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CORPORATE GOVERNANCE
INDICATORS AND FIRM VALUE IN THE NIGERIA BANKING SECTOR
ABSTRACT
This study is
motivated by a desire to examine corporate governance indicators and firm
values in the Nigerian banking sector. In light of the empirical review and
other discussions, a number of questions arose as to whether board size have
significant impact on the values of banks in Nigeria, as well as to ascertain
whether the composition of the board have significant impact of firm values of
banks in Nigeria. Using the Ordinary Least Square (OLS) regression
technique with the aid of computer software, the empirical findings revealed
among other things that size of the board has no significant impact on the
values of banks in Nigeria. Recommendations where however made by the
researcher.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
1.1
Background to the
Study
1.2
Statement of the
Problem
1.3
Objectives of the
Study
1.4
Hypotheses of the
Study
1.5
Scope of the Study
1.6
Significance of the
Study
CHAPTER TWO: LITERATURE REVIEW
2.1
Introduction
2.2
Corporate Governance Practices
2.3
Corporate Governance and Risk Management in Nigerian Banks
2.4
Corporate Governance Codes for Nigerian
Banks
2.5
Role and Responsibilities of the Board
2.6
Ownership
Concentration
2.7
Shareholders’
Rights
2.8
Regulatory
Framework
2.9
Transparency and
Disclosure
2.10
Monitoring and
Enforcement
2.11
Corporate Governance Measures in
Nigeria
2.12
Corporate Governance
Mechanisms
2.13
Theoretical
Framework
CHAPTER THREE: RESEARCH METHODOLOGY
3.1
Introduction
3.2
Research Design
3.3
The Population
3.4
Sample Size
3.5
Sampling Technique
3.6
Sources of Data
Collection
3.7
Method
Specification
3.8
Method of Data Analysis
CHAPTER FOUR: DATA PRESENTATION AND
ANALYSIS
4.1
Introduction
4.2 Presentation and
Analysis of
Results
4.3 Correlations
Analysis
4.4 Test of Hypotheses
CHAPTER FIVE: SUMMARY OF FINDINGS,
CONCLUSION AND RECOMMENDATIONS
5.1
Introduction
5.2 Summary of
Findings
5.3
Conclusion
5.4
Recommendations
Bibliography
Appendix
CHAPTER ONE
INTRODUCTION
1.7
BACKGROUND TO THE STUDY
In
today’s business world, most organizations maintain a corporate code of
conduct. It’s a statement of an organizations value, and includes standards for
employee behaviours that align with these values. Developing a code of conduct
helps an organization define how it operates, how it integrates it core value
into everyday business operations and how it relates to key stakeholders
(George B. Breen and Amg F. Lerman, 2011).
There
is no gain-saying the fact that, the idea of corporate governance has taken a
primal place in the modern day business world. This is truly captured by the
president of bank when he said that, “The proper governance of companies will
become as crucial to the world economy is the proper governing of countries”
(Wolfenson, 1999). Nigeria as an emerging economy looks to the private
sector for the required quantuin leap, towards rapid development. There is a
reviewed emphasis of effective governance, practically for public limited
liability companies. This is in recognition of the fact that, effective and
efficient governance will improve with which the boards of such companies
discharge their corporate and statutory responsibilities will substantially
affect the overall values of economy. Recently corporate scandal has put
company hands in the spotlight, legislation, soles of conduct and guidelines
have been developed to improve corporate governance Richard Leblanc (2007).
Mc
Gee (2009) states that good corporate governance helps to increase share
capital or price and makes its easier to obtain capital and that international
investors tend to be reluctant to lend money or buy shares in a corporation
that does not subscribe to good corporate governance principles.
It
is note-worthy to mention here that, the issue of corporate governance arose
due to the separation of management and ownership in the modern corporation. In
practice, the interest of the management could differ from the interest of the
shareholders. The so called “management – shareholders “problem is reflected in
management pursuing activities, which may be detrimental to the interest of the
shareholders of the firm and society at large, (Mersah, 2000). Given this
states of affairs, it become pertinent for management to render stewardship
account to shareholders on how the resources put at their disposal were
utilized, and the net effect of their effort of their firm.
