The Nexus between Downsizing and Financial Performance of Selected Commercial Banks in Nigeria: A Comparative and an Empirical Exploration

Abstract

Downsizing popularly is a situation in which a firm reduces its workforce tremendously as a measure to improve profit by cutting down operating and overhead costs. In this study, we explored the relationship between downsizing and financial performance of five selected commercial banks in Nigeria from 2010 to 2015. These banks over the years have rolled out computerized transaction channels leading to reduction in their workforce. The study applied the paired sampled T-Test to assess if there is any significant difference between financial performance expressed with return on assets and return on equity before and after downsizing. The panel data analysis was used to explored the relationship between the variables of interest. The result of our paired sample T-Test indicates that there is no significant difference between financial performance indices (return on assets and return on equity) before and after downsizing. The random effect estimation depicts that selected commercial banks failed to achieve their objectives of increasing overall assets level by way of downsizing its workforce. On the other hand, we found no evidence that downsizing is a good corporate strategy for improving the wealth of shareholders in Nigeria. Downsizing not effecting the return on assets and return on equity may be because of the global financial meltdown within the period covered by this study. In view of our finding and considering the level of economic growth and development in Nigeria, downsizing should be discouraged in view of its inability to spur expansion in assets base of banks and obvious economic and social problems. On downsizing insignificant positive relationship with return on equity, it should be noted that Nigeria do not have opportunities and enabling competing environment as their counterpart in developed economies.