Sie sind auf Seite 1von 13

European Journal of Economics, Finance and Administrative Sciences

ISSN 1450-2887 Issue 14 (2008)


EuroJournals, Inc. 2008
http://www.eurojournals.com

Corporate Governance and Firm Performance: The Case of


Nigerian Listed Firms

Kajola, Sunday O
Department of Accounting, Olabisi Onabanjo University
Ago-Iwoye, Nigeria
Tel : 234-8033519371
E-mail: omobaaseye@yahoo.com

Abstract
This paper seeks to examine the relationship between four corporate governance
mechanisms (board size, board composition, chief executive status and audit committee)
and two firm performance measures (return on equity, ROE, and profit margin, PM), of a
sample of twenty Nigerian listed firms between 2000 and 2006. Using panel methodology
and OLS as a method of estimation, the results provide evidence of a positive significant
relationship between ROE and board size as well as chief executive status. The implication
of this is that the board size should be limited to a sizeable limit and that the posts of the
chief executive and the board chair should be occupied by different persons. The results
further reveal a positive significant relationship between PM and chief executive status.
The study, however, could not provide a significant relationship between the two
performance measures and board composition and audit committee. These results are
consistent with prior empirical studies.

Keywords: corporate governance, firm performance, agency cost, Nigeria.

1. Introduction
The term "Corporate Governance" has been identified to mean different things to different people.
Magdi and Nadereh (2002) stress that corporate governance is about ensuring that the business is run
well and investors receive a fair return. OECD (1999) provides a more encompassing definition of
corporate governance. It defines corporate governance as the system by which business corporations
are directed and controlled. The corporate governance structure specifies the distribution of rights and
responsibilities 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. By doing this, it also provides the structure through which the companys objectives
are set and the means of attaining those objectives and monitoring performance. This definition is in
line with the submissions of, Wolfensohn (1999) Uche (2004) and Akinsulire (2006).
Financial scandals around the world and the recent collapse of major corporate institutions in
the USA, South East Asia, Europe and Nigeria such as Adelphia, Enron, World Com, Commerce Bank
and recently XL Holidays have shaken investors faith in the capital markets and the efficacy of
existing corporate governance practices in promoting transparency and accountability. This has
brought to the fore once again the need for the practice of good corporate governance.
17 European Journal of Economics, Finance And Administrative Sciences - Issue 14 (2008)
Effective corporate governance reduces "control rights" shareholders and creditors confer on
managers, increasing the probability that managers invest in positive net present value projects
(Shleifer and Vishny, 1997). Thus, the relationships of the board and management, according to Al-
Faki (2006), should be characterized by transparency to shareholders, and fairness to other
stakeholders. This will in effect mitigate the agency cost as predicted by Jensen and Meckling (1976).
Corporate performance is an important concept that relates to the way and manner in which
financial resources available to an organization are judiciously used to achieve the overall corporate
objective of an organization, it keeps the organization in business and creates a greater prospect for
future opportunities.
This study is a contribution to the ongoing debate on the examination of the relationship that
exists between corporate governance mechanisms and firm performance. Mixed and tenuous findings
have been made from previous studies especially those ones that were conducted in the developed
nations, particularly USA, UK, Japan, Germany and France.
More so, few studies (see Adenikinju and Ayorinde, 2001 and Sanda, Mikailu and Garba, 2005)
have been conducted so far on the Nigerian business environment; hence the study intends to reduce
the knowledge gap. This work is empirical in nature and will utilize data of 20 non- financial firms
listed on the Nigerian Stock Exchange between 2000 and 2006. This represents 140 firm- year
observations.
The rest of the paper is organized as follows: Section 2 discusses on the literature review,
where both theoretical and empirical studies on previous works are looked into. It also incorporates the
corporate governance mechanism in Nigeria. In section 3, the methodology of this study is considered.
Empirical results and discussions are made in section 4, while section 5 concludes the study.

