CORPORATE GOVERNANCE AND FIRMS - PERFORMANCE

CHAPTER ONE
INTRODUCTION
BACKGROUND OF THE STUDY

Financial outrage the world and the recent collapse of foremost corporate institution in the united states of America, south East Asia, Europe and Nigeria such as Enron corporation, world com, Arthur Anderson, lever brothers and Cadbury have shaken investors faith in the capital markets and usefulness of prevailing corporate governance practices in promoting transparency and accountability.

This has brought to the front again the need for the practise of good governance.

STATEMENT OF RESEARCH PROBLEM

According to Al-fakir (2006), the relationship of the board and management should be attributed by transparency to shareholders and fairness to other stakeholders. These will in effect moderation of the agency cost as projected by Jensen and Macklin (1976).

The observed gap in this study is the collapse of most organisation in Nigeria due to their poor corporate governance which led to loss of confidence in our industry. This giving rise to the following question.

How does board composition affect the firm performance?

How does board size affect the performance of the firm?

Does audit committee affect the firm performance?

Does CEO duality affect the firm’s performance?

OBJECTIVES OF THE STUDY

Given the overall objective of examining the relationship between corporate governance mechanisms.

Which are:

Board size

Board composition

Audit committee

CEO duality and firm’s performance

In relevance to this study, one of the corporate governance mechanism is used to determine the specific objective which is the examining of the audit committee and the firm’s performance.

While others can be, using the board composition to influence the firm’s performance.

Knowing the relationship between board size and firm’ performance.

RESEARCH HYPOTHESIS

For the purpose of handling this study, the following hypothesis is formulated.

Hi: there is positive relationship between return on capital employed and board composition

H2: there is a positive relationship between board composition and return on Asset management

H3: there is a positive relationship between board composition and return on Equity.

H4 there is a significant relationship between board composition and earnings per share.

SCOPE OF STUDY

This is aimed at appraising the relationship between the corporate governance mechanism and firms performance (ROCE, ROE and EPS).

This study will focus on five (5) firms quoted in the Nigeria stock exchange and will be from 2006 to 2010.

SIGNIFICANCE OF THE STUDY

This study aims to provide additional insights into the relationship between governance mechanism and firm performance in Nigeria. Our focus is on the measurement of corporate governance, abstract from other dimension such as incentive scheme. 

It is hoped that the evidence would serve as important quantitative information into the cauldron of policy as well as add to the existing body of empirical literature from a developing stock exchange such as that of Nigeria.

The need for a study of this kind is characterised by growing all for effective corporate governance particularly for public liability companies.

At the level of firm, it offers the promise of a fair return on capital invested through improved efficiency. It also has some implication for the on-going privatization that the government of Nigeria is currently undertaken Grass-field (2002) citing the works of other scholars, indicated that the effectiveness of privatisation is greater.When corporate governance works well, moreover by helping to promote firm performance and the protection of stakeholder’s interest, corporate governance encourages investment and stock market development. Dimirgue-kunt and Levine (1996) have associated with improved micro-economic growth. Further recent evidence in the works of klappers and love (2002)suggest that the firm level corporate governance provisions matters more in countries with weak legal (regulatory) environments implying that the firm can partially compensate for ineffectivelaws and enforcement by establishing good corporate governance and providing credible investor protection.

LIMITATIONS OF THE STUDY

This study is empirical in nature and will utilise data of five non-financial firms listed on the Nigeria stock exchanges between 2006 to 2010. This present quoted from financial statement that was observed.

Through there are some shortcomings that was accredited during the phase of writing the research works and can be attributed to money and time available for the research which are constrain for the research work of retrieving relevant information.

REFERENCES

Akinsulire O. (2006) financial management 4th edition El-toda ventures.

Al-faki, M (2006): “transparency and corporate governance for capital market development in Africa:” the Nigeria case study securities market journal, 2006 edition.

Asein A.A (2008) corporate governance and the issues shareholders democracy: Nigeria, Nigeria accounting journal vol. 42.No2.

Klapper. L.F and I. love 2002. Corporate governance investor protection and performance in emergency market, worldbank policy research working paper.