Ademola Abimbola Oluwaseyi, Kazeem Bayonle Liafeez, and Ajayi Ezekiel Oluwole
Volume 5 Issue 2 | Jun 2022
DOI: http://dx.doi.org/10.31841/KJEMS.2022.120
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Abstract
Good corporate governance is perceived as a key component of sustainability for Microfinance Banks (MFBs) as it is assumed to help them achieve their social and financial objectives. This study examined the effect of corporate governance on the performance of MFBs in Nigeria. Corporate governance was proxied by audit committees, board size and composition while Return on Equity (ROE) was used as the measure of financial performance. Twelve MFBs were randomly selected from South West, Nigeria. Secondary data was obtained from the annually published reports of the selected licensed microfinance banks in Nigeria between ten years period of 2011 and 2020. Data were analyzed using regression and correlation techniques. The results demonstrated that board size correlates favourably and significantly with MFBs performance, implying that larger boards improve bank performance. Board composition exhibited a strong positive relationship with MFBs’ performance. Furthermore, audit committees correlate positively and significantly with MFBs’ performance, demonstrating that audit committees are important components of corporate governance. Finally, the study found that corporate governance proxies (audit committees, board size and composition) have a positive and significant effect on MFBs performance in Nigeria. Consequentially, this study suggests that an operational audit committee be established if MFBs’ credibility, efficiency, competitiveness, and sustainability are to be ensured. MFBs should also maintain a completely unbiased board composition to ensure optimal achievement of goals and long-term profit maximization.