Corporate Governance Mechanisms and Financial Performance of Listed Companies in Nigeria

Abstract

This study investigated the relationship between corporate governance mechanisms and financial performance of listed consumer goods manufacturing firms in Nigeria for the period of 2011 to 2020. The specific objectives were to investigate the relationship between board size on return on equity, and evaluate the relationship between board independence on return on equity, board compensation on return on equity and board diligence on return on equity of listed consumer goods manufacturing firms in Nigeria. The study adopted ex post facto and correlational research designs. The population of the study was twenty one (21) listed consumer goods manufacturing firms as at the end of 2020. The study used a census approach to determine a sample size of twenty one (21) firms. Secondary data from the published annual financial reports of the sampled firms were used for data analysis. Descriptive statistics, correlation coefficient and multivariate analysis were used. The results disclosed that board size has a negative and insignificant relationship with return on equity of listed consumer goods manufacturing firms in Nigeria; board independence has a negative and significant relationship with return on equity of listed consumer goods manufacturing firms in Nigeria; board compensation has a positive and significant relationship with return on equity of listed consumer goods manufacturing firms in Nigeria; and board diligence has a negative and significant relationship with return on equity of listed consumer goods manufacturing firms in Nigeria. The study concludes that corporate governance mechanisms influence the financial performance of listed consumer goods manufacturing firms in Nigeria. The study recommends among others that board sizes should be enhanced as this allows for the appropriate combination of directors. A large board increases the chance of directors having appropriate knowledge, skill and networks. The knowledge, skill and networks of directors may increase the performance of an organization; non-executive directors who act as professional advisers to ensure competition among insiders encourage measures consistent with maximization of shareholder value.

Corporate Governance and Performance of Listed Firms in Nigerian Exchange Group

“…Non-executive directors are selected and appointed on the basis of core competencies that strengthen the capacity of the Board including experience in marketing, corporate governance, law, strategy, finance accounting, general operation etc and they are not responsible for the day-to-day operations of the company. The number of nonexecutive directors can vary depending on the size, structure, and needs of the organization, with larger companies often having multiple executive directors to oversee different functional areas and divisions [17]. The presence of executive directors on the board ensures direct involvement of management in governance matters and facilitates effective communication between the board and operational management.…”

“…Appah and Tebepah [17] conducted a study examining the impact of corporate governance mechanisms on the financial performance of consumer goods manufacturing companies in Nigeria. Covering the period from 2011 to 2020, the research explored the relationships between board size, independence, compensation, diligence, and return on equity.…”

“…The findings indicated that several corporate governance elements, such as board size, board meetings, board independence, and audit committee size, had a significant impact on return on assets. Given the information provided, prior literature [17,2,20,21,9,24,25] has examined different facets of the correlation between board attributes, corporate governance methodologies, and financial performance. Nevertheless, there remain notable gaps in the current research landscape that warrant exploration in forthcoming studies.…”

An Assessment of Board Attributes and Financial Performance of Listed Deposit Money Banks in Nigeria

“…These attributes play a vital role in determining the effectiveness of corporate governance practices and can have a significant impact on an organization's financial performance and strategic direction. Board attributes encompass a wide range of factors that define the composition, structure, and functioning of a corporate board of directors (Appah & Tebepah, 2023;Musa & Onipe, 2023). These factors encompass elements such as the size of the board, the diversity of its members, their independence from management, their expertise and experience in relevant fields, and the specific roles and responsibilities they undertake in the governance process.…”

“…Additionally, this research will make a significant contribution to the academic literature on corporate governance, particularly within emerging economies, by providing empirical evidence from the Nigerian banking sector. The majority prior studies (Adebayo et al, 2020;Appah, 2022;Appah & Tebepah, 2023;Bala et al, 2022;Gatehi & Nisieku, 2022;Lasisi,2022) only focused on board attributes in terms of board size, board independence, and board diversity. Also, the financial performance was majorly measured by return on equity (ROE) and return on assets (ROA).…”