2. Literature Review
2.1. Corporate governance measures in Nigeria
Over the years, Nigeria as a nation has suffered a lot of decadence in various aspects of her national
life, especially during the prolonged period of military dictatorship under various heads. The political
and business climate had become so bad that by 1999 when the nation returned to democratic rule, the
administration of Obasanjo inherited a pariah state noted to be one of the most corrupt nations of the
world.
Most public corporations, such as NITEL, NNSL, NEPA, and NRC were either dead or simply
drain pipes of public resources, while the few factories that were merely available were working below
capacity. The banks with their super profits were collapsing in their numbers, leaving a trail of woes
for investors, shareholders, suppliers, depositors, employees and other stakeholders. It was as a result
of the messy state of the nation then that led to the government to make a bold step in initiating the
corporate governance evolution.
In view of the importance attached to the institution of effective corporate governance, the
Federal Government of Nigeria, through her various agencies have come up with various institutional
arrangements to protect the investors of their hard earned investment from unscrupulous management/
directors of listed firms in Nigeria. These institutional arrangements, provided in the code of corporate
governance best practices issued in November 2003 are briefly discussed hereunder.
(i) The roles of the board and the management
(ii) Shareholders rights and privileges
(iii) The role of the Audit Committee.

2.1.1. The roles of the board of directors


(i) The business of a firm is managed under the direction of a board of directors who delegates to
the CEO and other management staff, the day to day management of the affairs of the firm.
18 European Journal of Economics, Finance And Administrative Sciences - Issue 14 (2008)
(ii) The board sees to the appointment of a qualified person as the CEO and other management
staff.
(iii) The directors, with their wealth of experience, provide leadership and direct the affairs of the
business with high sense of integrity, commitment to the firm, its business plans and long- term
shareholder value.
(iv) The board provides other oversight functions.

The CEO and Management


They are responsible for:
(i) Operating the firm in an effective and ethical manner.
(ii) Preparing the strategic plans and annual operating plans and budgets for the boards approval.
(iii) The integrity of the firms financial reporting system that fairly presents its financial position.
The financial reports are expected to comply with relevant statutory and professional
pronouncements.
(iv) Establishing an effective system of internal controls to give reasonable assurance that the firms
books and records are accurate, its assets safeguarded and applicable laws complied with.

2.1.2. Shareholders Rights and Privilege


(i) The board of the firm should have effective communication with shareholders to enable them
understand the business, risk profile, financial condition and the operating performance of the
firm.
(ii) Shareholders should be involved in the appointment and removal of directors and auditors.
(iii) Opportunity should be given to shareholders to ask questions about the direction of the firm and
especially on the remuneration policy of key executive members and board members, which
should be linked to performance.
(iv) Shareholders holding at least 20% of the issued capital of a firm should, as far as possible have
a representative on the board, except they are disqualified by the virtue of their being in
competing business with the firm or they have other conflicts of interest.
(v) There should be at least one director on the board representing the minority shareholders.

2.1.3. The role of the Audit Committee


The Companies and Allied Matters Act, 1990 states that a public limited liability company should have
an audit committee (maximum of six members of equal representation of three members each
representing the management/ directors and shareholders) in place. The members are expected to be
conversant with basic financial statements. The committee has the following objectives:
(i) Increasing public confidence in the credibility and objectivity of published financial statements.
(ii) Assisting the directors, especially the non- executive directors, in meeting their responsibilities
of financial reporting.
(iii) Strengthening the independent position of a firms external auditors by providing an additional
channel of communication.
The committee is expected to perform the following functions:
(i) Provision of oversight functions on effective internal control, reliable financial
reporting, which must comply with regulatory requirements and corporate code of
conduct. This function is being exercised on behalf of shareholders.
(ii) Review not only externals auditors reports but also, the report of the internal auditor.
(iii) Maintain a constructive dialogue with external auditors and the board in order to
enhance the credibility of financial disclosures.
The following regulations were in place before the introduction of the governance code:
(i) Companies and Allied Matters Act (1990): It prescribes the duties and responsibilities
of managers of public limited liability companies.
19 European Journal of Economics, Finance And Administrative Sciences - Issue 14 (2008)
(ii) Investment and Securities Act (1999): It requires the Securities and Exchange
Commission to regulate and develop the capital market, maintain orderly conduct,
transparency and sanity in order to protect investors.
(iii) Banks and Other Financial Institutions Act (1991): It requires the Central Bank of
Nigeria to register and regulate the banks and allied institutions.
(iv) The Nigerian Accounting Standards Board Act (2003): It empowers the NASB to
enforce compliance with Statement of Accounting Standards issued by it by all the
public limited liability companies.
(v) The Insurance Act (2003): It empowers the Nigerian Insurance Commission to register
and regulate the insurance business in Nigeria.
The above regulations and the code of corporate governance are the yardsticks, which guide the
operations of limited listed companies in Nigeria. The level of compliance with the above clearly
distinguishes a well- governed firm from others.

