Does the Mechanism of Corporate Governance mater? Evidence from Nigerian Listed Firms

International Journal of Research and Innovation in Social Science (IJRISS) | Volume VI, Issue III, March 2022 | ISSN 2454–6186

Does the Mechanism of Corporate Governance mater? Evidence from Nigerian Listed Firms

Ologunwa, Oluyemi. Philip (Ph.D) and Ayilara Mobolaji Akeem
¹Department of Economics, School of Management Technology, Federal University of Technology, Akure,
²Department of Management and Accounting, Lead City University Ibadan, Nigeria.

Abstract: The mechanism of corporate governance and the type of information about corporate decisions are on one side and on the other side, the performances of the firm and the information that the corporation should make public, constitute major issues of discussion in the corporate governance debate. Specifically, this paper examined the importance of corporate governance mechanisms in the issue of making corporate financial report more transparent to stakeholders, and the extent to which the oversight bodies set to oversee the firms. This paper employed quantitative research method using multiple regression tests with panel data analysis spanning 2008 to 2019. Despite that the role of a firm chairman & CEO in one person is discouraged by the SEC and CBN codes, this finding differs, especially in the short run as the combining role of leadership structure (LDS) has a significant relationship with firm performance. Using ROA as a measure of performance, the effect of board size is significant at the short run. This is an indication that initial increase in the number of persons on the board of Nigerian firms raises returns on asset (ROA), however, beyond a certain point; increases in board size will adversely affect ROA. This paper concludes that, the performance of listed firms in Nigeria between 2008 and 2019 was determined by the mechanisms of corporate governance. The paper recommends that separating the roles of CEO and the Chairman of the board is value enhancing, that firm interest should be above self-interest as board responsibilities increases

Keywords; Corporate Governance Mechanisms, Firm Performance,

I. INTRODUCTION

Corporate Governance has become a central issue of policy debate for more than three decades now see for instance, (Adenikinju, 2005; Imam & Malik, 2007; Black, De Carvalho, 2010). The mechanism of corporate governance and the type of information about corporate decisions are on one side and on the other side, the performances of the firm and the information that the corporation should make public, constitute major issues of discussion in the corporate governance debate. Specifically, the issue of making corporate financial report more transparent to stakeholders, and the extent to which the oversight bodies set to oversee the firms, become functional issue. The practice “good corporate governance” is seen as the ultimate objective of studies in this area, which the neoclassical theory of market economy defines as the maximization of shareholders’ value (Caliskan & Icke, 2011).
Corporate governance mechanisms is considered as an internal methods or systems for monitoring management as an effective tool for helping firms to attain better performance (Ghabayen, 2012). Many studies have investigated the relationship between corporate governance mechanisms and firm performance (Jensen & Meckling, 1976; Haniffa & Hudib, 2006; Adams & Mehran, 2008; Bhagat & Black, 2001; Gompers, Ishii & Metrick, 2003; Klapper & Love, 2004; Haniffa, 2005; Trabelsi, 2010; Griffin 2014 and Khaled, 2014) . It has been widely recognised by researchers that corporate governance mechanisms play an important role in improving firms’ performance.
The performance of firm is a concept that supports the effective and efficient use of financial resources to achieve overall company objectives which include both shareholders wealth maximisation and profit maximisation objectives. It can be measured using long term market performance measures and other performance measures that are non-market-oriented measures or short term measures ( Zubaidah, Nurmala, & Kamaruzaman, 2009). In terms of firm performance, based on corporate governance mechanism, the Nigerian code of best practices was introduced by the Securities and Exchange Commission (SEC) and the corporate affairs commission (CAC) in investment and security act 2003.
In Nigeria, observance of the principles of corporate governance has been secured through a combination of voluntary and mandatory mechanisms. SEC, in September 2008, inaugurated a National committee Chaired by Mr. M.B. Mahmoud for the review of the 2003 code of corporate governance for public firms in Nigeria to address its weaknesses and to improve the mechanism for its enforceability. In particular, the committee was given the mandate to identify weaknesses and constraints to good corporate governance, and to examine and recommend ways of effecting greater compliance with international best practices (Lai & Bello, 2012).

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