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1.1 Background to the Study
Corporate governance has received greater attention from regulators, professionals and academics following a series of corporate scandals that had happened in large companies around the world. The issue of corporate governance has attracted the attention of both business market leaders and regulatory authority around the globe, aiming to minimize the scandals rate in companies.
Shareholders are often considered to be the corporate proprietors, though company directors are representatives of shareholders that are expected to assign business resources in a way to improve shareholders’ fortune. The commitment of several shareholders for investment in organizations is profit not control (Kadivar, 2006).
The concepts of corporate governance encompass problems such as measure of management, degree of control as well as way of relationship between the great and small shareholders. Corporate governance spells out the delivery of rights and duties among diverse players in the establishment; the board, managers, shareholders as well as other stakeholders. It also stipulates the techniques for making decisions on corporate affairs. In this fashion, it offers the framework whereby the organisation’s goals are established and strategy for reaching those goals and monitoring performance (Kaola, 2008).
According to Aganga (2011), the issue of corporate governance is comparatively fresh in Nigeria, on account of several cases of corporate misconduct. The shift in Nigeria system of government from military era to the democratic dispensations with a policy to catch the attention of new and environmentally friendly foreign investments entailed the requirement for corporate governance reform. This results in a recognized commission to evaluate the presence, adequacy and corporate governance relevance in Nigeria relative to global best practices as a reaction to the New International Economic Order. Considering the importance linked to the organization for efficient corporate governance, the Nigerian government, via its numerous agencies, has constituted several institutional arrangements to safeguard the investors’ valuable investment from disingenuous management/directors of company in Nigeria (Aganga, 2011). Despite all the efforts and mechanism put in place by government, there are cases of crises, collapses, inefficiencies, and eventual distress among the firms in Nigeria. This may be the consequence of management-shareholder conflict or agency conflict especially while shareholders want long term maximization of their compensation and power.
Ownership structure has been identified as one of corporate governance mechanisms that influence organizational performance. According to Ebrahim, Abdullah and Faudziah (2013), ownership structure is among the central mechanisms of corporate governance. Ownership structure has been a consideration seeker to both scholars and analysts alike. The innovative study in the theory of the organization, on modern firm was performed by Berle and Means (1932). They focus on the disputes of great interest between controllers and managers, claimed that with growing ownership diffusion, the authority of the shareholders to handle management is been curtailed.
Karaca and Ekşi (2012) asserted that the ownership structure - corporate performance relationship continues to be getting important interest in economic literature. In a similar vein, Fama and Jensen (2003) and Jensen and Meckling (1986) showed that the ownership diffusion has a substantial impact on the genuineness of the profit-maximizing aim of companies, as the separation of control allows corporate managers to put in effort to pursue their own interests. Furthermore, Demsetz (1983) asserted that ownership structure is an endogenous facet of governance that raises the earnings and worth of an establishment. In addition, Fazlzadeh, Hendi and Mahboubi (2011) also acknowledged that ownership structure performs major function on firms’ overall performance and offers policy makers with experience for improving the system of corporate governance. In most developed nations, ownership structure is substantially distributed. On the other hand, the emerging nations identified by less strong legal system protecting the interest of investors, the ownership structure are concentrated (Ehikioya, 2009).
Performance of an organisation is often determined by how effectively and efficiently the firm is able to achieve the set goals which may be financial or operational. The operational performance concerns firm’s growth and expansion in relations to sales and market value (Hofer & Sandberg, 1987). The financial performance of the firm relates to its motive to maximise profit both to the owners and on assets. Long, Mahanra, and Ajagbe (2013) argued that the nature of ownership of a firm influences the firm’s performance, in emerging economies such as Nigeria where it is contended that ownership is less disperse and control is not fully separated from ownership.
The interest in ownership studies, led to institutional shareholders or large block holders investing in firms. It was discovered in recent times that the percentage of institutional investment is increasing on corporate equity with control and monitors performance. Zuobawei and Zhang (2004) considered different kinds of ownership structures including state ownership, organization’s investing and foreign ownership as independent variables. The result of his survey showed that there is a negative relationship between the structure of state ownership and firm performance. The relationship between the structure of organization ownership and firm performance is also reported negatively significant. Family ownership often needs a long-term perspective within the firm, which gives many benefits: owners with longer investment period experience less managerial short sightness of company’s performance.
