CORPORATE GOVERNANCE AND PROFITABILITY OF SELECTED MANUFACTURING FIRMS IN NIGERIA

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CORPORATE GOVERNANCE AND PROFITABILITY OF SELECTED MANUFACTURING FIRMS IN NIGERIA

ABSTRACT

The objective of this study is to empirically investigate the relationship between corporate governance (measured by Board Size, Ownership Concentration and CEO Duality) and profitability (measured by Return on Asset and Return on Equity) of selected Nigerian manufacturing companies.

The study adopted survey research design. Random sampling was used to select 10 companies out of a total population of 45 manufacturing companies listed on the Nigerian Stock Exchange, for a time period of 2006 to 2015. Secondary data (financial and non-financial) were collected from the annual reports and accounts of the selected listed manufacturing companies. Pooled OLS regression, Fixed Effect and Random Effect analysis and descriptive statistics were used in analyzing the data. F-stat was used to test the hypothesis.

The results of the study show that Board size had a positive relationship but not significant with performance of the sampled manufacturing companies. Also, it was found that CEO duality had a negative but significant relationship with the performance of the sampled manufacturing companies, while Ownership concentration had a significant positive relationship with performance of the sampled manufacturing companies.

In conclusion, the study revealed that the performance indicator (ROA) and (ROE) related with each component of the Corporate Governance Index in a peculiar manner. It is therefore suggested that reform efforts should be directed towards improving the corporate governance of listed Nigerian manufacturing companies, especially emphasis should be devoted to ownership concentration.

Keywords: Corporate Governance, Performance, Board size, Ownership concentration, Returnon Asset and Return on Equity

TABLE OF CONTENTS

Content Page

TitlePage i

Certification ii

Dedication iii

Acknowledgments iv

Abstract v

Table of Contents vi

List of Tables x

List of Figures xi

Abbreviations xii

Appendices xiii

CHAPTER ONE: INTRODUCTION

1.1 Background to the Study 1

1.2 Statement of the Problem 4

1.3 Objective of the Study 5

1.4 Research Questions 5

1.5 Hypotheses 5

1.6 Justification for the Study 6

1.7 Scope of the Study 6

Content Page

1.8 Significance of the Study 6

1.9 Operational Definition of Terms 7

CHAPTER TWO: REVIEW OF LITERATURE

2.1 Conceptual Review 9

2.1.1 Agency Concept 9

2.1.2 Agency Problem 10

2.1.3 Agency Cost 11

2.1.4 Corporate Governance Mechanisms 13

2.1.4.1 Board Size 13

2.1.4.2 CEO Duality 14

2.1.4.3 Ownership Concentration 15

2.1.5 Firm Performance Measures 17

2.1.5.1 Return on Assets 18

2.1.5.2 Return on Equity (ROE) 18

2.2 Theoretical Review 19

2.2.1 Stakeholder Theory 19

2.2.2 Stewardship Theory 20

2.2.3 Resource Dependency Theory (RDT) 20

2.2.4 Agency Theory 21

2.2.5 Theoretical Framework 23

Content Page

2.3 Empirical Review 24

CHAPTER THREE: METHODOLOGY

3.1 Research Design 36

3.2 Population 36

3.3 Sample size and sampling Technique 36

3.4. Sources of Data 36

3.5 Method of Analysis 37

3.5.1 Justification of Method of Analysis 37

3.5.2 Estimation Technique 37

3.5.3 Model Specification 37

3.6 Instrument 40

3.7 Apriori Expectation 40

3.8 Ethical Consideration 40

CHAPTER FOUR: DATA PRESENTATION, RESULTS AND DISCUSSION OF FINDINGS

4.1 Data Analysis 41

4.2 Results 41

4.2.1 Descriptive Analysis Result 41

4.2.2 Correlation Analysis Result 42

Content Page

4.2.3 Regression Analysis Result 42

4.3 Discussion of Result 46

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary 48

5.1.1 Summary of Findings 49

5.2 Conclusion 50

5.3 Recommendations 50

5.4 Contribution to Knowledge 50

5.5 Limitation of the Study 51

5.6 Suggestion for further Research 51

References 52

Appendices 57

LIST OF TABLES

Table Page

2.1 Summary of Empirical review 29

4.1 Summary of statistics 42

4.2 Correlation Matrix 42

4.3 Corporate Gov: Panel Data Analyses for ROA 44

4.4 Corporate Gov: Panel Data Analyses for ROE 45

LIST OF FIGURES

Figure Page

2.1 Triangular relationship of corporate governance, agency cost and firm performance 12

2.2 Conceptual Framework of Corporate Governance and Firm Performance 17

ABBREVIATIONS

ROA Return on Assets

ROE Return on Equity

CEODChief Executive Officer

BSBoard size

OC Ownership Concentration

AG Age of Firm

FZFirm size

LM Lagrange Multiplier

ANOVA Analysis of variance

RSI Relative significance index

OLS Ordinary Least Square

RE Random Effect

FE Fixed Effect

APPENDICES

Appendix

Pooled OLS, Random Effect and Fixed Effect Result

Informed Consent

Turnitin Report

CHAPTER ONE

INTRODUCTION

Background to the Study

The issue of corporate governance has brought about research interests with respect to principal-agent relationship currently existing in publicly quoted companies. This is in corroboration with Claessens and Fan (2002) who opined that corporate governance has received much attention in recent years due to failure of some firms in Asia.

Corporate governance reform has emerged as a critical business issue, thrust on the world stage by a number of high profile corporate failures (Strandberg, 2005). The famous corporate accounting scandals of Enron Corporation, World Com, Tyco, and Parmalat have led to contemporary discussion on the best mechanisms for protecting stakeholder’s interest and ensuring shareholders wealth maximization. Also, in Nigeria the emphasis on the need for corporate governance reform sprung up with the incidence of fraudulent financial reporting as reported in the case of Cadbury Nigeria Plc.In Nigeria, the growing incidence of corporate fraud has meant that investors’ confidence in the capital market has declined due to the current down turn in the market which is been blamed on the fraud at the Nigerian Stock Exchange (NSE) and investors in Cadbury (Nig)plc also lost heavily as the share price of the company took a downward turn. Organizations have monitoring mechanisms aimed at ensuring good corporate governance and minimization of corporate fraud. The primary objective of corporate governance is to try to align managerial incentives with that of stakeholders so that managers work in the best interest of the stakeholders (Nworji, Adebayo, & David, 2011).

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