Academic journal article Manager

Corporate Covernance as A Tool for Curbing Bank Distress in Nigeria Deposit Money Bank: Empirical Evidence

Academic journal article Manager

Corporate Covernance as A Tool for Curbing Bank Distress in Nigeria Deposit Money Bank: Empirical Evidence

Article excerpt

1. introduction

The Organization of Economic Corporation and development (OECD) paper defines corporate governance as involving "a set of relationships between a company's management, its board, its shareholders, and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. Good corporate governance should provide proper incentives for the board and manage- ment to pursue objectives that are in the in- terests of the company and shareholders and should facilitate effective monitoring, there- by encouraging firms to use resources more efficiently". Corporate governance in recent years assumed considerable significance as a veritable tool for ensuring corporate surviv- al since business confidence usually suffers each time a corporate entity collapses. Most of the business failures in recent past are at- tributed to failure in corporate governance practices. For instance, the collapse of banks in Nigeria in the early 1990's and onwards was as a result of inadequate corporate gov- ernance practices such as insider-related credit abuses and poor risk appreciation and internal control system failure.

Corporate governance refers to the or- ganizational framework for decision making and action taking within a corporate entity. In this regard, it can also be defined as the structure of relationships within an entity for making decisions and implementations. Simply put, it refers to how an organization is run, that is, how the resources of an or- ganization are employed in pursuant of the set missions and goals of the organization. Hussey (1999) as cited in Ivior (2008) defines corporate governance more formally as "the manner in which organizations, particular- ly limited companies, are managed and the nature of accountability of the managers to the owners". In other words, corporate gov- ernance is not just a set of rules but also a structure of relationships geared towards establishing good corporate practice and culture. The ultimate Business Dictionary (2003) as cited in Sani (2010) defines corpo- rate governance functionally as the manage- rial or directional control of an incorporated organization, which, when well practiced can reduce the risk of fraud, improve company performance and leadership and demon- strate social responsibility. Essentially, cor- porate governance is focused on controlling the activities of those in whose custody the resources of an organization are entrusted with a view to protecting the interest of the resource owners.

Wise and Mahboob Ali (2009) opined that "corporate governance indicates the policies and procedures applied by firms to attain certain sets of objectives, corporate missions and visions with regard to stock- holders, employees, customers, suppliers and different regulatory agencies and the com- munity at large". Effective corporate gover- nance practices are essential to achieving and maintaining public trust and confidence in the banking system, which are critical to the functioning of the banking sector and econ- omy as a whole. Poor corporate governance may contribute to bank failures, which can pose significant public costs and consequenc- es due to inability of a bank to manage its as- sets and liabilities, including deposits, lost of confidence and in turn trigger a bank run or liquidity crisis.

Oyediran (2003) as cited in Babalola (2010) posits that corporate governance is the way and manner in which the affairs of companies are conducted by those charged with that duty. In Nigeria, the governance of a limited liability company is the respon- sibility of its board of directors. Corporate governance is characterized by transparency, accountability, probity and the protection of stakeholders' rights. Corporate governance refers to the manner in which the power of a corporation is exercised in the management of its total portfolio of economic and socio resources with the aim of increasing share- holders' value and safeguarding the interest of other stakeholders in the content of its cor- porate mission. …

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