Literature examined the significance of ownership structure on firm performance, Cheng (2008) stated there is no significant relationship between firm performance and ownership concentration in some European countries. Aljifri and Moustafa (2007) in their study revealed that governmental ownership has significant relationship with firm performance, while institutional ownership has no significant relationship with firm performance. Therefore, the current research targets the assessment of the ownership structure - firm financial performance relationship.
1.2 Statement of the Problem
In Nigeria, most organizations’ crises, inefficiencies, and eventual distress are linked to the ownership structure of such organizations, the separation of control and sub optimal performance of management results in conflict with owners. This is mainly the consequence of management-shareholder conflict or agency conflict. Specifically, while shareholders want long term maximization of their compensation and power (larger enterprises), management often pursue other interests’ different from the shareholders’ interest. Furthermore, the agency problem in business organization governance arises because of considerable information asymmetry between shareholders and managers and uncertainty about strategic decisions. Managers have a lot more information than shareholders have about the organization, which makes it difficult for the shareholders to determine if the organization is being governed in their interests (Ebrahim et al, 2013).
Studies on agency problem revealed that managers use the information and available organisation resources to pursue their interest rather than owners’ interest resulting in conflict of interest and sub optimal performance. Sadiq, Muthar, Oyebola, and Rasheed (2011) viewed the main problem as the owners’ inability to monitor the managers/agents performance.
The performance of the manufacturing sector in the country compared to the other sectors is low; Adenikinju (2005) confirmed that manufacturing contribution to foreign exchange earnings was found to be less than one percent (1%) while about eighty-one percent (81%) of the nation’s total foreign exchange earnings was utilized by the sector. In terms of employment generation, about ten percent (10%) of the population was employed compared to seventy percent (70%) in agriculture and twenty percent (20%) in services. The dismal performance of Nigeria’s manufacturing sector is manifested in the high level of graduate unemployment, poverty, corruption and other types of social vices which constitutes a threat to the nascent democracy and further investments in Nigeria, thereby perpetuating underdevelopment.
There have been no consensuses on how to resolve the conflict of interest and suboptimal performance among scholars, regulators and professionals. The lack of consensus have led to a variety of mechanisms on how to deal with the problem of agency (owners-management).These include promoting managerial share ownership, encouraging ownership concentration and discouraging government ownership.
The government and regulatory bodies have continuously encouraged the restructuring of ownership structure of organizations to enhance efficiency and profitability as one way of dealing with the problem. The uncertainty surrounding the outcome of these options may have further made organizations vulnerable to decline in profits, due to existing uncompetitive ownership structure (Ezygwu & Itodo, 2014). The possible impact of initial public offers, conversion to public limited company (Plc), and mergers on ownership structure and the subsequent impact on the operating performance of companies is an issue which has not received sufficient conclusive empirical attention in Nigeria.
Most researches and similar studies on ownership structure, focused on firms’ capital structure, value of shares, corporate performance and the case studies were often on the banking, and insurance institutions of developed and developing economies, some works are, Eric,(2011), Ezugwu & Itodo, (2014), Chari, Chen & Domingues, (2012) examined foreign ownership and performance in emerging market acquisition, and Adenikinju & Ayorinde, (2012), worked on ownership structure, corporate governance and corporate performance of Nigeria quoted companies. Few researchers examined the non financial sector, though taking a global view at the trading and services sector, Zakaria, Purhanudin & Palanimally, (2014).
Based on this, the study tried to fill the existing gap of having limited work done on other industry of the economy. Hence, the focus of this study was on examining the correlation between ownership structure (dimensions) and financial performance of Nigeria food and beverage industry listed on the Nigerian Stock Exchange.
1.3 Objective of the Study
The general objective of this study is to examine the relationship between ownership structure and financial performance with particular reference to the listed food and beverage manufacturing companies in Nigeria. The specific objectives are to:
1. determine the relationship between managerial ownership and performance of Nigeria food and beverage industry;
2. examine the influence of institutional ownership on performance of Nigeria food and beverage industry;
3. investigate the influence of foreign ownership on performance of Nigeria food and beverage industry;
4. determine the relationship between government ownership and performance of Nigeria food and beverage industry;
5. examine the influence of family ownership on performance of Nigeria food and beverage industry.
1.4 Research Questions
The following research questions were the focus of this study:
1. what relationship exist between managerial ownership influence on performance of Nigeria food and beverage industry?
2. what influence does institutional ownership have on performance of Nigeria food and beverage industry?
3. how does foreign ownership affects performance of Nigeria food and beverage industry?
4. what relationship exist between government ownership and performance of Nigeria food and beverage industry?
