Corporate governance practices and banks’ performance: does the moderating role of foreign representation matter?

Abstract

Purpose One of the mechanisms to make better bank management rests on improved corporate governance practices with diverse backgrounds including foreign representation. However, bank performance remains poor. The purpose of this study is to investigate whether foreign directors have moderating effects on the influence of board characteristics on the performance of banks in the Nigerian context. Design/methodology/approach The quantitative explanatory design of this study was based on a cross-sectional survey of respondents (executive and non-executive directors including independent directors) of the population of 285 bank directors in 26 Nigerian banks. Findings Using a sample of 121 respondents, the structural equation modelling results reveal that foreign nationality had a positive moderating effect on the influence of each board independence and audit committee on banks’ performance. However, foreign nationality negatively moderated the effect of board size and nomination committees on banks’ performance. In addition, foreign directors’ membership on boards positively moderates the relationship between remuneration committees and banks’ performance. Research limitations/implications The findings of this study extend our understanding of the strategic composition of the board in Nigerian banks. The findings are useful in encouraging business corporations to further strengthen their corporate governance practices. Also, foreign board members’ effectiveness is case-sensitive and committee-dependent. Originality/value Banks desirous of having foreign directors need to ensure that, they have the necessary capacity and fit into the local environment as well as engage foreign directors in tailored integration programmes.