The Relationship Between Corporate Governance And Financial Performance Of Parastatals In Nigeria

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The Relationship Between Corporate Governance And Financial Performance Of Parastatals In Nigeria


Abstract


Recent and continuous global events involving major corporate and business failures continue to reverberate the importance of good corporate governance as a catch phrase necessary for ensuring the financial health and viability of business entities so that the interests of all stakeholders are protected and to prevent the unfair dominance of the interests of any stakeholder over those of the others. Studies on Corporate governance have mainly focused on private firms. Inefficiency, financial impropriety and mismanagement have characterized most public sector financial management. Therefore, corporate governance needs to be emphasized as a means of revitalizing government’s investment and increasing profitability of parastatals.

This study sought to establish the relationship between corporate governance and financial performance of parastatals in Nigeria. The financial performance parameter used for the study was return on asset while four attributes of corporate governance practice were used, namely, board size, board structure, multiple directorship and audit committee. The study used descriptive research design. The population was 127 parastatals and a sample of 30 was chosen for the study. Data were obtained from 27 of the 30 selected parastatals and analyzed using descriptive statistics and multiple regression analysis between April 2012 and July 31, 2012. In general, the study found that there exists a positive relationship between corporate governance and return on asset. This implies that good corporate governance practices enhance financial performance of parastatals. Therefore, policy makers and management of parastatals must ensure that tenets of good corporate governance should be applied to the latter to enhance performance.


Chapter One


Introduction

1.1 Background of the study

The study derives from the fact that competition within the global business environment has continued to get intense and complex thereby increasing the scramble for more resources and increment in perceived better performance and economic standard of good business health. With global market and large scale productions, the size and capital requirement of firms have sharply risen and performance requirement has placed huge burden on managers as they strive to ensure that firm performance is enhanced. However, incidence occurring between 2000 and 2002 revealed the uncovering of various unethical practices undertaken by management to present a profitable picture of their entities. The scandals of WorldCom, Enron, Global Crossing amongst others presented a misleading picture of financial status and financial manipulations by management and auditors.


The Relationship Between Corporate Governance And Financial Performance Of Parastatals In Nigeria


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The Relationship Between Corporate Governance And Financial Performance Of Parastatals In Nigeria


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Frequently Asked Questions


Does corporate governance affect financial performance in listed companies in Nigeria?

H1: There is a statistically significant relationship between corporate governance and organizational financial performance in listed companies in Nigeria. H02: There is no statistically significant relationship between board independence and organizational financial performance in listed companies in

Do corporate governance mechanisms affect firm performance?

Relationship between corporate governance mechanisms and firm performance 181 (Baulkaran, 2014; Bhagat & Bolton, 2013; Francis et al., 2013; Muller, 2014). Researchers have also predicted the likely magnitude of change in financial

Does good governance improve corporate performance in Tunisia?

On assets and ownership structure and state ownership in 60 nonfinancial companies listed on the Tunisian Stock Exchange. Adewuyi and Olowookere (2013) also used return on assets as a measure of corporate performance. They found a positive and significant relationship between a good governance change

Do board characteristics affect firm performance?

This study examined the association between board characteristics and other corporate governance mechanisms and firm performance. The corporate governance mechanisms were board independence, audit committee independence, executive compensation, number of board

Does corporate governance affect financial performance of insurance companies in Nigeria?

However, the fixed effect econometric estimator employed in this study indicated that corporate governance mechanisms affects the financial performance of Insurance companies in Nigeria.

What influences the level of earnings management practised in Nigeria?

Based on the findings, corporate governance attributes influences the level of earnings management practised in Nigeria. Earnings Management, Corporate Governance, Audit Committee, Ownership Structure, Board Size.

Does corporate governance affect firms’ performance?

However, better governance is likely to bring about exceptional performance in organizations (Uwuigbe et al., 2017). Hence, corporate governance has a high level of impact on firms’ performance and the practice of earnings management.

Does top executive compensation affect financial performance of Nigerian banks?

Junaidu and Sani 21 studied the effect of top executive compensation on the financial performance of Nigerian banks. The study found a positive and significant link between executive compensation and profit before tax.

How does corporate governance affect the performance of companies?

Theoretically, GCG practice can improve the company’s financial performance, reduce the risk that may be done by the board with decisions that favor their own and generally corporate governance can increase investor confidence to invest its capital that will impact on its performance.

What is a good system of corporate governance?

A good system will provide effective protection to shareholders to recover their investment reasonably, appropriately and efficiently, and ensure that management acts for the benefit of the company. Research on the effect of GCG on the firm performance has been conducted extensively.

What is the effect of GCG on corporate governance?

Hermiyetti and Manik said that the insignificant effect is the result of the existence of the GCG mechanism which only serves as a form of corporate compliance with government law and regulation, so that the application of the GCG mechanism becomes ineffective and not optimal in supervising management actions.

Do current corporate governance mechanisms minimize the agency problem?

The finding contributes to knowledge by providing new and original evidence that some current corporate governance mechanisms are not effective in minimizing the agency problem in a developing setting.

Does corporate governance improve financial and non-financial performance?

Likelihood that companies improve their financial and non-financial performance. The most effective variables of ‘good’ governance are board independence, demographic diversity, remuneration, CEO characteristics, and oversight and ownership structure.

Do corporate governance codes improve performance?

There is a clear trend of improvements in governance codes and corresponding best practices. Whether they actually improve governance practices, and company performance, is less apparent.

Why Deloitte & Nyenrode for good governance?

Deloitte and Nyenrode aim to contribute to the dialogue on good governance. We aim to explore good practices for Boards, provide guidance to identify and remediate dilemmas with the purpose of improving corporate performance.

What are the drivers of corporate governance in financial services?

Here are six relevant drivers of corporate governance that should be essential to any Financial Services Firm. Board of directors independence : A larger number of independent members improves the Board’s objectivity and its ability to represent multiple points of view.

Does board size and independence affect firm performance?

Empirical findings indicate that there is significant positive association between board size and firm performance. Board independence is found significantly related to firm performance. Number of board meetings is found to be sending positive signal to the market creating firm value.

Does the number of board meetings affect firm performance?

Number of board meetings is found to be sending positive signal to the market creating firm value. Separation of CEO and chairman of the board is found to be value creating and overburdened directors affect firm performance adversely.

Does separation of CEO and chairman of board affect firm performance?

Separation of CEO and chairman of the board is found to be value creating and overburdened directors affect firm performance adversely. Findings also suggest that the governance-performance relationship is also dependent upon the type of performance measures used in the study.

Is structural equation modeling effective for measuring firm performance?

Structural equation modeling methodology has been employed on data for five financial years from 2010 to 2014 for selected companies. Market-based measure (Tobin’s Q) and accounting-based measure (return on asset) have been employed for measuring firm performance. 

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