CORPORATE GOVERNANCE INDICATORS AND FIRM VALUE
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CORPORATE GOVERNANCE INDICATORS AND FIRM VALUE
CORPORATE GOVERNANCE INDICATORS AND FIRM VALUE ABSTRACT
The motivation for this research is a desire to evaluate corporate governance indicators and the performance of the Nigerian banking sector. Following the empirical review and other discussions, a number of questions arose, including whether board size has a significant impact on the performance of Nigerian banks,
as well as whether the composition of the board has a significant impact on the performance of Nigerian banks. The empirical findings revealed, among other things, that the size of the board had no meaningful impact on the performance of Nigerian banks when using the Ordinary Least Square (OLS) regression technique and computer software. The researcher, on the other hand, gave recommendations.
INTRODUCTION TO CHAPTER ONE OF CORPORATE GOVERNANCE INDICATORS AND FIRM VALUE
1.1 BACKGROUND OF THE STUDY
Most businesses in today’s world follow a corporate code of conduct. It is a statement of an organization’s values that includes employee behaviour standards that match with these values. Creating a code of conduct assists an organisation in defining how it runs, how it incorporates its basic values into daily business operations, and how it interacts with important stakeholders (George B. Breen and Amg F. Lerman, 2011).
There is no denying that the concept of corporate governance has taken centre stage in today’s business world. The president of the bank properly caught this when he stated, “The proper governance of companies will become as crucial to the world economy as the proper governance of countries” (Wolfenson, 1999).
Nigeria, as an emerging economy, looks to the private sector to provide the necessary quantitative leap towards rapid progress. Practically for public limited liability businesses, there is a renewed emphasis on sound governance.
This is in acknowledgment of the fact that improving the effectiveness and efficiency with which the boards of such organisations discharge their corporate and statutory responsibilities will have a significant impact on the overall performance of the economy.
As a result of recent corporate scandals, legislation, codes of conduct, and guidelines have been adopted to improve corporate governance. Leblanc, Richard (2007).
According to Mc Gee (2009), effective corporate governance increases share capital or price and makes it simpler to access capital, and international investors are hesitant to lend money or buy shares in a firm that does not adhere to good corporate governance principles.
It is worth noting here that the issue of corporate governance arose as a result of the modern corporation’s separation of management and ownership. In practise, management’s interests may diverge from those of the shareholders. The so-called “management-shareholders”
problem is represented in management engaging in activities that may be detrimental to the firm’s shareholders and society at large (Mersah, 2000). Given these circumstances, management must account to shareholders for how the resources placed at their disposal were used, as well as the net consequence of their firm’s efforts.
A corporation that improves its performance over time is more likely to survive. Governance issues are the leading causes of corporate failure in Nigeria (Wood, 2003). We can say, tentatively, that corporate governance is related to firm performance.
In emerging economies, well-functioning corporate governance mechanisms are critical for both domestic enterprises and international investors interested in the huge prospects that such markets provide.
As a result, reforms in corporate governance can boost investor trust and expand access to capital for these enterprises (Rajagopalam and Zhang 2008).
Several studies have been conducted to assess the effectiveness of corporate governance models in boosting performance. As Core, Holthnusen, and Larcker (1999) pointed out, the collective evidence from these studies is mixed, failing to provide a coherent picture of what constitutes an optimal governance arrangement.
Nonetheless, this study investigates the effects and extent of corporate governance practise in some selected Nigerian quoted companies on overall firm values and performance, with the goal of uncovering new results while confirming the key findings and predictions of previous research.
1.2 STATEMENT OF THE PROBLEM
Corporate governance is expected to have a direct impact on corporate performance. A large number of concepts and theories have been written down by scholarly individuals or corporate governances. As a result, it will be crucial to determine whether such studies are conducted solely for academic objectives or can be detected in the outwitted of an organisation.
It is also envisaged that the governance system will influence business performance by influencing firm strategies and decisions on inputs, output, innovations, and markets.
This research project seeks solutions to the following issues.
1. Does the size of the board of directors have a substantial impact on the performance of Nigerian banks?
2. Does the membership of the board of directors have a substantial impact on the performance of Nigerian banks?
3. Does insider ownership have a substantial impact on the performance of Nigerian banks?
1.3 OBJECTIVES OF THE STUDY
Transparency in a company’s corporate governance contributes to investor confidence. Actually or potentially, the more businesses are perceived to be accountable, transparent, and socially responsible, the more they are perceived to be founded on integrity, the greater their competitive advantage, which should result in increased performance.
The inspiration for this study is inspired by the fact that, in developing nations such as Nigeria, where poor corporate governance practises exist, managers do not achieve optimal firm performance, as they do in advanced countries. As a result, the following are the study’s objectives:
i. To investigate if board size has a substantial impact on the performance of Nigerian banks.
ii. Determine whether the makeup of the board has a substantial impact on the performance of Nigerian banks.
iii. To investigate whether insider ownership has a major impact on the performance of Nigerian banks.
1.4 THE RESEARCH HYPOTHESES
The following hypothesis would be empirically investigated during the course of this research, and the results would serve as the foundation for the conclusion and recommendation.
1st Hypothesis
Ho: The size of the board has no major impact on the performance of Nigerian banks.
H1: The size of the board has a major impact on the performance of Nigerian banks.
2nd Hypothesis
Ho: The makeup of the board has no discernible impact on the performance of Nigerian banks.
H1: The makeup of the board of directors has a substantial impact on the performance of Nigerian banks.
3rd Hypothesis
Ho: Insider ownership of the board of directors has no substantial impact on the performance of Nigerian banks.
H1: Insider ownership has a major impact on the performance of Nigerian banks.
1.5 SCOPE OF THE STUDY
The study focuses on corporate governance metrics and the performance of the Nigerian banking sector.
The sample size is limited to 16 banks listed on the Nigeria Stock Exchange. They were chosen to investigate the impact of corporate governance on the performance of various banks.
This study takes place in 2010.
1.6 SIGNIFICANCE OF THE STUDY
Corporate governance has recently received a lot of attention in a variety of national and international fora. Shareholders are becoming increasingly conscious of the need of transparency in the governance of the companies in which they invest. As a result, the significance of such corporate governance research work as it influences business performance
The following advantages can be derived from the findings of this research study:
i. Raising awareness among both existing and prospective investors about the corporate governance arrangements of banks.
ii. The observers will get an understanding of the significance of good and transparent corporate governance.
iii. It will be a useful addition to the existing literature on corporate governance and performance.
iv. The study’s findings are meant to serve as a recommendation to Nigerian businesses that, by making a concerted effort to strengthen their corporate governance, they can significantly increase firm performance.
v. To educate investors on policies, laws, and reforms that are important for their protection.
vi. It will also serve as a starting point for subsequent research.
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