Academic journal article IUP Journal of Corporate Governance

Impact of Governance Instruments on the Productivity of Nigerian Listed Firms

Academic journal article IUP Journal of Corporate Governance

Impact of Governance Instruments on the Productivity of Nigerian Listed Firms

Article excerpt

(ProQuest: ... denotes formulae omitted.)


Modern day business has always suffered from the dilemma of the sole goal of profit maximization or the satisfaction of other goals like personal interests of managers and other stakeholders. This phenomenon has attracted attention, especially under the principalagency problem of firms (Ross, 1973; and Jensen and Meckling, 1976) and the stakeholders' theory (Freeman, 1984; Jones, 1992; Donaldson and Preston, 1995; Frooman, 1999; and Hill and Phillips, 2004). Contemporarily, these issues are swathed in the tenets of corporate governance. Corporate governance, according to John and Senbet (1998), involves stakeholders' attempts to ensure that managers and other insiders adopt mechanisms that safeguard their interests. Theoretically, corporate governance practices are expected to focus the board's attention on optimizing the company's operating performance and returns to shareholders.

In Nigeria, studies have shown that, largely, the institutions and the legal framework for effective corporate governance appear to be in existence (Oyejide and Soyibo, 2001; and Adelegan, 2007a). However, the corporate governance structure in the country is characterized by weak or non-existent compliance, and/or enforcement (Oyejide and Soyibo, 2001; and Wilson, 2006), and a weak market for corporate control (Adelegan, 2007a). This is aggravated by the fact that most businesses in the formal sector are not publicly listed and nearly 87% of the formal sector businesses are not operated outside the legislation governing the capital market (Oyejide and Soyibo, 2001). Other factors like underdevelopment and the emerging nature of the Nigerian capital market, as characterized by the thinness of trading, low market capitalization, low percentage of turnover level, and low liquidity of the market (Adelegan, 2004), can also be said to impair the effectiveness of corporate governance mechanisms.

The above problems notwithstanding, the Nigeria Security and Exchange Commission (SEC), along with other agencies like the Corporate Affairs Commission (CAC) and the Central Bank of Nigeria (CBN), are still proving up to the task in their enactment of relevant policies that can foster good corporate governance in Nigerian business firms. A notable effort in this direction has been the enactment of the Companies and Allied Matters Decree (CAMD) of 1990, which can be said to be the basic company law in Nigeria.

Further, consequent to the scandals observed in some large corporations like Enron and WorldCom, greater attention has been accorded to governance issues to obviate such recurrences across countries. Nigeria, therefore, also realized the need to align with the international best practices, identifying board composition and operations as the major weakness in the current corporate governance practice in Nigeria. Hence, the releases of the code of corporate governance in Nigeria by SEC and CAC in 2003, and the code of corporate governance for banks in Nigeria, post-consolidation, in 2006 by CBN, were in the direction of bringing corporate governance regulation for Nigerian business firms. Although previous corporate laws in Nigeria attempted at protecting the often violated shareholders' right, the SEC release on the conduct of shareholders' association in Nigeria (2007), more than ever before, was designed to ensure that association members uphold high ethical standards and make positive contributions in ensuring that the affairs of public companies are run in an ethical and transparent manner, in compliance with the code of corporate governance for such companies.

It is, therefore, necessary to document the effects that the stipulations of these regulations exert on Nigerian quoted firms. The current work is, however, at variance with preceding works on corporate governance in Nigeria, as the latter usually employs financial performance measures, namely, Tobin's Q, return on assets, return on equity, and priceearning ratio. …

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