Recapitalization and corporate governance of the perceived performance of Nigerian banking sector

Abstract

Perennial banks failures attributed to poor corporate governance practices resulted in severe losses, capital erosion and triggered a series of mergers and acquisitions, equity issues and government intervention in the Nigerian banking sector. Therefore, drawing upon Resource-Dependence Theory and Agency Theory, this study is to evaluate the effect of merger and acquisition, equity issues and intervention of the perceived performance of Nigerian banking sector and to examine the moderating effect of corporate governance on the relationship between recapitalization and the perceived performance of the Nigerian banking sector. However, the nature and existence of this potential relationship were found to be mixed, which prompted this study to re-examine the relationship. Accordingly, the data were collected from a field survey on the listed banks in the Central Bank of Nigeria website. A total of 317 questionnaires were returned by target respondents, but only 305 were usable for data analysis. Target research consist of the regional manager, branch manager or any senior officer in the selected banks. This study employed the quantitative methods in survey research and stratified sampling method. Partial Least Squares (PLS) algorithm and bootstrap techniques were used to test the hypotheses. Results obtained support the hypothesis on the direct influence of mergers and acquisitions, equity issues intervention and corporate governance on the banks' performance. The similar result regarding the moderating effects of corporate governance on the relationship between recapitalization and banks performance was also found. The findings indicated that corporate governance positively moderated the relationship between recapitalization and banks performance but does not have a significant moderating influence on the paths between mergers and acquisitions and intervention to bank performance. Nevertheless, it was found that corporate governance significantly moderates the relationship between equity issues and banks performance. The importance-performance map analysis was applied in this study to allows enriching the PLS-SEM analysis and thereby gain additional results and findings, although its application to banking is still at its embryonic state. This study indicates that managers who use importance-performance map analysis to prioritize their financial decisions will obtain useful conceptual insights and are unlikely to be misled. In addition, the results from importance-performance map analysis indicate that the first priority by managers is to improve the performance aspects captured by mergers and acquisitions, as this construct have the highest importance in the model, but relatively low performance. Finally, this study has succeeded in validating the aforementioned conceptualization as well as advancing significant theoretical and practical contributions to both researchers and managers for further understanding on the influence of recapitalization and banks performance. This study proposes that this kind of study could be extended beyond the Nigerian context to developed economies in future research.