Grey directors, corporate governance and firms performance nexus: Evidence from Nigeria

Abstract

There has been a consistent argument in the literature as regards the importance of grey directors on board, and their impact on firm performance with most studies focused on developed economies. However, little is known on the short and long-run implications. In this study, we examined the joint short-run and long-run causality relationship, as well as the long-run behaviour between grey directors and corporate performance of deposit money banks. Our sample includes 14 deposit money banks out of the 15 listed on Nigeria stock exchange for 2010–2017. The estimation techniques used include descriptive statistics, unit root test, panel co-integration test and fully modified ordinary least square regression (FMOLS). Using Tobin Q as the dependent variable, there is no flow of joint long-run causality from the independent variables. The significance of the short-run coefficients indicates joint causality moving from independent variable to the dependent variable in the short-run. Furthermore, the long-run equation shows a significant positive relationship between indigenous directors, the board size, non-executive directors and performance of the selected deposit money banks in Nigeria, while a negative correlation was observed with firm size. Grey director was insignificant in the long-run. The study concludes that aggregate policy changes need to carefully considered in promoting a long-term benefit and need to gear effort towards maximising the performance of the banking sector in the long-run through effective group decision.

Keywords:

• causality
• corporate governance
• financial performance
• grey directors

PUBLIC INTEREST STATEMENT

This study examines the joint short-run and long-run causality relationship, as well as the long-run behaviour between grey directors and corporate performance of deposit money banks for a sample of listed deposit money banks in Nigeria between 2010 and 2017. We found that there is no evidence of joint long-run causality between grey directors and corporate performance of selected Nigeria deposit money banks. However, our findings reveal joint short-run causality between grey directors and corporate performance of selected Nigeria deposit money banks. Furthermore, examining the long-run behaviour, we found a positive significant relationship between indigenous directors, the board size, non-executive directors and performance of the selected deposit money banks in Nigeria, while a negative relationship was observed with firm size and grey directors was insignificant in the long-run. The general conclusion is that aggregate policy changes need to be carefully considered in promoting long-term benefit in respect of grey directors, indigenous directors of the company, non-executive directors, board size and firm size in maximizing the turnover.

Acknowledgements

The author wishes to appreciate the management of Landmark University for paying the article processing fee.

Additional information

Funding

The authors received no direct funding for this research.

Notes on contributors

Damilola Felix Eluyela

Damilola Eluyela is a Lecturer at Landmark University, Nigeria. He is an associate member of the Association of Chartered Certified Accountants (ACCA), United Kingdom. His research interests include Environmental Accounting, Corporate Governance and Financial Accounting. He has published articles, among others, in Banks and Bank Systems, Cogent Business and Management, Heliyon, Journal of Advanced Research in Law and Economics, Problems and Perspectives in Management, International Journal of Financial Research, International Journal of Energy Economics and Policy and Data in Brief.