2.2. Corporate Governance Mechanisms


There are many factors or variables that may constitute yardsticks by which corporate governance can
be measured in an organization. Some of these mechanisms are briefly discussed below.

2.2.1. Board Size


Limiting board size to a particular level is generally believed to improve the performance of a firm
because the benefits by larger boards of increased monitoring are out weighed by the poorer
communication and decision making of larger groups.
Empirical studies on board size seem to provide the same conclusion: a fairly clear negative
relationship appears to exist between board size and firm value. Too big a board is likely to be less
effective in substantive discussion of major issues among directors in their supervision of management.
Lipton and Lorsch (1992) argue that large boards are less effective and are easier for the CEO to
control. When a board gets too big, it becomes difficult to coordinate and for it to process and tackle
strategic problems of the organisation. Yermack (1996), using data from Finland and Liang and Li
(1999), with Chinese data, also find negative correlation between board size and profitability.
Eisenberg, Sundgren and Wells (1998) and Mak and Kusnadi (2005) also report that small size boards
are positively related to high firm performance.
Mak and Yuanto (2003) using sample of firms in Malaysia and Singapore, find that firm
valuation is highest when board has 5 directors, a number considered relatively small in those markets.
In a Nigerian study, Sanda et al (2003) report that firm performance is positively correlated with small,
as opposed to large boards.

2.2.2. Board Composition


Enhanced director independence, according to Young (2003) is intuitively appealing because a director
with ties to a firm or its CEO would find it more difficult to turn down an excessive pay packet,
challenge the rationale behind a proposed merger or bring to bear the skepticism necessary for effective
monitoring.
The proponents of agency theory say that corporate governance should lead to higher stock
prices or better long-term performance, because managers are better supervised and agency costs are
decreased. However, Gompers and Metrick (2003) submit that the evidence of a positive association
between corporate governance and firm performance may have little to do with the agency explanation.
Empirical studies of the effect of board membership and structure on firm value or performance
generally show results either mixed or opposite to what would be expected from the agency cost
argument. Some studies find better performances for firms with boards of directors dominated by
outsiders (see Weiback 1988, Resenstein and Wyatt, 1990 Mehran, 1995 and John and Senbet 1998),
while Weir and Laing (2001) and Pinteris (2002) find no such relationship in terms of accounting profit
20 European Journal of Economics, Finance And Administrative Sciences - Issue 14 (2008)
or firm value. Also, Forsberg (1989) find no relationship between the proportion of outside directors
and various performance measures.
In the same vein, Hermalin and Weisbach (1991) and Bhagat and Black (2002) find no
correlation between the degree of board independence and four measures of firm performance,
controlling for a variety of other governance variables, including ownership characteristics, firm and
board size and industry. They find that poorly performing firms were more likely to increase the
independence of their board. Mac Avoy, Dana, Cantor and Peck (1983), Baysinger and Butler (1985)
and Klein (1998) find that firm performance is insignificantly related to a higher proportion of
outsiders on the board. Thus, the relation between the proportion of outside directors and firm
performance is mixed.
Studies using financial statement data and Tobin's Q find no link between board independence
and firm performance, while those that used stock returns data find a positive relationship. In the case
of a sample of 228 small, private firms in China Liang and Li (1999) report that the presence of outside
directors is positively associated with higher returns on investment.

2.2.3. Audit Committee


Klein (2002) reports a negative correlation between earnings management and audit committee
independence. Anderson, Mansi and Reeb (2004) find that entirely independent audit committees have
lower debt financing costs.

2.2.4. CEO Status


Several studies have examined the separation of CEO and chairman of the board, positing that agency
problems are higher when the same person occupies the two positions. Using a sample of 452 firms in
the annual Forbes Magazine rankings of the 500 largest USA public firms between 1984 and 1991,
Yermack (1996) shows that firms are more valuable when the CEO and the chairman of the board
positions are occupied by different persons. However Liang and Li (1999) do not find a positive
relation on the separation of the position of CEO and board chair.

