Abstract
This paper extends the prior studies on corporate performance by empirically exploring the impact of overall corporate governance structure on firm performance. To unveil the objective of this study, firstly corporate governance index is built using Principal Component Analysis with 6 (six) identified corporate governance mechanisms from prior studies and then examines its effect on firms’ performance. This study draws a sample of twenty-four (24) financial companies from the listed financial institutions in Nigeria for the period of 2013–2017. The formulated hypotheses are tested by employing static panel data estimators that are Fixed effect and Random Effect Regression. The results reveal that while controlling for firms’ characteristics, constructed corporate governance indicator has a significant and negative influence on the firm performance measured by Return on Asset and Return on Equity. This finding supports that larger board, larger board committees and significant executive involvement have a detrimental influence on the performance of firms. The result implies a weak corporate governance structure is detrimental to higher financial performance amidst the weak institutions characterized in Nigeria context. That is, weaker corporate governance exhibits lower financial performance. This study then recommends that the corporate governance structure in Nigeria listed firms should be review with the intention to enhance the firm performance. Furthermore, it encourages the regulatory agencies like Central Bank of Nigeria, National Insurance Commission and Securities and Exchange Commission, to monitor the compliance of the listed firms to good governance endeavour.
Highlights
This paper extends the prior studies on corporate performance by empirically exploring the impact of overall corporate governance structure on firm performance
Better governance expected to result in a higher return on asset, our findings indicate that Nigerian financial institutions are characterized by weaker governance, which undermines the firms’ performance
The study explores the effect of condensed corporate governance construct on firm performance while controlling for firms’ characteristics in the listed financial institutions in Nigeria
Summary
This paper extends the prior studies on corporate performance by empirically exploring the impact of overall corporate governance structure on firm performance. Corporate governance dynamism has evolved over the years with the response to prior corporate failures and crises (Ojeka et al 2015). Kingdom 1970s seconding banking crisis, the saving and loan default of 1980s in the United States, 1998 Russia financial crisis, Asia 1997–1998 financial crisis, the 2008 global financial crisis, recently the Brexit uncertainties, US tradewar with China and presidential policies, have triggered the concurrent development of corporate governance structure globally. All these have necessitated the importance of corporate governance for global sustainability and prosperity (Pillai and Al-Malkawi 2017)
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