The concept of corporate governance has attracted a good deal of public interest in recent years, because of its apparent importance on the economic health of corporations and society in general. Basically, corporate governance in the banking sector requires judicious and prudent management of resources and the preservation of resources (assets) of the corporate firm; ensuring ethical and professional standards and the pursuit of corporate objectives, it seeks to ensure customer satisfaction, high employee morale and the maintenance of market discipline, which strengthens and stabilizes the bank. However, the successful banks accounted for about 93.5% and 97% of the total deposit liabilities and assets of the banking system respectively. (CBN Annual report, 2007: 26). Before the consolidation exercise, the banking industry had 82 active banks whose overall performance led to sagging of customer’s confidence, as there was lingering distress in the industry. The supervisory structures were inadequate, as they were cases of official recklessness amongst managers, and the industry was notorious for financial abuses. However, in November, 2005; the CBN blacklisted six officers of banks, including a chairman and a non-executive director, for unethical practices and professional misconduct. The same year, 110 cases of fraud and forgeries totalling N1.5 billion were reported by various Banks; and fifty six (56) of the cases amounted to N 1.38 billion, representing 91.8% of the total amount (N1.50B) {CBN annual report, 2006: 64).
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Poor corporate governance was identified as one of the major factors in virtually all the cases.
Globalization and Information and Communication Technology (ICT) took the world by storm and have reduced the world to a global village. This has given rise to the continuous integration of the world economy and capital markets which has in turn given rise to increase in the interdependence of international financial markets. As a result of this, there is increased mobility of capital across boundaries of the globe. Therefore, in order to ensure and sustain investors’ confidence in the capital market, the issue of corporate governance has now been brought to the front burner because that is the only way corporate financial reporting can be seen to be transparent (Garuba &Donwa, 2011).
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Given this background, this study examines the efficacy of corporate governance with a view to determine it impact on firms’ performance and providing measures to enhance corporate financial performance and sound business practices. The experience of business failure and financial scandals around the world brought about the need for good governance practices. The United States of America, Brazil, Canada, Germany, France, England, and Nigeria and so on, all witnessed financial failures. Bell and Pain (2000) supported this view that the last 20 years have witnessed several bank failures throughout the world. Financial distress in most of these countries was attributed to high incidence of non-performing loans, capital deficiencies, weak management, and poor credit policy and governance system. In the view of Bollard (2003), the weaknesses in some of the ailing banks reflected poor management of conflicts of interest, inadequate understanding of banking risks and poor oversight by boards of the risk management system and internal audit arrangements. These problems were further compounded by poor quality of financial disclosure and ineffective external audit.
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Corporate governance is the oversight mechanisms, including the processes, structures and information for directing and overseeing the management of a company. It encompasses the means by which members of the board of directors and senior managers are held accountable for their actions and the establishment and implementation of oversight functions and processes. Corporate governance is holding the balance between economic and social goals and between individuals and communal goals. It is also concerned with the appropriate structuring of corporations and enterprises, with the fundamental importance to the performance of the economies, particularly in developing and transition economies. The corporate failures in Nigeria, especially in the financial sector has once again brought to the fore the need to re -examine the issues of corporate governance practices in Nigeria. As corporate governance deals with processes, policies, laws, and regulations which ensure that the management of an organization is accountable, objective, transparent and ethical in the conduct of the business in their interaction with stakeholders and the larger society. The turmoil in the Nigerian banking industry has more than ever before, necessitated the need for the adoption of corporate governance principles by the sector. The apex financial sector regulator in Nigeria, the Central Bank of Nigeria (CBN) on August 14, 2009, removed the Chief Executive Officer (CEOs) and the Executive Directors of five commercial banks in Nigeria on the ground of poor corporate governance in their various banks. Some of the affected banks were among the big banks in the country. The apex regulator stresses that “retention of public confidence through the enthronement of corporate governance remains of utmost importance, given the critical role of the banking industry in the economy (CBN (2009:23).
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1.2.    Statement of the problem
There is no gain saying that the present economy deserves a sound, stable and better banking performance following the causative factors, such as unethical and unprofessional practices, poor management quality among others which contributed to low level of bank performance and sometimes lead to failure of bank. The bitter experiences of Asian financial crisis of the 1990s underscore the importance of effective corporate governance procedures to the survival of the macro economy. This crisis demonstrated in no unmistakable terms that “even strong economies, lacking transparent control, responsible corporate boards and shareholder right can collapse quite quickly as investor’s confidence collapseâ€Â. Sullivan (2000). Banks need payments system infrastructure to exchange claims securely and markets in which to hedge the risks arising from their intermediation activities. The banking system therefore functions more efficiently and effectively when there is a robust and efficient payments systems infrastructure.
