, 118-132.
• Al-Ghamdi, S. A. (2012). Investigation into earnings management practices and the role of corporate governance and external audit in emerging markets: empirical evidence from Saudi Listed Companies (Doctoral dissertation, Durham University).
• Ali, A., & Nasir, S. Bin. (2014). Impact of board characteristics and audit committee on financial performance: A study of Manufacturing Sector of Pakistan. Research Journal of Finance and Accounting, 5(7), 144-152.
• Aljifri, K., & Moustafa, M. (2007). The impact of corporate governance mechanisms on the performance of UAE firms: an empirical analysis. Journal of Economic and Administrative Sciences, 23(2), 71-93.
• Al-Najjar, B. (2014). Corporate governance, tourism growth and firm performance: Evidence from publicly listed tourism firms in five Middle Eastern countries. Tourism Management, 42, 342-351.
• Amba, S. M. (2013). Does CEO duality enhance firms business performance? Empirical Evidence from Bahrain. International Journal of Business and Social Science, 4(6), 88-91.
• Amran, A., Manaf Rosli Bin, A., & Che Haat Mohd Hassan, B. (2008). Risk reporting: an exploratory study on risk management disclosure in Malaysian annual reports. Managerial Auditing Journal, 24(1), 39-57.
• Aram, J. D., & Cowen, S. S. (1983). Information for corporate directors: The role of the board in the management process. New York: National Association of Accountants.
• Arora, A., & Sharma, C. (2016). Corporate governance and firm performance in developing countries: evidence from India. Corporate Governance, 16(2), 420-436.
• Barbu, C. M., & Bocean, C. G. (2007). Corporate governance and firm performance. Management and Marketing-Craiova, 1, 125-131.
• Barisua, N., Torbira, F., & Lenee, L. (2012). Corporate governance and financial performance of publicly listed deposit money banks in Nigeria. Reiko International Journal of Social and Economic Research (Rijser), 4(4).
• Beattie, V., McInnes, B., & Fearnley, S. (2004). A methodology for analyzing and evaluating narratives in annual reports: a comprehensive descriptive profile and metrics for disclosure quality attributes. Accounting Forum, 28(3), 205-236.
• Beretta, S., & Bozzolan, S. (2004). A framework for the analysis of firm risk communication. International Journal of Accounting, 39, 265-288.
• Born, B., & Breitung, J. (2016). Testing for serial correlation in fixed-effects panel data models. Econometric Reviews, 35(7), 1290-1316.
• Buckby, S., Gallery, G., & Ma, J. (2015). An analysis of risk management disclosures: Australian evidence. Managerial Auditing Journal, 30(8/9), 812-869.
• Carlon, S., Loftus, J. A., & Miller, M. C. (2003). The challenge of risk reporting: regulatory and corporate responses. Australian Accounting Review, 13(31), 36-51.
• Carpenter, M. A., & Westphal, J. D. (2001). The strategic context of external network ties: Examining the impact of director appointments on board involvement in strategic decision making. Academy of Management Journal, 44(4), 639-660.
• Cohen, J., Krishnamoorthy, G., & Wright, A. M. (2002). Corporate governance and the audit process. Contemporary Accounting Research, 19(4), 573-594.
• Conger, J. A., Finegold, D., & Lawler, E. E. (1998). Appraising boardroom performance. Harvard Business Review, 76, 136-164.
• Dabari, I. J., & Saidin, S. Z. (2015). Determinants influencing the implementation of enterprise risk management in the Nigerian banking sector. International Journal of Asian Social Science, 5(12), 740-754.
• Dahya, J., & McConnel, J. J. (2005). Outside directors and corporate board decision. Journal of Corporate Finance, 11, 37-60.
• Das, A., & Dey, S. (2016). Role of corporate governance on firm performance: a study on large Indian corporations after implementation of Companies’ Act 2013. Asian Journal of Business Ethics, 1-16.
• Deegan, C., Rankin, M., & Voght, P. (2000). Firm’s disclosure reaction to major social incidents: Australian evidence. Accounting Forum, 24(1), 101-130.
• Depoers, F. (2000). A cost-benefit study of voluntary disclosure: Some empirical evidence from French listed companies. European Accounting Review, 9(2), 245-263.
• Elshandidy, T., & Neri, L. (2015). Corporate governance, risk disclosure practices, and market liquidity: comparative evidence from the UK and Italy. Corporate Governance: An International Review, 23(4), 331-356.
