Internal Environment and Profitability of Banks: The Terminal Benefits Nexus

Abstract

The main purpose of this study is to evaluate the effect of internal environment on profitability of deposit money banks in Sub Saharan (SSA) with special focus on terminal benefits nexus. Specific objectives are examination of the effect of staff terminal benefits, employee productivity, capital adequacy and board size on return on assets (ROA) of the banks. Panel data on selected banks from six SSA countries for the period 2004-2016 were used. Panel data regression approach was employed under fixed and random effects models. Findings indicated among others that capital adequacy and employee productivity have positive significant effect on ROA while staff terminal benefits and board size exhibit negative insignificant effect. Also staff terminal benefits and board size correlate negatively and significantly with ROA while employee productivity and capital adequacy show positive significant relationship with ROA. The findings equally showed that staff terminal benefit has negative significant relationship with employee productivity. The study concludes therefore, that internal environment has both negative and positive significant effect on profitability of deposit money banks in SSA with significant terminal benefit nexus. It is recommended among others that organizational restructuring by deposit money banks should be handled with caution so as to minimize the usual negative reactions of surviving and retrenched employees which could reduce productivity and profitability.

Keywords: Capital conservation buffer, Employee Productivity, Employee retrenchment, Team efficiency ratio, large board size


Article Review Status: Published

Pages: 16-41 (Download PDF)

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