CORPORATE GOVERNANCE AND BANKS RISK TAKING PRACTICES:
A DYNAMIC PANEL, ANALYSIS OF THE NIGERIAN BANKING SECTOR
The recent financial crises have raised various questions with respect to corporate governance and risk taking mechanism in the banking sector as excessive risk taking practices have been majorly attributed to poor corporate governance mechanism in this sector. The resultant effects of these fundamental issues were the inability of these institutions to provide timely and quality services culminating into major hindrance to economic growth and development. This study examines the relationship between corporate governance and risk taking practices within the Nigerian banking sector in a longitudinal setting, and following the restructuring exercise and the subsequent policy changes in the Banking sector. The population of the study comprises of twenty five banks listed on the Nigerian stock exchange out of which a sample of twenty banks were selected. A dynamic panel data regression model and using the Generalized Method of Movements (GMM) methodology was adopted to explicitly tackle problems associated with small sample size, potential endogeneousregressors, heteroskedasticity and the dynamic nature of the explanatory variables. Overall, and as detailed out in the study, some of the results show that corporate governance mechanism enhances sound banks risk taking practices while some results show contradictory relationship. These inconsistent relationships might perhaps be a pointer to the fact that the various regulatory agencies saddled with the responsibility of enhancing best practices in the banking sector have not been discharging their role effectively. Based on the findings, the study recommends the need to coordinate and strengthened these agencies to enhance sound performance in the banking sectors. In addition, there is also the need to put in place stringent punitive measure in order to enhance compliance with corporate governance and risk management framework, there by promoting sound banking practices in Nigeria.
