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CORPORATE GOVERNANCE AND FIRMS PERFORMANCE

ABSTRACT

The aim of this paper is to measure the relationship between corporate governance and the performance of firms in Nigeria. To achieve this objective, we use Return on equity, Net profit margin, Sales growth, Dividend yield, and Stock prices/values as the key variables that defined the performance of the firm. On the other hand, for the measure of corporate governance, we use Board Independence, Board size, audit independence, ownership, and the progressive practices of the company. The study found that there is a high relationship between the board’s size of the companies use in the study and their performances. The study concludes that the more outsiders there are on a company’s board, the better the performance in terms of return on equity.

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. Corporate Governance has become a central issue of policy debate for more than decades now.

The mechanism of corporate governance and the type of information about corporate decisions on the one hand and on the other hand, the performances of the firm and the information that the corporation should make public, constitutes major issues of discussion in the corporate governance debate. Specifically, the issue of making corporate financial reporting more transparent to the stakeholders, and the extent to which, the oversight bodies set to oversee the firms becomes functional. The practice “good corporate governance” is seen as the ultimate objective of studies in this area, which the neoclassical theory of market economy defines as the maximization of shareholders‟ value. The theoretical foundation of this understanding is the fact that, in a develop or market economy, existence of well-functioning markets in capital, labor and products ensure the allocation of scarce economic resources to their best alternative uses to achieve the

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