Corporate Governance Mechanisms and Financial Distress in the Nigerian Banking Context

Abstract

The study investigates the impact of corporate governance mechanisms on financial distress scenarios of banks quoted on the Nigerian Exchange Group. The theoretical framework of the relationship is hinged on the upper echelon theory (given the echelon occupied by Boards and Chief Executives of firms). The study utilises a sample of fourteen (14) banks over a five-year period (2004-2008). The justification for this period is premised on the proliferation of distress scenarios among Nigerian banks. The banks are segmented into two distinct groupings based on their financial health status (distressed and non-distressed categorisations). The marginal effect estimates of the binary logistic regression are utilised in analysing the model. The empirical results reveal that CEO characteristics and board characteristics are significant predictors of the probability of financial distress among Nigerian quoted banks. The study recommends increased financial literacy for CEOs, and enhanced participation and activeness of members in board and committee meetings.

Keywords: CEO Attributes, Board Attributes, Banks, Economy, Distress Probabilities