3. Methodology
3.1. Sample/ Research Design
The data used for this study were derived from the audited financial statements of the firms listed on
the Nigerian Stock Exchange (NSE) between 2000 and 2006.
The sample of the firms were selected using the combination of non- probability sampling
technique (firms with the required information were initially selected) and stratified random technique
(firms were then selected based on their sectorial classification). A total of 20 non- financial firms were
finally used as sample.
Panel data methodology was adopted because it combined time series and cross sectional data.
The method of analysis is that of multiple regressions and the method of estimation is Ordinary Least
Squares (OLS).

3.2. Model Specification


The economic model used in the study (which was in line with what is mostly found in the literature) is
given as:
Y= 0 + Fit + eit (1)
Where, Y is the dependent variable. 0 is constant, is the coefficient of the explanatory
variable (corporate governance mechanisms), Fit is the explanatory variable and eit is the error term
(assumed to have zero mean and independent across time period).
21 European Journal of Economics, Finance And Administrative Sciences - Issue 14 (2008)
It is important to state that this study employs two financial ratios (ROE and PM) to measure
the firms performance. In the empirical literature, Tobins Q (the market value of equity plus the
market value of debt divided by the replacement cost of all assets) has been used extensively as a proxy
for measuring firms performance. It is however difficult to get the required information relating to the
market value of debt issued by Nigerian firms, since these are not usually disclosed in their financial
reports. In order to mitigate this problem, many scholars (see Adenikinju and Ayorinde, 2001 and
Miyajima, Omi and Saito, 2003, and Sanda et al 2005) used modified form of Tobins Q. This study
does not follow their line of assumption, because the various modifications made on the original
Tobins Q are considered to be subjective, and in line with the dictates of the writers and may influence
the outcome of the study.
Unlike Hermalin and Weisbach (1991), Cho (1998), Himmelberg, Hubbard and Palia (1999),
Palia (2001) and Demsetz and Villalonga (2001) that use managerial compensation as the only
corporate governance mechanism; Kim, Hubbard and Palia (2004) that examine leverage only; Bhagat
and Black (2002) and Coles, Daniel and Naveen (2008) that examine board characteristics only, this
study examines four corporate governance mechanisms together.
By adopting the economic model as in equation (1) above specifically to this study, equation
(2) below evolves.
PERF = 0 + 1BSIZE + 2BCOMP + 3CEO + 4AUDCOM + eit (2)

3.3. Variable Description


Tables 1a and 1b below show the variables and their descriptions as used in this study.

Table 1a: Dependent variable description

Variable Description/ measurement


Profit after tax
ROE = Return on Equity
Total equity shares in issue
Profit after tax
PM = Profit Margin
Turnover

Table 1b: Independent variable description

Variable Description/ measurement


BSIZE = Board size Number of directors on the board
BCOMP = Board composition Proportion of outside directors sitting on the board
Value zero (0) for if the same person occupies the post of the chairman and the
CEO = Chief executive status
chief executive and one (1) for otherwise.
The composition of the audit committee, that is, outside as a proportion of the total
AUDCOM = Audit committee
member for firm i in time t.
22 European Journal of Economics, Finance And Administrative Sciences - Issue 14 (2008)
4. Empirical Results and Discussion
4.1. Descriptive Statistics
Table 2 below shows the descriptive statistics of all the variables used in the study.

Table 2: Descriptive statistics

ROE PM BSIZE BCOMP CEO AUDCOM


Mean 0.9029 0.0254 9.2571 6.8143 0.8571 0.8662
Median 0.4750 0.0500 9.0000 7.0000 1.0000 0.8300
Mode 0.10 0.02 9.00 7.00 1.00 0.83
Std. Dev 1.5703 0.1837 2.3700 2.3154 0.3512 0.1175
Skewness 2.378 -5.601 0.471 0.423 -2.063 -0.441
Kurtosis 8.164 42.457 -0.368 -0.496 2.290 -0.125
Range 11.35 1.94 11.00 9.00 1.00 0.50
Minimum -1.98 -1.56 5.00 3.00 0.00 0.50
Maximum 9.37 0.38 16.00 12.00 1.00 1.00
Sum 126.40 3.55 1296.00 954.00 120.00 121.27
N Valid 140 140 140 140 140 140
Missing 0 0 0 0 0 0

The mean ROE of the sampled firms is about 90% and the mean PM is 2.5%. The results
indicate that, on the average, for every N100 turnover of the sampled firms, N2.50 was the profit
earned.
The average board size of the 20 firms used in this study is 9, while the proportion of the
outside directors sitting on the board is about 7. The result also indicates that 85.7% of the sampled
firms have separate persons occupying the posts of the chief executive and the board chair, while mere
14.3% of the firms have the same person occupying the two posts. A majority of the firms (86.6%)
have audit committees composed of at least 83% of outside members. The Nigerian Companies and
Allied Act, 1990 prescribes a 6-member audit committee (3 members representing the shareholders and
3 representing the management/ directors). One can therefore infers that majority of the boards of the
sampled firms are independent.

