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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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