Impact of Corporate Governance on Firm Performance – A Case Study of Deposit Money Banks
Recently, there is growing concern on corporate management and this has been the major area of concentration for researchers. Many organisations are in doubt over capital problems and the rapid change in processes towards enhanced competitive advantage and effectiveness. There seems to be much corporate failures and misappropriation of funds, which point to management style and audit independence, ethics, corporate social responsibilities, professionalism, conflict of interest and nefarious practices of board members (Olannye and Anuku, 2014). For investors one of the most important aspects when making an investment decision is level of implementation of corporate governance principle, that is, public disclosure of information, protection of shareholder rights and equal treatment of shareholders and financial performance, which ensures return on their investment (Igor, 2013).
Corporate governance is the system by which organizations or institution are directed and controlled. The corporate govern¬ance structure specifies the distribution of rights and respon¬sibilities among different participants in the corporation, such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs (Adegoke, 2013). It is concerned with the processes, systems, practices and procedures as well as the formal and informal rules that govern institutions, the manner in which these rules and regulations are applied and followed, the relationships that these rules and regulations determine or create, and the nature of those relationships. It also includes the struc¬ture, process, cultures and systems that engender the successful operation of the organizations (Okeahalam and Akinboade, 2003).
Gopalsamy (2006) viewed corporate governance as not just corporate management but something broader to include a fair efficient and transparent administration to meet certain predetermined objectives. It is a system of restructuring, operating and controlling a company with a need to achieving long term strategic goals to satisfy shareholders, creditors, employees, customers and suppliers and then complying with the legal and regulatory requirements apart from meeting environmental and local community needs. The survival and stability of any financial sector appear to be dependent on the quality of its governance.
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Good corporate governance embodies both enter¬prise (performance) and accountability (conformance) (Fan, 2004). Through such structure, processes and mechanisms, the well-known agency problem, that is, the separation of owner¬ship (by shareholders) and control (by managers) which gives rise to conflict of interest within a firm may be addressed such that the interest of the managers are more aligned with that of the shareholders. The importance of high performance in boosting economic growth and the standards of living of the people has been sev¬erally canvassed (Anyawu, 2000).
On the other hand, performance is the core objective of every business organisation, it is widely agreed that the structure and decision making in an organisation is influenced by environmental complexity and instability (Adeoye & Elegunde, 2012). Firm performance can be viewed as the measure of how a manager utilises the resources of the organisation efficiently and effectively to accomplish the goals of the organisation as well as satisfying all the stakeholders (Jones & George, 2009). Richard, Devinney, George and Johnson (2009) described firm performance as the real output measured against the intended or expected output. These authors prayed that firm performance is made up of three major areas of firm outcomes which can be regarded as financial performance that is made up of profits, return on assets (ROA), return on investment (ROI); product Market Performance such as sales, market share; and shareholders return such as total shareholder return (TSR), economic value added (EVA).
Ridwan and Ina (2015) broaden the definition of firm performance to include incorporate operational performance (nonfinancial) in addition to the measurement of financial performance because the financial measures are not fully able to provide a real picture of the state of the company. This can be measured using market share, new product introduction, product quality, marketing effectiveness, manufacturing value-added, and another measurement of the efficiency of the technology included as indicators of organizational performance measurement.
From the foregoing, firm performance may be seen as return on asset while corporate governance can be measured as composition of board member, board size, CEO status and shareholding (ownership) concentration.
Statement of the Problem
Corporate governance is about managing an organization in a way that assures the stakeholders are receiving a fair return on their investment. It is the process that connect the shareholders to the board, to the management, to the staff, to the customer and to the community at large. Ofiafoh and Imoisili (2010) noted that a firm is separate legal entity which no one actually owns, which implies that shareholders do not own a company. A typical firm is characterized by numerous owners having no management function and managers with no equity interest in the firm. Shareholders of equity are large in numbers and an average shareholders control a minute proportion of the shares of the firm. This gives rise to shareholders to take no interest in monitoring of managers, who are left to themselves and maybe pursuing interest different from those of the owners of equity. Corporate governance has found a way to address this problem which arises and a number of significant researches have been conducted towards resolving it. For example, Magdi and Nedareh (2002) emphasize the need for organization managers to act in the interest of the firm, core stakeholders particularly minority shareholders or investors by ensuring that only action that facilitate delivery of optimum returns and other favourable outcome are taken at all times. This study will further empirically explore this subject matter by finding the relationship between some selected corporate governance mechanisms and financial performance of quoted firms in Nigeria.
Objectives of the Study
The general objective of this study is to investigate the impact of corporate governance on firm performance. The specific objectives are to:
i examine the composition of board members of the firms.
ii analyse the effectiveness of the board meeting.
iii determine the impact of corporate social responsibility on the performance of the firms.
The following research questions were raised to guide this study.
i What is the composition of the board member of the firm?
ii Howe effective is the board meetings of the firms?
iii What is the impact of corporate social responsibility on the performance of the firms.
The following null hypotheses were stated in line with the objectives and will be tested in this study.
H01: There is no significant relationship between composition of board directors and firms’ performance.
H02: There is no significant impact of board meetings on firms’ performance;
H03: There is significant impact of corporate social responsibility on firm performance.
Significance of the Study
The subject matter; corporate governance and performance is aimed at making the following contributions as stated below:
It will enhance firms view on corporate governance and how it can affect their performance. It will allow organization to properly restructure their corporate governance so as to improve the financial performance.
It will give organizations insight on the various factors necessary for sound governance practice. It would emphasis the benefits to be derived if organization could adhere to proper corporate governance.
It will contribute to existing literature on corporate governance and performance.
Scope of the Study
The scope of this is within the concept of corporate governance and its impact on firm performance. The study shall be limited to deposit money banks because of their contribution to economic growth and availability of data.
Organization of the Study
This study will be divided into five (5) chapters. The first chapter is introduction which includes background of the study, background of the study, statement of the problem, objective of the study, research hypotheses, significance of the study, scope of the study, and definition of terms and finally the plan of the study.
The second chapter has to do with reviews relevant literature, which be discussed under three sub-heading; conceptual review, theoretical review, empirical review and finally a brief background to the case study.
The third chapter is the methodology and it will expose the methods used in obtaining data and technique used in analyzing data as well as justification of methods of data analysis used.
The fourth chapter will consist of the data presentation and analysis. Also the discussion of findings will be included in this chapter.
Finally the fifth chapter will consist of the summary, conclusions and recommendations.