5. to what extent does family ownership influences performance of Nigeria food and beverage industry?
The following null hypotheses were postulated for the study:
Ho1: Managerial ownership has no significant relationship with performance of Nigeria food and beverage industry.
Ho2 Institutional ownership has no significant influence on performance of Nigeria food and beverage industry.
Ho3: Foreign ownership has no significant effect on performance of Nigeria food and beverage industry.
Ho4: Government ownership has no significant relationship with performance of Nigeria food and beverage industry.
Ho5 Family ownership has no significant influence on performance of Nigeria food and beverage industry.
1.5.1 Rationale for Hypotheses
The opinion of separating control from owners may results in divergence of purpose amongst the managers and owners. This had led to many studies on the relationship between firm’s financial performance and managerial ownership. Literature examined that with management owing part the shares diversity of interest would be reduced, investigation on the relationship between managerial ownership and firms’ performance had shown mixed findings, Gugory, Arugu & Dangogo (2014) attested that they are associated, thus Ho1 was formulated.
Institutional ownership involvement in firms is contentious. Some studies viewed the institutional shareholding as improving the performance of the firm, because the huge investment would motive keeping trail of the records to ensure earnings. Ioraver & Wilson, (2013), in their study established that institutional ownership has influence on firm’s performance, based on this Ho2 was stated.
The third null hypothesis is on foreign ownership and firm performance. Previous studies explored ownership structure, corporate governance and performance reveals no significant between diverse shareholding and performance. However, Eric, (2011) and Ioraver & Wilson, (2013) found that foreign ownership have impact on firms’ performance, hence Ho3 was postulated.
The relationship between government ownership and firm performance as other ownership dimensions had been widely examined and showed mixed results. Mei, (2013) established relationship between government ownership and performance.
The hypothesis postulated that family ownership does not have influence on firms’ performance, among literature on ownership structure, Mei, (2013), showed that family ownership has impact on performance.
1.6 Scope of the Study
There are many factors that affect the governance and performance of companies. However, this study focuses on the impact of the ownership structure, (managerial ownership, institutional ownership and foreign ownership, government ownership and family ownership) while organizational performance as dependent variable was based on the financial performance. Performance was measured using return on assets and return on equity in term of content. The geographical scope of this study covers all the sixteen (16) listed food and beverage firms, listed on the Nigerian Stock Exchange for the period of five years, 2010 to 2014.
1.7 Significance of the Study
The study is expected to advance knowledge on the impact of ownership structure variables on performance of Nigeria food and beverage industry. This area has attracted little attention of empirical researchers in Nigeria for the obvious reason of non-availability of ownership structure data in an organized form and also in terms of proper econometric modelling.
The study would contribute to the past literature on association between ownership structure and firm performance, by adopting a more recent data set to test the impact of institutional setting on the relationship between ownership structure and firm performance.
The findings of the study are expected to equip policy makers with the relevant information on the right ownership structure that would ensure higher and sustainable performance in the industry.
The research on the ownership structure of Nigeria food and beverage industry would enrich the growing concern of ownership structures around the world.
1.8 Operationalization of Variables
This research examined the relationship between ownership structures and financial performance of firms. The independent variable is ownership structure (managerial ownership, institutional ownership, foreign ownership, government ownership and family ownership) and the dependent variable is performance, thus is functionally expressed;
Y = f (X)
Y = performance
X = [x1, x2, x3, x4, x5]
x1 - Managerial ownership (MGO)
x2 - Institutional ownership (INO)
x3 - Foreign ownership (FRO)
x4 - Government ownership (GVO)
x5 - Family ownership (FMO)
This is stated and structured based on the research hypotheses;
Hypothesis one: P = f(MGO)
P = β0 + β1 (MGO)
Hypothesis two: P = f(INO)
P = α0 + α1 (INO)
Hypothesis three: P = f(FRO)
P = a0 + a1 (FRO)
Hypothesis four: P = f(GVO)
P = b0 + b1 (GVO)
Hypothesis five: P = f(FMO)
P = c0 + c1 (FMO)
Where: β1 are regression coefficient of (MGO
α1 are regression coefficient of (INO)
a1 are regression coefficient of (FRO)
b1 are regression coefficient of (GVO)
c1 are regression coefficient of (FMO)
and βo, αo, ao, bo, and co are constant terms
Managerial ownership = Number of shares held by management
Total owners’ equity
Institutional ownership [INO] = Number of shares held by indigene institutions
Total owners’ equity
Foreign ownership [FRO] = Number of shares held by non-nationals
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