4.2. Regression Results and Discussion


Tables 3a and 3b present the correlations among the variables.
From Table 3a, using the Pearson correlation, ROE is positively correlated with the firms
board size and is significant (sig 0.000). Similar results appear for board composition and chief
executive status. However, ROE has a negative relationship with audit committee, but not significant
(sig 0.434).
Table 3b indicates that PM is positively correlated with three of the corporate governance
variables and significant except for audit committee that is not significant (sig 0.15).
23 European Journal of Economics, Finance And Administrative Sciences - Issue 14 (2008)
Table 3a: Correlations (Pearson)- ROE as a firm performance proxy

ROE BSIZE BCOMP CEO AUDCOM


ROE 1.000 0.428 0.390 0.245 -0.014
BSIZE 0.428 1.000 0.773 0.209 -0.079
BCOMP 0.390 0.773 1.000 0.303 0.221
CEO 0.245 0.209 0.303 1.000 0.001
AUDCOM -0.014 -0.079 0.221 0.001 1.000
Sig (1-tailed) ROE - 0.000 0.000 0.002 0.434
BSIZE 0.000 - 0.000 0.007 0.176
BCOMP 0.000 0.000 - 0.000 0.004
CEO 0.002 0.007 0.000 - 0.497
AUDCOM 0.434 0.176 0.004 0.497 -
N ROE 140 140 140 140 140
BSIZE 140 140 140 140 140
BCOMP 140 140 140 140 140
CEO 140 140 140 140 140
AUDCOM 140 140 140 140 140

Table 3b: Correlations (Pearson) - PM as a firm performance proxy

PM BSIZE BCOMP CEO AUDCOM


PM 1.000 0.090 0.143 0.312 0.088
BSIZE 0.090 1.000 0.773 0.209 -0.079
BCOMP 0.143 0.773 1.000 0.303 0.221
CEO 0.312 0.209 0.303 1.000 0.001
AUDCOM 0.088 -0.079 0.221 0.001 1.000
Sig (1-tailed) ROE - 0.145 0.046 0.000 0.150
BSIZE 0.145 - 0.000 0.007 0.176
BCOMP 0.046 0.000 - 0.000 0.004
CEO 0.000 0.007 0.000 - 0.497
AUDCOM 0.150 0.176 0.004 0.497 -
N ROE 140 140 140 140 140
BSIZE 140 140 140 140 140
BCOMP 140 140 140 140 140
CEO 140 140 140 140 140
AUDCOM 140 140 140 140 140

Tables 4a and 4b show the analysis of variance (ANOVA) of the variables. With F- values of
9.058 (sig 0.000) and 4.010 (sig 0.004) for ROE and PM as performance proxies respectively, it clearly
shows that there is a strong relationship between the dependent variables (ROE and PM) and the
independent variables (the four corporate governance mechanisms- board size, board composition,
chief executive status and audit committee) at 1%, 5% and 10% levels.

Table 4a: ANOVA- ROE as a dependent variable

Model Sum of Sq df Mean Sq F Sig


1 Regression 72.527 4 18.132 9.058 0.000
Residual 270.220 135 2.002
Total 342.747 139
Predictors: (Constant), audcom, ceo, bsize, bcomp
Dependent variable: ROE
24 European Journal of Economics, Finance And Administrative Sciences - Issue 14 (2008)
Table 4b: ANOVA- PM as a dependent variable

Model Sum of Sq df Mean Sq F Sig


1 Regression 0.498 4 0.125 4.010 0.004
Residual 4.192 135 0.031
Total 4.690 139
Predictors: (Constant), audcom, ceo, bsize, bcomp
Dependent variable: PM

Table 5 shows the results of the coefficient estimates. Board size has a coefficient of 0.209.
This indicates a positive relationship between it and ROE and is statistically significant at 5% and 10%
levels. The relationship between the chief executive status and ROE is positive and statistically
significant at 10% level. However, both board composition and audit committee show no significant
relationship with ROE at 1%, 5% and 10% levels.

