The Impact of Corporate Governance on Monetary Policy: The Nigerian Experience

Abstract

Corporate governance in banks owes its significance to the role of banks in economic stabilization, and the substantial risks and negative consequences associated with improper banking practices. The main objective of this study is to determine the relationship between corporate governance and monetary policy in Nigeria. The study employed annual time series data sourced from the Central Bank of Nigeria and Nigerian Stock Exchange. Monetary policy was captured using the broad money supply while corporate governance was proxied by various indices of corporate governance. Autoregressive Distributive Lag (ARDL) and granger causality estimation techniques were used for the analysis. The granger causality results showed that no bidirectional causality was found b etween corporate governance and monetary policy. The bound test results showed that a long run relationship exists among the variables in the estimated equation. This signifies the relevance of these variables in promoting monetary stability in Nigeria. The study recommends that; there should be transparency in the implementation of corporate governance so that the shareholders can effectively judge whether their interests are being served; the government should establish institute of Corporate Governance for teaching and promoting good corporate governance; the regulatory authorities should increase their oversight functions and scope of examination of deposit money banks (DMBs) to encourage compliance with laid down rules and regulations; the management staff including the auditors both internal and external and enterprise risk manager s should play important roles in ensuring that there exists a sound internal control system in their banks and that laid down procedures is reviewed regularly; the new code of corporate governance for banks should be strictly adhered to by all banks in the country, as this will enable banks to operate in a safe and sound manner and as such, lead to restoratio