• Elyasiani, E., & Zhang, L. (2015). Bank holding company performance, risk, and “busy” board of directors. Journal of Banking & Finance, 60, 239-251.
• Fama, E., & Jensen, M. (1983). Separation of Ownership and Control. Journal of Law and Economics, 26, 301-325.
• Farhan, A., Obaid, S. N., & Azlan, H. (2017). Corporate governance effect on firms’ performance-evidence from the UAE. Journal of Economic and Administrative Sciences, 33(1), 66-80.
• Fidanoski, F., Mateska, V., & Simeonovski, K. (2014). Corporate governance and bank performance: Evidence from Macedonia. Economic Analysis, 47(1-2), 76-99.
• Field, L., Lowry, M., & Mkrtchyan, A. (2013). Are busy boards detrimental? Journal of Financial Economics, 109(1), 63-82.
• García-Sánchez, I. M. (2010). The effectiveness of corporate governance: Board structure and business technical efficiency in Spain. Central European Journal of Operations Research, 18(3), 311-339.
• Haniffa, R.M. & Cooke, T.E. (2002). Culture, corporate governance and disclosure in Malaysian corporations. ABACUS, 38, 317-349.
• Harris, M., & Raviv, A. (1991). The theory of capital structure. Journal of Finance, 46(1), 297-355.
• Hassan, Y. M., Naser, K., & Hijazi, R. H. (2016). The influence of corporate governance on corporate performance: evidence from Palestine. Afro-Asian Journal of Finance and Accounting, 6(3), 269-287.
• Hauser, R. (2013). Busy directors and firm performance: evidence from merger. University of Chicago working paper.
• Hemrit, W., & Arab, M. B. (2011). The disclosure of operational risk in Tunisian insurance companies. The Journal of Operational Risk, 6(2), 69-111.
• Hermalin, B., & Weisbach, M. (1991). The effects of board composition and direct incentives on firm performance. Financial Management, 20(4), 101-112.
• ICAEW (2011). Reporting business risks: meeting expectations. London: Institute of Chartered Accountants of England and Wales.
• Imam, M. O. & Malik. M. (2007). Firm Performance and Corporate Governance Through Ownership Structure: Evidence from Bangladesh Stock Market. International Review of Business Research Papers, 3, 88-110.
• Jackling, B., & Johl, S. (2009). Board structure and firm performance: evidence from India’s top companies. Corporate Governance: An International Review, 17(4), 492-509.
• Jones, D. C., Li. M., & Cannella, Jr. A. A. (2015). Responses to a governance mandate: the adoption of governance committees by NSE firms. Journal of Management, 41(7), 1873-1897.
• Kakanda, M. M., Bello, A. B., & Abba, M. (2016). Effect of capital structure on performance of listed consumer goods companies in Nigeria. Research Journal of Finance and Accounting, 7(8), 211-219.
• Kakanda, M. M., Salim, B., & Chandren, S. (2016). Review of the relationship between board attributes and firm performance. Asian Journal of Finance and Accounting, 8(1) 168-181.
• Kakanda, M. M., Salim, B., & Chandren, S. (2017). Corporate governance, risk management disclosure, and firm performance: a theoretical and empirical review perspective. Asian Economic and Financial Review, 7(9), 836-845.
• Karamanou, I., & Vafeas, N. (2005). The association between corporate boards, audit committees, and management earnings forecasts: An empirical analysis. Journal of Accounting Research, 43(3), 453-486.
• Karatzias, V. (2011). The relationship between corporate governance and risk management during the credit crisis. The case of Financial Institutions. MIBES, 145-156.
• Kayani, F., Khan, M., & Javid, A. (2011). Determinants of board effectiveness: Logit model. Interdisciplinary Journal of Contemporary Research in Business, 3(2), 1970-1981.
• Kline, R. B. (2011). Principle and practice of structural equation modelling (5th ed.). New York: The Guilford Press.
• Kurawa, J. M., & Kabara, A. S. (2014). Effect of corporate governance on voluntary disclosure by firms in the downstream sector of the Nigerian petroleum industry. Proceedings of World Business Research Conference 21 - 23 April 2014.
• Liang, Q., Xu, P., & Jiraporn, P. (2013). Board characteristics and Chinese bank performance. Journal of Banking & Finance, 37(8), 2953-2968.