Table 5: Coefficient estimates Dependent variables

Independent variables ROE PM


0.209 0.002
BSIZE [2.388]** [0.163]
{0.018} {0.871}
0.070 0.001
BCOMP [0.745] [0.094]
{0.457} {0.925}
0.659 0.158
CEO [1.827]* [3.527]***
{0.070} {0.001}
-0.162 0.136
AUDCOM [-1.40] [0.947]
{0.889} {0.345}
R square 0.212 0.106
Adjusted R square 0.188 0.080
F- Statistics 9.058*** 4.010***
Number of observation 140 140
Durbin Watson 0.704 1.501
t- Statistics are shown in the form [ ], while p- values are in the form { }.
*, **, *** indicate significant at 10%, 5% and 1% respectively

There is positive relationship between the chief executive status (CEO) and the PM and it is
significant at 1%, 5% and 10% levels. The table further reveals that the board size, board composition
and audit committee have no significant relationship with PM.
By analyzing Table 5 together with the descriptive statistics, it is clear that though there is
positive relationship between board size and the two performance proxies, it is only significant with
ROE and not with PM. The average board size is about 9, and this is considered small in the Nigerian
context. Thus, this result is in agreement with previous empirical studies (see Yemack, 1996, Liang
and Li, 1999, Yuanto, 2003, Sanda et al, 2005 and Bokpin, Coleman and Aboagye, 2006).
The relationship between board composition and the two performance measures is not
statistically significant. The implication of this is that for the sampled firms, there is no relationship
between the firms financial performances and the outside directors sitting on the board. This outcome
also has the support of Forsberg (1989), Weisbach (1991), Bhagat and Black (2002) and Sanda et al
(2005).
The result of the relationship between the chief executive status is clear with the two
performance proxies- positive and significant relationship. It implies that the sampled firms, in the
period under study, have separate persons occupying the posts of chief executive and the board chair.
This has influence on the financial performance of the sampled firms and in line with the tenet of the
25 European Journal of Economics, Finance And Administrative Sciences - Issue 14 (2008)
code of corporate governance best practices of Nigeria. This outcome is consistent with previous
empirical studies (see Yermack, 1996, Brown et al 2004 and Bokpin et al 2006).
Audit committees being occupied by majority of outside members have no influence on the
firms performance. This is because this study shows that the relationship between the audit committee
and the two performance measures is not statistically significant. This result is not consistent with
some previous studies such as Klein (2002) and Mansi and Reeb (2004), where they reported strong
positive relationship between audit committee and the performance variables they used in their studies.

5. Conclusion
There is no doubt that several studies have been conducted so far (and is still on going) on the
examination of the relationship between firm performance measures and corporate governance
mechanisms, but the outcomes of these studies are mixed.
This study examines the relationship that exists between firm performance, using two proxies,
(ROE and PM) and four corporate governance mechanisms (board size, board composition, chief
executive status and audit committee). A sample size of 20 non- financial firms listed on the Nigerian
Stock Exchange between 2000 and 2006 is used. Panel data methodology is employed; the method of
analysis is multiple regressions and the method of estimation is OLS. The study reveals the following
results:
(i) There is a positive and significant relationship between ROE and board size.
(ii) There is a positive and significant (at 10% level) relationship between ROE and chief
executive status.
(iii) There is no significant relationship between ROE, board composition and audit
committee.
(iv) There is a positive and significant relationship between PM and chief executive status.
(v) There is no significant relationship between PM and board size, board composition and
audit committee.
Regarding future line of research, efforts should be put at increasing the sample size and the
corporate governance variables, particularly the inclusion of ownership concentration/characteristics.
The need to examine the relationship between firm performance measures when leverage is introduced
will make the outcome of the research to be more robust.
More importantly, the empirical literature indicates a sample selection bias in favour of very
big firms. It is hereby suggested that attention should be devoted to the study of small and medium
scale firms in the African continent. This is because these firms account for at least 90% of the total
number of firms in this part of the world.

