THE EFFECTS OF COOPERATE GOVERNANCE ON BUSINESS FAILURE

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

Corporate governance has become a global concern because of the rising frequency and widespread pattern of deliberate accounting deceits and frauds, as well as growing number of consequent corporate failures. Companies break the most basic rules of accounting, the worst being rebooking income that was earn and had earlier been taken to profit. The corporate failures that followed the discoveries were unprecedented magnitude of such unimaginable, unethical and outright unprofessional conduct that warranted public outcry and disbelief. The essence of good corporate governance is to bring companies to respect the rule of law, play by the rules guiding their business and hold ethics and professionalism in the highest esteem. Emanating from these would be a high sense of social responsibility. These boil down to the quality and reliability of accounting and other information that companies make available to their shareholders. Following good corporate governance closely in the growth and corporate performance matrix is transparency and accountability. They are at times treated as components of corporate governance.

Accountability arises from the agency theory that recognizes the management of business organization on one hand and the shareholders on the other hand. A perfect system of corporate governance would give the right incentives to make value maximizing investment and financial decisions and would assure that cash is paid out to investors when the company runs out of viable projects, that is, investment with positive NPVs. Statutory control of corporate governance has been with us for a long time and has increased overtime. While it is impossible to have a crime free society, the need to spell out the “rules of the game” cannot be overemphasized. Irrespective of the nature of the entity we are dealing with, the key issues of governance revolve around: 1. how things get done (or not done) 2. authority 3. leadership 4. the decision making process 5. accountability

STATEMENT OF RESEARCH PROBLEM

In Nigeria like most countries, the failures of companies can be due to internal or external factors or in rare cases, the combination of both. However in most cases, usually, it has to do with internal cases such as poor corporate governance. In such cases, such development can be likened to a Giant Iroko tree felled by termites that did a lot of damages within the trunk of the tree. The issues of good corporate have attracted a global consensus by which countries now use in the measurement of their own economic indices. Corporate governance is therefore taking a gradual but central attraction aer highly rated international companies like Enron, Pamalat, Barynx Bank and WorldCom failed, an indication that failure of corporate governance can bring down any institution no matter how long or old it is. What then is the link between corporate governance and business failure?