CHAPTER ONE
INTRODUCTION
1.1 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 performance of the 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 performance 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 performance 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.
1.2 STATEMENT OF THE PROBLEM
Corporate governance is expected to affect directly, the performance 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.
- Does the board size have significant impact on the performance of the banks in Nigeria?
- Does the composition of the board have significant impact on the performance of the banks in Nigeria?
- Does insider ownership have significant impact on the performance of the banks in Nigeria?
1.3 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 performance.
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:
- To examine whether board size have significant impact on the performance of the banks in Nigeria.
- To examine if the composition of the board have significant impact on the performance of the banks in Nigeria.
- To determine whether the insider ownership have significant impact on the performance of the banks in Nigeria.
1.4 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 performance of the banks in Nigeria.
H1: The size of the board has significant impact on the performance of the banks in Nigeria.
Hypothesis 2
Ho: The composition of the board has no significant impact on the performance of the banks in Nigeria.
H1: The composition of the board has significant impact on the performance of the banks in Nigeria.
Hypothesis 3
Ho: The insider ownership of the board has no significant impact on the performance of the banks in Nigeria.
H1: The insider ownership has significant impact on the performance of the banks in Nigeria.
1.5 SCOPE OF THE STUDY
The research study focuses on corporate governance indicators and performance 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 2010.
Geographically, the study will specifically be restricted to Benin City, Edo State.
1.6 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 performance
The benefits derivable from the outcome of this research study include:
- Creation of awareness to both existing and potential investors on matter concerning corporate governance arrangement of banks.
- The observers will have an insight into the importance of effective and transparent corporate governance.
- It will serve as a productive addition to the existing literature on corporate governance and performance.
- The result of the study is intended to serve as a suggestion to Nigerian companies this, they can greatly improve firm performance through a determined effort to improve their corporate governance.
- To enlighten the investors on policies, laws, and reforms that are pertinent for their protection.
It will also serve as reference point for further studies.