• Linsley, P. M., & Shrives, P. J. (2005). Examining risk reporting in the UK public companies. The Journal of Risk Finance, 6(4), 292-305.
• Lipton, M., &. Lorch, J. W. (1992). A modest proposal for improved corporate governance. The Business Lawyer, 48(1), 59-77.
• Mangena, M., & Pike, R. (2005). The effect of audit committee shareholding, financial expertise and size on interim financial disclosures, Accounting and Business Research, 35 (4), 327-349.
• Marn, J. T. K., & Romuald, D. F. (2012). The impact of corporate governance mechanism and corporate performance: A study of listed companies in Malaysia. Journal for the Advancement of Science and Arts, 3(1), 31-45.
• Masson, R. T. (1971). Executive motivations, earnings and consequent equity performance. Journal of Political Economy, 79, 1278-1292.
• Maury, B., & Pajuste, A. (2005). Multiple large shareholders and firm value. Journal of Banking and Finance, 29(7), 1813-1834.
• Mayur, M., & Saravanan, P. (2017). Performance implications of board size, composition and activity: empirical evidence from the Indian banking sector. The International Journal of Business in Society, 17(3), 466-489
• Mmadu, R. A. (2013). Corporate governance and bank sector crisis in Nigeria: rescue intervention or a Macabre dance with the economy? African Journal of Law and Criminology, 3(1), 83-109.
• Nadarajan, S., Chandren, S., Bahaudin, A. Y., Mohammed Elias, E., & Mohd Nawi, M. N. (2015). Corporate governance and operations performance: inventory study on Malaysian listed firms. International Journal of Supply Chain Management, 4(2), 68-71.
• Nahar, S., Jubb, C., & Azim, M. I. (2016). Risk governance and performance: a developing country perspective. Managerial Auditing Journal, 31(3), 250-268.
• Nwonyuku, K. N. (2016). Corporate governance and profitability of listed food and beverages firms in Nigeria. Retrieved February 20, 2016, from https://papers.ssrn.com/ sol3/papers.cfm?abstract_id=2760330.
• Ogege, S. & Boloupremo, T. (2014). Corporate governance and financial performance of banks: evidence from Nigeria, Hyperion Economic Journal , 2(2), 25-36.
• Organization for Economic Co-operation and Development [OECD] (2015). G20/OECD Principles of corporate governance, a report to G20 Finance Ministers and Central Bank Governors, 4th-5th September, Ankara, Turkey.
• Rebeiz, S. K. (2015). Boardroom’s independence and corporate performance: the ever-elusive conundrum, Corporate Governance, 15(5), 747-758.
• Saibaba, M. D., & Ansari, V. A. (2013). Audit committees, board structures and firm performance: A panel Data Study of BSE 30 Companies. The IUP Journal of Accounting Research and Audit Practices, 2, 19-29.
• Sanusi, L. S. (2010). The Nigerian banking industry: what went wrong and the way forward. Governor Central Bank of Nigeria (a lecture delivered at convocation of Bayero University, Kano, Nigeria). Retrieved January 23, 2017, from http://www.cenbank.org/
• Singh, H., & Harianto, F. (1989). Management-board relations, takeover risk, and the adoption of golden parachutes. Academy of Management Journal, 32(1), 7-24.
• Uadiale, O. M., (2010). The impact of board structure on corporate financial performance in Nigeria. International Journal of Business Management, 5(10) 155-166.
• Vafeas, N. (1999). Board meeting frequency and firm performance, Journal of Financial Economics, 53, 113-142.
• Vance, S. C. (1978). Assessing corporate performance by boardroom attributes. Journal of Business Research, 6, 203-220.
• Wong, S. P. (2012). The impact of culture on risk management disclosures: an exploratory study of international banks. Southern Cross University, ePublications@SCU, Theses.
• Yatim, P. (2010). Board structures and the establishment of a risk management committee by Malaysian listed firms. Journal of Management and Governance, 14(1), 17-36.
• Zahra, A. S., & Pearce, A. J. (1989). Boards of directors and corporate financial performance: a review and integrative model, Journal of Management, 15(2), 291-334.
• Zeitun, R., & Tian, G. G. (2007). Capital structure and corporate performance: evidence from Jordan. Australasian Accounting, Business and Finance Journal, 1(4), 40-61.