Acknowledgement
The author would like to thank the participants at the Seminar of the Faculty of Management Science,
Olabisi Onabanjo University, Ago-Iwoye, M Anil Kumar, Nigeria, particularly, Professor E.O. George,
Professor (Mrs) Osoba, Dr. A.J. Abosede, Dr. A.B. Adesoye, Dr. Oladeji, Messrs. I.S. Osinubi, E.E.
Daferighe, and Ganiyu Yinusa, for their valuable comments and suggestions in the earlier version of
this paper.
26 European Journal of Economics, Finance And Administrative Sciences - Issue 14 (2008)
References
1] Adenikinju, O and F, Ayorinde (2001): Ownership structure, corporate governance and
corporate performance: The case of Nigerian quoted companies, Unpublished final report
presented at the AERC biannual research workshop, Nairobi, Kenya, May.
2] Akinsulire, O (2006): Financial Management 4th Edition, Lagos, El-Toda Ventures.
3] Al- Faki, M (2006): Transparency and corporate governance for capital market development in
Africa: The Nigerian case study, Securities Market Journal, 2006 Edition, 9- 28.
4] Anderson, R, S, Mansi and D, Reeb (2004): Board characteristics, accounting report integrity
and the cost of debt, Journal of Accounting and Economics, Vol 37, pp 315- 342.
5] Baysinger, B and H, Butler (1985): Corporate governance and the board of directors:
performance effects of changes in board composition, Journal of Law, Economics and
Organisation, Vol 1, pp 101- 124.
6] Bhagat, S and B, Black (2002): The non- correlation between board independence and long-
term firm performance, Journal of Corporation Law, Vol 27, pp 231- 274.
7] Bokpin, G.A, A, Kyereboah- Coleman and A.Q.Q, Aboagye (2006): Corporate governance
and shareholder wealth maximization: Evidence from listed companies in Ghana, Unpublished
paper presented at the 3rd African Finance Journal Conference, Accra, Ghana, 12th 13th July.
8] Banks and Other Financial Institutions Act (1991)
9] Brown, L.D, J.M, Robinson and M.C. Caylor (2004): Corporate governance and firm
performance, http://www.issproxy.com/pdf/corporate governance.
10] Cho, M (1998): Ownership structure, investment and the corporate value: an empirical
analysis, Journal of Financial Economics, Vol 47, pp 103- 121.
11] Coles, J, N, Daniel and L Naveen (2008): Boards: does one size fit all? Journal of Financial
Economics, Vol 79, pp 431- 468.
12] Companies and Allied Matters Act (1990): Enacted by the Federal Government of Nigeria.
13] Demsetz, H and B, Villalonga (2001): Ownership structure and corporate performance,
Journal of Corporate Finance, Vol 7, pp 209- 233.
14] Eisenberg, T, S, Sundgren and M, Wells (1998): Larger board size and decreasing firm value
in small firms, Journal of Financial Economics, Vol 48, pp 35- 54.
15] Fosberg, R (1989): Outside directors and managerial monitoring, Akron Business and
Economic Review, Vol 20, pp24- 32.
16] Hermalin, B.E and M.S, Weisbach (1991): The effects of board composition and direct
incentives on firm performance, Financial Management, Vol 20, pp 101- 112.
17] Himmelberg, C, G, Hubbard and D, Palia (1999): Understanding the determinants of
managerial ownership and the link between ownership and performance, Journal of Financial
Economics, Vol 53, pp 353- 384.
18] Insurance Act (2003): Enacted by the Federal Government of Nigeria.
19] Investment and Securities Act (1999): Enacted by the Federal Government of Nigeria.
20] Jensen, M.C, and W.H. Meckling (1976): Theory of the firm: managerial behaviour, agency
costs and ownership structure, Journal of Financial Economics, Vol 2, pp 305- 360.
21] John, K and L.W, Senbet (1998): Corporate governance and board effectiveness, Journal of
Banking and Finance, Vol 22, pp 371- 403.
22] Kim, D, G, Hubbard and D, Palia (2004): The endogenous impact of leverage on firm value,
Working paper, Rutgers University and Columbia University.
23] Klein, A (1998): Firm performance and board committee structure, Journal of Law and
Economics, Vol 41, pp 275- 303.
24] Klein, A (2002): Audit committee, board of director characteristics and earnings
