EFFECT OF BOARD DIVERSITY ON FINANCIAL PERFORMANCE OF LISTED DEPOSIT MONEY BANKS IN NIGERIA

EFFECT OF BOARD DIVERSITY ON FINANCIAL PERFORMANCE OF LISTED DEPOSIT MONEY BANKS IN NIGERIA

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ABSTRACT

This study empirically examines the effect of board diversity on the financial performance of listed DMBs in Nigeria. Gender, foreign diversity and ethnic minorities were used as proxies for board diversity and a market based measure, Tobin’s Q was used to measure performance. Board size was also used as control variable. Data for the study was extracted from the Nigerian Stock Exchange Fact book and sampled banks’ annual reports for the period 2009-2013. The sample size is thirteen banks chosen based on some selected criteria. The study employed multiple regression technique using Ordinary Least Square in testing the hypotheses of the study. The findings revealed that gender has a positive significant effect on financial performance. Similarly, a positive association was documented between foreigners, and ethnicity on financial performance, although these associations were not significant. However, board size was negative and insignificant. The study recommends that the Security and Exchange Commission (SEC) should ensure that boards of listed DMBs have at least one female director as listing requirement. Also emphasis should be placed on knowledge, skills, and competence when nominating a board member and not race to enhance performance

CHAPTER ONE INTRODUCTION

1.1       Background to the study

The collapse of well known companies such as Enron and others in developed nationsled

many industrialists and legal practitioners; including investors to a belief that governance

crisis was eminent in America. In response to these well known events, the United States

passed the Sarbanes-Oxley Act while major stock exchange markets modified their listing

criteria for effectiveness and improving board monitoring (Byoun, Chang and Kim,

2011).Issues related to boards of directors have attracted the interest of researchers from

various disciplines for the past decade. This represents a shiftin paradigm from top

management teams (TMT) to corporate boards, coupled with the high emphasis put on the

role of boards by regulators and investors in directing and controlling firms.

Recently some countries in Europe have legislated higher representation of women on

boards, while others have included the concept in laws in response to the normative case calls

for diversity. Those in support of gender diversity such as McKinsey and Catalyst have

proved that the concept have economic importance to firms. Catalyst proved that Fortune 500

firms with more females on corporate boards tend to make more profit. Also, Mckinsey also

proved that that companies with a higher number of women at board level display a higher

degree of organisation, above average operating margins and higher valuations.(Credit

Suisse, 2012). Although diversity is looked upon to be a goal in itself by some academia, it is

also pertinent to understand its economic importance to firms.

Diversity is needed in the boardrooms today in ord


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