COST REDUCTION STRATEGY AND FIRM PROFITABILITYDURING RECESSION PERIOD: NIGERIAN BANKING INDUSTRY EXPERIENCE

Abstract

Nigeria banks faced financial crisis due to financial meltdown and government treasury single account policy. This has forced banks to employed strategic cost management techniques like downsizing of employee and reduction of staff salary to survive and sustain their competitiveness in banking industry. This study examines the influence of downsizing of staff and reduction of staff salary on bank profitability. The specific objective is to ascertain the influence of downsizing of employee and reduction of staff salary on return on asset. Purposive sampling technique was used to select the sample frame from first generation of banks that are licensed with international authorization in Nigeria This study obtained secondary data from the Nigerian Stock Exchange Fact-book and Annual Report and Accounts of the sample population for the period 2006 to 2016. A linear regression analysis was used in estimating the parameter of the model. The study finds out that there is negative relationship between downsizing of employee, reduction of staff salary and profitability. It was discovered that the period after banks downsize their employee, bank performance was at its low ebb. We strongly recommend that banks can reduce their employee salary instead of laying them off. Then, salary increment can be done when the financial performance is improving.