management, Journal of Accounting and Economics, Vol 33, pp375- 400.
25] Lipton, M and J.W Lorsch (1992): A modest proposal for improved corporate governance,
Business Lawyer, Vol 48(1), pp 59- 77.
27 European Journal of Economics, Finance And Administrative Sciences - Issue 14 (2008)
26] Mac Avoy, P, J, Dana, S, Cantor and S, Peck (1983): ALI proposals for increase control of the
corporation by the board of directors: an economic analysis, in Statement of the Business
Roundtable on the American Law Institutes proposed Principles of Corporate Governance and
Structure Restatement and Recommendation.
27] Magdi, R and R, Nadareh (2002): Corporate governance: A framework for implementation,
Britain World Group Journal, Vol 20, pp 123- 132.
28] Mak, Y and Y, Kusnadi (2005): Size really matters: further evidence on the negative
relationship between board size and firm value, Pacific- Basin Finance Journal, Vol 13, pp
301- 318.
29] Mehran, H (1995): Executive compensation structure, ownership and firm performance,
Journal of Financial Economics, Vol 38, pp 163- 184.
30] Miyajima, H, Y, Omi and N, Saito (2003): Corporate governance and firm performance in
twentieth century Japan, Business and Economic History, Vol 1, pp 1- 36.
31] Nigerian Accounting Standards Board Act (2003): Enacted by the Federal Government of
Nigeria.
32] Nigerian Stock Exchange (2006) Fact Book, Lagos.
33] OECD (1999): Principles of corporate governance, http://www.encycogov.com/
34] Palia, D (2001): The endogeniety of managerial compensation in firm value: a solution, The
Review of Financial Studies, Vol 14, pp 735- 764.
35] Pinteris, G (2002): Ownership structure, board characteristics and performance of Argentine
banks, Mimeo, Department of Economics, University of Ilinois.
36] Rosenstein, S and J, Wyatt (1990): Outside directors: board independence and shareholder
wealth, Journal of Financial Economics, Vol 26, pp 175- 191.
37] Sanda, A.U, A.S, Mikailu and T, Garba, (2005): Corporate governance mechanisms and firm
financial performance in Nigeria, AERC Research Paper 149, Nairobi.
38] Securities and Exchange Commission (2003): Code of corporate governance in Nigeria.
39] Shleifer, A, and R.W, Vishny (1997): A survey of corporate governance, Journal of
Financial Economics, Vol 52(2), pp 737- 783.
40] SPSS for Windows version 12.0 (2003): LEAD Technologies, Inc.
41] Uche, C (2004): Corporate governance in Nigerian financial industry, Chartered Institute of
Bankers of Nigeria Journal, Vol 2, pp11- 23.
42] Weisbach, M (1988): Outside directors and CEO turnover, Journal of Financial Economics,
Vol 20, pp 431- 460.
43] Wolfensohn, (1999): Corporate governance is about promoting corporate fairness,
transparency and accountability, Financial Times, 21st June.
44] Yermack, D (1996): Higher market valuation of companies with a small board of directors,
Journal of Financial Economics, Vol 40, pp 185- 211.
45] Young, B (2003): Corporate governance and firm performance: Is there a relationship?
Entrepreneur.com, University of Western Ontario.
28 European Journal of Economics, Finance And Administrative Sciences - Issue 14 (2008)
Appendix 1: List of Nigerian Firms Used in the Study
S/N Name of Firm Sector
1 Afprint Nigeria PLC Agric/ agro- allied
2 Dunlop Nigeria PLC Automobile and tyre
3 RT Briscoe PLC Automobile and tyre
4 Guiness Nigeria PLC Breweries
5 Nigerian Breweries PLC Breweries
6 Glaxo Smithkliime Consumer PLC Healthcare
7 Vitafoam Nigeria PLC Industrial and domestic product
8 Vono Products PLC Industrial and domestic product
9 WAPCO PLC Building materials
10 Berger Paints PLC Chemical and paints
11 CAP PLC Chemical and paints
12 PZ Industries PLC Conglomerates
13 John Holts Nigeria PLC Conglomerates
14 Julius Berger Nigeria PLC Construction
15 Longman Nigeria PLC Printing and publishing
16 Academy Press PLC Printing and publishing
17 7up Bottling Company PLC Food/beverages and tobacco
18 Flour Mills Nigeria PLC Food/beverages and tobacco
19 Avon Crown Caps Containers PLC Packaging
20 Beta Glass Company PLC Packaging