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CORPORATE GOVERNANCE AND FIRMS PERFORMANCE

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CORPORATE GOVERNANCE AND FIRMS PERFORMANCE

BY

DEPARTMENT OF ACCOUNTING

FACULTY OF MANAGEMENT SCIENCES

UNIVERSITY OF BENIN

BENIN CITY

FEBUARY, 2014.

CORPORATE GOVERNANCE AND FIRMS PERFORMANCE

BY

BEING A PROJECT WORK SUBMITTEED TO THE DEPARTMENT OF ACCOUNTING,

FACULTY OF MANAGEMENT SCIENCES,

UNIVERSITY OF BENIN,

BENIN CITY,

IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF BACHELOR OF SCIENCE (B.Sc HONS.)

DEGREE IN ACCOUNTING

FEBUARY, 2014.

DECLARATION

I declare that:

This project is based on a study undertaken by me in department of accounting university of benin, under the supervision of PROF A.E OKOYE.

This work has not previously been submitted for the award of degree elsewhere.

All ideas and views are product of my personal research and where the views of others have been expressed, they have been duly acknowledged.

DATE:____________________

___________________________________Prof. A.E OKOYEDATE(Project supervisor)

_____________________________________

(Project coordinator)DATE



_____________________________________(Head of Department)DATE

DEDICATION

This project is dedicated to God Almighty for his mercies and grace upon my life. To my parents,Mr and Mrs J.E ANYANWU for giving me the opportunity to become somebody in life.

ACKNOWLEDGEMENT

I like to express my sincere gratitude to my loving parents, Mr and Mrs J.E ANYAWU for their support financially and otherwise throughout the course of this programme.

A special thanks to my supervisor, PROF. A.E OKOYE for his immeasurable assistance, patience and guidance in the course of writing this project.

My deep appreciation goes to all my accounting lecturers, who where great contributors to my education.

I owe special thanks to my dear friend Sylvia Daniels for always being there for me.

My appreciation goes to all members of Gospel pillars campus fellowship especially Pastor Osahor and my fellow BGF pastors, i want to say, I love you all.

Above all, i will like to say “THANK YOU” HOLY SPIRIT.

TABLE OF CONTENT

Contents pages

Title page---------

Declaration--------

Certification--------

Dedication--------

Acknowledgement -------

Table of content-------

CHAPTER ONE: INTRODUCTION----

Background of the study-----

Statement of research problem----

Objective of the study-----

Research hypothesis------

Scope of the study------

Research methodology------

Significance of the study-----

Need to comply with characteristics of

Good Governance------

Limitation of the study-----

References-------

CHAPTER TWO: LITERATURE REVIEW

2.1 Corporate governance measures in Nigeria---

2.1.1 the roles of board of directors-----

2.1.2 shareholders rights and privilege----

2.1.3 the role of the Audit committee-----

2.1.4 the role of stakeholders in corporate governance-

2.2 corporate governance mechanism----

2.2.1 board size---------

2.2.2 board composition--------

2.2.3 Audit committee --------

2.2.4 CEO duality--------

References---------

CHAPTER THREE

RESEARCH METHODOLOGY

Introduction--------

research design-------

population of the study------

data and simple size------

method of presentation------

modal specification------

variable description------

References.---------

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS

4.1 Introduction--------

4.2 Data presentation-------

4.3 Statistical analysis-------

4.4 presentation and analysis of regression result

4.4.1 Test of hypothesis one-------

4.4.2 Test of hypothesis two------

4.4.3 ROE and presence/absence of board composition-

4.4.4 Test of hypothesis four------

CHAPTER FIVE

SUMMARY OF FINDINGS, RECOMMENDATION AND CONCLUSION

5.1 Introduction--------

5.2 Summary of research findings-----

5.3 recommendations-------

5.4 Conclusion---------

BIBLIOGRAPHY---------

APPENDIX----------

CHAPTER ONE

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.

STATEMENT OF RESEARCH PROBLEM

According to Al-fakir (2006), the relationship of the board and management should be attributed by transparency to shareholders and fairness to other stakeholders. These will in effect moderation of the agency cost as projected by Jensen and Macklin (1976).

The observed gap in this study is the collapse of most organisation in Nigeria due to their poor corporate governance which led to loss of confidence in our industry. This giving rise to the following question.

How does board composition affect the firm performance?

How does board size affect the performance of the firm?

Does audit committee affect the firm performance?

Does CEO duality affect the firm’s performance?

OBJECTIVE OF THE STUDY

Given the overall objective of examining the relationship between corporate governance mechanisms.

Which are:

Board size

Board composition

Audit committee

CEO duality and firm’s performance

In relevance to this study, one of the corporate governance mechanism is used to determine the specific objective which is the examining of the audit committee and the firm’s performance.

While others can be, using the board composition to influence the firm’s performance.

Knowing the relationship between board size and firm’ performance.

RESEARCH HYPOTHESIS

For the purpose of handling this study, the following hypothesis is formulated.

Hi: there is positive relationship between return on capital employed and board composition

H2: there is a positive relationship between board composition and return on Asset management

H3: there is a positive relationship between board composition and return on Equity.

