Corporate Governance Practices and Firms’ Financial Performance of Selected Manufacturing Companies in Lagos State, Nigeria

Yimka Samson Akanfe Alalade,Babatunde Babasola Onadeko,Okezie Fine-Country Okezie

doi:10.11648/j.ijfbr.20190506.14

Yimka Samson Akanfe Alalade, Babatunde Babasola Onadeko + Show 1 more

Open Access

https://doi.org/10.11648/j.ijfbr.20190506.14

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Abstract

Nigerian companies adopted the code of best practice on corporate governance in 2003, through which private and public firms are mandated to operate accordingly. Many companies have complied while some have failed to so. This study examined corporate governance practices eight years after (2010), given the instability in the political and economic environment under which they operated. The study also examined the relationship between corporate governance practices and firms’ financial performance in the selected manufacturing companies in Lagos State, Nigeria. The study employed a comparative analysis to gauge the changes to corporate governance practice between the years 2003 to 2010 by manufacturing companies. The companies were selected based on availability of data from the stock exchange in terms of activities of trading and existence of reports on corporate governance in the companies’ annual reports. The study used both descriptive statistics and econometrics method of analysis, using E-views 7 statistical software. The Panel data of the ten companies for the 8 years was used, employing ordinary least square (OLS) method of analysis. Consequently, the results of the descriptive statistics show that majority of the companies implemented the code of conduct that emphasizes appropriate composition of the board of directors and forecast of operations. Further analysis shows that there was positive relationship between the return of equity and legal compliance, though the relationship is weak given the value of R as 0.197. Also, there were weak relationships between return on equity (ROE) and board compliance as R = -0.4430 and proactive indicators R as - 0.2345. These imply that while the companies obey the regulations in term of board composition, legal compliance and production projections, which are the major concerns of this study. Meanwhile, some other variables impacted more on ROE.

Highlights

Corporate governance practices are seen to have great impact to maximization of stakeholder wealth and to the growth prospects of an economy
In order to understand the governance practices that contribute to enhance the value of listed companies in Nigeria, this study explored the efficacy of corporate governance practices, which affect firm performance resulting in accountability to shareholder and other stakeholders through appropriate corporate reporting practices, which enhances the value of the firms of listed companies in Nigeria
The essence of this study is to examine the impact of the corporate governance mechanism on firm performance and provide additional insights into the relationship between four corporate governance mechanisms and firm performance in Nigeria

Summary

Introduction

Corporate governance practices are seen to have great impact to maximization of stakeholder wealth and to the growth prospects of an economy. They are practices considered as paramount to management of constraint, such as the issue of reducing risk for investors, attracting investment capital, and improving the performance of companies. Organization for Economic Cooperation and Development (OECD) [34] claimed corporate governance is broad in practice. It defines corporate governance as the system by which business

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