IMPACT OF CORPORATE GOVERNANCE COMPLIANCE ON PERFECTIBILITY OF MANUFACTURING FIRMS IN NIGERIA

IMPACT OF CORPORATE GOVERNANCE COMPLIANCE ON PERFECTIBILITY OF MANUFACTURING FIRMS IN NIGERIA

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CHAPTER ONE

1.1  Back Ground to the Study:

Corporate governance is the system by which companies are directed and controlled. Good governance can have wider impact to the firms because it is fundamentally about improving transparency and accountability within existing system. Corporate governance has received increased emphasis both in practice and in academic research. It assumes significance as a viable tool for ensuring corporate survival, since business confidence usually suffers each time a corporate entity collapses. The emphasis for good corporate governance is due to the prevalence of highly publicized and misleading financial reporting and unprecedented misleading number of earning restatements of firms.

International interests have been attracted to Nigeria recently following the discovery of Enron like scandals in the subsidiary of Cadbury. Schweppes in Nigeria. Cadbury Nigeria Plc concerns have been raised particularly because of the firm’s high profile in sector and domestic economy being a major player in Nigerian stock exchange. The fact that it took Cadbury Schweppes the parents company’s intervention to discover the irregularities have called into question the capacity of the Nigerian corporate governance environment and framework. It must be observed that the financial accounts in question were Scrutinized and approved by the Nigerian stock Exchange (NSE) and securities and exchange commission (SEC) and most importantly, in this connection the shareholders of the company. Cadbury Nigeria PLC has been listed in the NSE since 1976 and is in the top ten of the 258 quoted equities by market capitalization as of year 2003. The company employed more than 2000 employees and its sales turnover in 2003 was around $150 million not until when a private investigation firm price water house coopers revealed a significant and deliberate overstatement of the company’s financial statement over the years.

     In this regard therefore, investors including pension managers have since the revelation lost a lot of money, shares of the company decline translating into a loss in shares holders equity and job loss. The state of affairs in Nigeria, a country which is striving to gain the confidence of domestic and foreign investors is further undermined, the economy yet in sceptical state. Realizing the fact that the economy needs salvage and also to align with international best practice also to curb the dangers ahead.  Consequently, the Securities and Exchange Commission (SEC) in collaboration with the corporate affairs commission (CAC) inaugurated a seventeen-member committee on June 2000 in Nigeria, headed by peter side Aledo, mandated to identify weaknesses in the current corporate governance practice in the country.

      This research study will find the extend at which corporate governance compliance will impact on performance of manufacturing firms in Nigeria. The board composition and audit committee component of corporate governance as determinants of performance serves as independent variables, in relation to dependent variables

1.2  Statement of the Problem:

It is a known fact from studies that poor corporate governance has been the weaknesses of many corporations in both developed nations. This is particularly true of Nigeria where corruption is endemic (OKIKE, 2007). Corporate governance has been identified to influence the performance decision of firms especially listed manufacturing firms. According to Abor (2007) it has been established by extent literatures that corporate governance includes board size, board composition, CEO duality, audit committee as well as tenure of the CEO and CEO compensation. 

       Beside empirical result on the relationship between corporate governance and performance appear to be varied and inconclusive. The board of directors is charged with the responsibility of managing the firm and its operations. According to lipdon and lorsh (1992) there is a significant relationship between performance and board of directors. It has been argue that a board with relevant skills and personalities enhance performance and at the same time tends to bring friction in strategic decision – making due to conflict of interest. This goes to explain that boards with different personalities if well and fully efficient use will achieve goals. And also board members could result differently in arriving at agreed decision, therefore undermining efficiency and shareholders wealth. as a result therefore, the code of corporate governance comes into play trying to bridge the gap between management and shareholders wealth maximization for optional performance.

1.3  Objective of the Study:

The main objective is to examine the impact of corporate governance on firms performance specifically to:

1.      Determine the impact of corporate governance compliance on perfectibility of manufacturing firms in Nigeria.

2.      Assess the impact of corporate governance compliance on asset growth of manufacturing firms.

3.      Establish the impact if corporate governance compliance or return on equity of manufacturing firms in Nigeria.

4.      To determine the impact of corperate governance in growth manufacturing firms.

1.4              Research Questions:

In order to find solutions to the research problems, the study addresses the following research questions.

1.      What is the impact of corporate governance compliance on the profitability of manufacturing firms?

2.      Does corporate governance compliance impact on asset growth of manufacturing firms?

3.      What is the impact of corporate governance on returns on equity of manufacturing firms?

1.5              Hypotheses of the Study

The following hypotheses formulated are to be tested in the course of the study.

Ho1, corporate governance compliance has no significant impact on profitability of manufacturing firms.

HO2: corporate governance compliance has no significant impact on the asset growth of manufacturing firms.

HO3: corporate governance compliance has no significant impact on return on equity of manufacturing firms.

1.6              Significance of the Study

The findings of the study are to show whether or not corporate governance compliance mechanism is a significant determinant of performance of firms. As such will be of use and beneficial to the following group and agencies.

1.      Regulatory Authorities: Regulatory authorities such as Securities and Exchange Commission (SEC) and Nigerian stock exchange (NSE) would have a clue as to the existence, nature and extent of impact of corporate governance compliance on firms in policy formation and implementation.

2.      Board of Directors: The firm’s board of directors would find the study useful as to appreciate the need to use corporate governance as a tool for enhancing financial decisions.

3.      Shareholders: Shareholders would also find this study useful because it helps them understand the nature and extent of impact of corporate governance on the firms.

4.      Students: Student of management sciences and others who may wish to further study on the topic may find it Useful and beneficial.

1.7  Scope of the Study:

The study will focus primarily on the impact of corporate governance on the performance of manufacturing firms in Nigeria. How they will instill transparency and accountability of management and board of directors, integrity in the part of audit committee of the firms.

A survey of five quite manufacturing firms will be carry out within a time frame of years (2003-2007) for the purpose of this research, simple linear regression analyses will be use 

1.8  Plan of the Study

This research work is segmented into five chapters which deal with the general background of the study, the statement of the problem, the objectives of study, the research question, research hypothesis, scope of the study, significance of the study and plan of the study.

The second chapter deals with the review of the others authors and contributions to the research topic; it is specifically divided into segmented. Chapter three is titled research methodology and is segmented into research method, population, method of data collection and analysis. Chapter four of this research work deals with data presentation, analysis and interpretation. The last chapter, which is chapter five deals with   summary, conclusion and recommendation.



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