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The few studies on bank corporate governance normally focused on a single aspect of governance, such as the role of directors or that of shareholders while omit ting other factors and interactions that may be important within the governance framework. Feasible among these few studies is the one by Adams and Mehran (2000) for a sample of US companies, where they examined the effects of board size and composition on value.
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Another weakness is that such research is often limited to the largest, actively traded organizations, many of which show little variation in their ownership, management and board structure and also measure performance as market value. In Nigeria, among the few empirically feasible studies on corporate governance are the studies by Sanda et al (2005) and Ogbechie (2006) that studied the corporate governance mechanisms and firms’ performance. In order to address these deficiencies, this study is not restricted to the framework of the organization for Economic Co-operation and Development principle, which is based primarily on shareholder sovereignty. It analyzed the level of compliance of code of corporate governance in Nigerian banks with the Central Bank of Nigeria code of corporate governance. Finally, while other studies on corporate governance neglected the operating performance variable as proxies for performance, this study employed the accounting operating performance variables to investigate the existence if any relationship between corporate governance and performance of banks in Nigeria.
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1.3        Objectives of the Study
The broad objective of this study is to assess the level of adoption of corporate governance in the financial sector. To achieve this, the following specific objectives will be addressed:
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In order to ensure good corporate governance which is therefore embodies both enterprise (performance) and accountability (compliance concerns), (Alaribe, 2014). Sir Adrian Cadbury described Corporate Governance “As the way organizations are directed and managed. Corporate Governance therefore ensures that due process, transparency and accountability are displayed in the management of the affairs of an enterprise. Corporate governance is designed to promote a diversified strong and reliable banking sector which will ensure the safety of depositor’s money as well as play active developmental roles in Nigeria’s economy. Corporate governance is used to monitor whether outcomes are in accordance with plans and to motivate the organization to be fully informed in order to maintain organizational activity.
1.4.     Research questions
The following research questions were formulated:
1.5.   Research hypotheses
It is in the light of the above research questions, that this research work tested the following hypotheses;
H0: There is no significant relationship which adheres to corporate governance and investors in the banking industries.
H1: There is significant relationship which adheres to corporate governance and investors in the banking industries.
H0: There is no significant relationship in level of accountability to investors by corporate managers in the banking industries?
H1: There is significant relationship in level of accountability to investors by corporate managers in the banking industries?
H0: There is no significant relationship between corporate governance practiced and bank’s performance.
H1: There is significant relationship between corporate governance practiced and bank’s performance.
1.6.   Significance of the study
This entails the reasons why corporate governance should be adopted in the banking industry so as to regulate how banks will manage the investor’s funds.
The interests of investors and other stakeholders are usually protected by a three-tier security system. At the top level is the company’s governance code which is directed toward enforcing company policies, achieving company objectives, monitoring company performance, and ensuring adequate disclosure of the company’s activities. At the other end is the reporting system regulated by public and private institutions such as the Securities and Exchange Commission (SEC), the Public Company Accounting Oversight Board (PCAOB), and Financial Accounting Standard Board (FASB), which subject public companies to accounting and disclosure standards, and their auditors to audit, independence, ethical, and quality control standards.
1.7.    Scope of the Study
This study is focused on bank selected for the research work which is Guaranty Trust Bank (GT Bank) Agbara in other to analyze how effective corporate governance is, on the performance of the organization, how the principles of corporate governance will be adopted in other to enhance the degree of accountability and transparency by the banks to the shareholders. Also 65 questionnaires were constructed, while 54 was returned by the respondents.
1.8.   Limitation of the Study
During the research work, there is some limitation which occurs due to some certain reasons:
Historical Background to Case study, Guaranty Trust Bank (GTB)
Guaranty Trust Bank plc has over the years, acquired an enviable reputation built on a solid foundation of integrity, professionalism, value adding service delivery and excellent corporate governance. As a publicly quoted company with a highly diversified ownership structure, the Bank is committed to improving shareholder value through transparent best business practices. In addition to the principles of the†Code of Corporate Governance for Banks in Nigeria Post Consolidation†issued by the Central Bank of Nigeria (CBN), and the Securities and Exchange Commission’s “Code of Best Practicesâ€Â, the Bank benchmarks itself against international best practices. The Code of Corporate Governance of Guaranty Trust Bank plc (revised in January, 2011), provides the basis for promoting the highest standards of corporate governance in the Bank. The Bank is governed by a framework that facilitates checks and balances and ensures that appropriate controls are put in place.
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1.9. Definition of terms
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