H4 there is a significant relationship between board composition and earnings per share.

SCOPE OF STUDY

This is aimed at appraising the relationship between the corporate governance mechanism and firms performance (ROCE, ROE and EPS).

This study will focus on five (5) firms quoted in the Nigeria stock exchange and will be from 2006 to 2010.

RESEARCH METHODOLOGY

For the nature and purpose of study, the secondary data will be employed for empirical analysis, the secondary data will include information gotten from stock exchange fact book, annual report the firms from 2006-2010.

SIGNIFICANE OF THE STUDY

This study aims to provide additional insights into the relationship between governance mechanism and firm performance in Nigeria. Our focus is on the measurement of corporate governance, abstract from other dimension such as incentive scheme.

It is hoped that the evidence would serve as important quantitative information into the cauldron of policy as well as add to the existing body of empirical literature from a developing stock exchange such as that of Nigeria.

The need for a study of this kind is characterised by growing all for effective corporate governance particularly for public liability companies.

At the level of firm, it offers the promise of a fair return on capital invested through improved efficiency. It also has some implication for the on-going privatization that the government of Nigeria is currently undertaken Grass-field (2002) citing the works of other scholars, indicated that the effectiveness of privatisation is greater.When corporate governance works well, moreover by helping to promote firm performance and the protection of stakeholder’s interest, corporate governance encourages investment and stock market development. Dimirgue-kunt and Levine (1996) have associated with improved micro-economic growth. Further recent evidence in the works of klappers and love (2002)suggest that the firm level corporate governance provisions matters more in countries with weak legal (regulatory) environments implying that the firm can partially compensate for ineffectivelaws and enforcement by establishing good corporate governance and providing credible investor protection.

NEED TO COMPLY WITH CHARACTERISTICS OF

GOOD GOVERNANCE

In the literature, good governance is measured by its adherence to the following outstanding universal attributes: must be participatory, consensus oriented, accountable transparent, responsive, effective and efficient, equitable and inclusive and follows the rule of law.

Compliance to these attributes raises the profile of a company and its goodwill in the market place with positive impact on its share prices, indeed, it is established that higher share price and lower cost of capital are directly linked to good corporate governance. Hence the global clamour for compliance.

by firms to good corporate governance . To adhere to them is to set the company on the part of prosperity.

If shareholders are cleverly precluded from participating in the governance of their companies. One of the aforementioned principles, the system would not only be defective and unacceptable, but also, it would produce sub-optimal results.

To be acceptable therefore, it must be equitable and inclusive by which mean that shareholders must not be disenfranchised by directors by holding AGMs at places not easily accessible to the shareholders, by dispatching notices of meeting late, by seeking to postpone AGMs to dates that are not convenient, etc, ideally, the shareholders have the right to know how their companies are governed. They reserved the right to change the focus and polices of the company through the board and at Annual general meetings (AGMs). Ultimately, they carry the risks. Whether we like it or not, the boards are merely acting as agents of the shareholders and cannot usurp the powers. The exercise of fiduciary powers by the board cannot confer on it the power to supplant the visions of the shareholders, however fragmented.

According to Akinsulire( 2006) good corporate governance aims at the following.

Directors imbibing in the culture of pursing the best interest of shareholders.

Reviewing of audit regulation, corporate disclosure framework and shareholders participation for accountability and transparency.

Ensures compliance with regulatory requirement and performance of the company’s internal audit function and audit committee assisting the board of directors in supervision of financial statements.

Ensure that provider of finance get their return on investment etc.

Thus,Good corporate governance tends to reduce the control right confer by shareholders and creditors on managers and sustain positive corporate governance.

According to Cadbury report, corporate governance is the system by which companies are directed and controlled (kensey, et al, 2005)

Furthermore, Cadbury recognised that a system of good corporate governance allows board of directors to be free to drive their companies forward but exercise that freedom within a framework of effective accountability.

The corporate governance structure enumerates the disposal of rights and responsibility among different participants in the corporation such as the board managers, shareholders and stakeholders.

Corporate governance structures spells out the rules and procedures for making decisions on corporate affairs and provide the arrangement through which the companies objectives are set and the means of obtaining those objectives.

Corporate governance is an important hypothesis that relates to the manners in which financial resources available to an organisation or companies are cautiously utilise to achieves the general corporate objectives of an organisation.

LIMITATION OF THE STUDY

This study is empirical in nature and will utilise data of five non-financial firms listed on the Nigeria stock exchanges between 2006 to 2010. This present quoted from financial statement that was observed.

Through there are some shortcomings that was accredited during the phase of writing the research works and can be attributed to money and time available for the research which are constrain for the research work of retrieving relevant information.

REFERENCES

Akinsulire O. (2006) financial management 4th edition El-toda ventures.

Al-faki, M (2006): “transparency and corporate governance for capital market development in Africa:” the Nigeria case study securities market journal, 2006 edition.

Asein A.A (2008) corporate governance and the issues shareholders democracy: Nigeria, Nigeria accounting journal vol. 42.No2.

Klapper. L.F and I. love 2002. Corporate governance investor protection and performance in emergency market, worldbank policy research working paper.



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