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CORPORATE GOVERNANCE AND FIRM PERFORMANCE: AN EMPIRICAL EVIDENCE FROM SELECTED LISTED COMPANIES IN NIGERIA

ABSTRACT

This study investigates the relationship that exists between corporate governance and firm performance of some selected companies listed on the Nigerian Stock Exchange. The intent of the study is to determine whether corporate governance mechanisms- CEO duality, board size audit committee independence, and ownership concentration have an impact on firm performance surrogated by return on assets (ROA); return on equity (ROE), profit margin (PM). It provides empirical evidence for fifty two (52) non-financial firms in Nigeria for a period of 2003 to 2008. The Generalised Least Square (GLS) regression is employed to examine the relationship existing between the variables. The results reveal that board size, audit committee independence, ownership concentration have a significant relationship with return on equity and profit margin. It is also observed that CEO duality has no impact on firm performance. The advocacy is for the Securities and Exchange Commission  to take into cognisance industry specific effects before formulating codes of corporate governance that determine the characteristic of the audit committee or the board structure. Proposition is also made for the Corporate Governance Committee of companies to endeavour to do a regular appraisal of their corporate governance compliance status so as to understand its effect on performance. Keywords: Corporate Governance, Firm performance, Agency Theory, Agency Costs.

CHAPTER ONE

INTRODUCTION

1.1  Background to the Study

In recent years, Commercial Supremacy has become crucial in many developing economies. A convenient corporate governance structure in an organization leads to an amazing number of benefits to the organization as sought by shareholders; corporate managers & executive directors (McGee, 2008). Countries with strong corporate governance structures attract funds easily. Firms that guarantee investor rights and have proven corporate governance practices like timely and adequate corporate disclosure and sound board practices attract both domestic and international investors than those which do not. Special attention is targeted towards the effects of corporate governance on firm performance.

The reason is that the performance of a firm can be affected by corporate governance especially in scenarios where there exists a struggle of curiosity flanked by the stockholders and the managementor between the minority and controlling shareholders. Managers are always entrusted with a lot of power as they characterize the welfares of  the board associates and controlling shareholders.The power of controlling shareholders however depends on their capability to manipulate board decisions through majority voting and other ways of expressing opinion. Increase in the voting ratio to cash flow rights increases the distortionary policies (Melissa, 2012).

Several theories have emerged expounding on corporate governance. The agency theory advanced by Means & Berlie (1932) characterizes the association between the agent and the principal to be that of mistrust and competing interests. Conversely, the Stewardship theory replaces mistrust with goal congruence. It suggests that managers’ need for achievement and success can only be realized when the organization performs well. The Stakeholders theory (Clarkson, 1994) recognizes existence of other stakeholders including suppliers, customers, other

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