INTERNAL CONTROL SYSTEM AND CORPORATE SURVIVAL IN THE NIGERIAN BANKING SECTOR: THE MEDIATORY ROLE OF ETHICAL CLIMATE

Abstract

This study assessed internal control system and corporate survival in the Nigerian banking sector with particular focus on the mediatory role of ethical climate. The target population of the study included bank employees in selected bank branches across the Ibadan metropolis, Nigeria. Twelve bank branches were randomly drawn from the population of branches in Ibadan. Results showed that the internal control components (Control Environment, Risk Assessment, Control Activities, Information Communication and Monitoring) jointly predicted effectiveness of internal control system within the banking sector [F(4,1615) =84.68, R2=.174; p<.01] and accounted for 17.4% of the variance in the effectiveness of internal control system within the sector. However, only Control Environment (β=.239; p<.05), Control Activities (β=.146; p<.05), Information Communication (β=.189; p<.05), and Monitoring (β=.177; p<.05) emerged as significant independent positive predictors of internal control system effectiveness within the banking sector. There was also a significant influence of ethical climate on the effectiveness of internal control system within the banking sector [t(195)=.651; p<.05]. Finally, after controlling for ethical climate as a mediator, there was a decrease in the predictive values of Control Environment (β1=.239, β2=.142) and Monitoring (β1=.277, β2=.063) on effectiveness of internal control, which implied partial mediation; however, Control Activities (β1=.146, β2=.006) and Info Communication (β1=.189, β2=.012) were no longer significant predictors of effectiveness of internal control (β1=.146, β2=.006); which was consistent with full mediation. It was therefore recommended that the effectiveness of internal control systems should be enhanced through continuous monitoring, related risk assessment, designing sound control methods and with an ideal ethical climate within the organization.