BOARD COMPOSITION AND CRITICAL DECISIONS IN NIGERIAN QUOTED FIRMS

BOARD COMPOSITION AND CRITICAL DECISIONS IN NIGERIAN QUOTED FIRMS

ABSTRACT

This study examines the effect of board composition on critical decisions of Nigerian quoted firms. The six critical decisions studied were Chief Executive Officer’s (CEO) total compensation, CEO’s incentive pay out of total compensation, the level of firm unrelated diversification, intensity of firm research and development expenditures, firm’s debt intensity and CEO turnover. The six hypotheses formulated for the study were estimated using the Z-test, analysis of variance (ANOVA) and generalized least square (GLS) multiple regression. The findings of the study showed that board composition had negative effect on CEO’S total compensation; while board composition had positive effect on critical decisions such as; CEO incentive pay out of total compensation, firm unrelated diversification, firm’s research and development expenditure, firm debt intensity and CEO turnover. The findings of the study provide partial evidence on the effective of the agency theory. One of the greatest contributions of the studies is the discovery of entirely agency conflict which is between the non-executive board members and shareholders. The theoretical framework and findings of this study are expected to stimulate scholars for further research on mechanism for resolving this entirely new version of agency conflict in the Nigerian corporate environment.

CHAPTER ONE

INTRODUCTION

1.1              Background of the Study

Corporate governance systems have evolved over centuries, often in response to corporate failures or systemic crises. For example, much of the securities law in United States were put in place in response to the stock market crash of 1929 (Iskander and Chamlou, 2000: 16). The Enron collapse also led to the enactment of ‘The Sarbanes-Oxley Act 2002’.It is pertinent to note that the principles of company laws in Nigeria were derived from English law, which can be traced to the influence of colonization. The early companies that operated in Nigeria were British based companies. By virtue of Colonial statutes enacted between 1876 and 1922, the laws applicable to companies in Nigeria at this time were the common law, the doctrines of equity, and the statutes of general application in England on the first day of January, 1900 subject to any later relevant statute (Nigerian Law Reform Commission, 1991: 92). The implication of this approach is that the common law concepts such as the concept of the separate and independent legal personality of companies as enunciated in Salomon v. Salomon was received into the Nigeria Company law and has since remained part of the law (Amao and Amaeshi, 2008: 1-16).

With the continuous growth of trade, the colonialist felt it was necessary to promulgate laws to facilitate business activities locally. Hence, the first company law in Nigeria was the Companies Ordinance of 1912, which was a local enactment of the Companies (Consolidation) Act 1908 of England. The Ordinance was amended severally and consolidated into the Companies Ordinance of 1922 (Nigerian Law Reform Commission, 1991: 109). The 1922 Ordinance was subsequently amended in 1929, 1941 and 1954 respectively. The attainment of independence in 1960, coupled with the vitriolic criticisms that trailed the existing company law in Nigeria at that time, led to the enactment of Company Act of 1968.

BOARD COMPOSITION AND CRITICAL DECISIONS IN NIGERIAN QUOTED FIRMS