A
company whose values increases over the years is expected to survive. The
major causes of business collapse in Nigeria can be attributed to governance
failures, (Wood, 2003). Tentatively, we can say that, corporate governance is
related to values of firms. Well–functioning corporate governance
mechanism in emerging economics are crucial for both local firms and foreign
investors interested in the tremendous opportunities that such economies
provides. As such improvements in corporate governance can enhance investors
confidence and increase these firms access to capital (Rajagopalam and Zhang
2008).
A
number of studies investigate the efficacy of firm governance structures in
promoting performance. As pointed out by Core, Holthnusen and Larcker (1999),
collective evidence from these studies is mixed, failing to provide a coherent
pictures of what constitutions an optimal governance arrangement, nevertheless,
this study investigates the effects and extend of corporate governance practice
in some selected Nigerian quoted companies on overall firm values and
performance also intends to uncover new results while confirming the keys
finding and prediction of prior research.
1.8
STATEMENT OF THE PROBLEM
Corporate
governance is expected to affect directly, the value of firm. A good number of
ideas and theories has been put down by learned persons or corporate
governances. Therefore, it will be of utmost interest to find out if such
researches are not just for literature purposes but can be observed in the
outwitted of an organization. It is also expected that, through influence on
firm strategies and decisions with regards to inputs, output, innovations and
markets, the governance arrangement should influence firm performance.
This
research work tends to find solutions to the following problems.
1.
Does the board size have significant impact on the values of banks in Nigeria?
2.
Does the composition of the board have significant impact on the values of
banks in Nigeria?
3.
Does insider ownership have significant impact on the value of banks in
Nigeria?
1.9
OBJECTIVES OF THE STUDY
Transparency
in corporate governance of a firm helps to maintain the confidence of
investors. Actually or potential, as well as attract long – term capital, the
more businesses are perceived to be accountable, transparent and socially
responsible, the more they are perceived to be founded on integrity, the
greater will be their competitive advantage which should in turn result in
increased value.
The
motivation to research of this study is guided by the fact that, in developing
countries like Nigeria face with ineffective corporate governance practices,
the manager do not bring about optimum performances of the company unlike in
the advance countries. Therefore, the objectives of the study are:
i.
To examine whether board size have significant impact on the values of banks in
Nigeria.
ii.
To examine if the composition of the board have significant impact on the
values of banks in Nigeria.
iii.
To determine whether the insider ownership have significant impact on the
values of banks in Nigeria.
1.10
HYPOTHESES OF THE STUDY
The
following hypothesis would be tested empirically in the course of this research
work and the result would form the basis of conclusion and recommendation.
Hypothesis 1
Ho: The size of the board
has no significant impact on the values of banks in Nigeria.
H1: The size of
the board has significant impact on the values of banks in Nigeria.
Hypothesis 2
Ho: The composition of the board
has no significant impact on the values of banks in Nigeria.
H1: The
composition of the board has significant impact on the values of banks in
Nigeria.
Hypothesis 3
Ho: The
insider ownership of the board has no significant impact on
the
values of banks in Nigeria.
H1: The insider
ownership has significant impact on the values of banks in Nigeria.
1.11
SCOPE OF THE STUDY
The
research study focuses on corporate governance indicators and firm values of
Nigeria Banking Sector.
The
sample size is restricted to 16 selected banks quoted in the Nigeria Stock
Exchange. They are selected in order to get the effect of corporate governance
on different bank’s performance.
The
time frame of this study is 2011.
Geographically,
the study will specifically be restricted to Benin City, Edo State.
1.12
SIGNIFICANCE OF THE STUDY
The
need for corporate governance has recently been receiving a great deal of
attention in various national and international fora. Shareholders are now
increasingly aware of the need for transparency in the governance of the firms
they invest. Hence, the importance of such research work on corporate
governance as it affects firm values
The
benefits derivable from the outcome of this research study include:
i.
Creation of awareness to both existing and potential investors on matter
concerning corporate governance arrangement of banks.
ii.
The observers will have an insight into the importance of effective and
transparent corporate governance.
iii.
It will serve as a productive addition to the existing literature on corporate
governance and performance.
iv.
The result of the study is intended to serve as a suggestion to Nigerian
companies this, they can greatly improve firm values through a determined
effort to improve their corporate governance.
v.
To enlighten the investors on policies, laws, and reforms that are pertinent
for their protection.
vi.
It will also serve as reference point for further studies.
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