Impact of Corporate Governance on Foreign Direct Investment in Nigeria

Abstract

The United Nation's Millennium Development Goals for Africa suggest the need for these economies to attract substantial amount of foreign direct investments (FDI) to stimulate growth by investing in essential development infrastructures. However, investors are skeptical of opaque corporate governance structures both at firm and macro levels because of the attendant risk to their investments in an environment of weak legal system and poor human right records. Recent events indicate that a number of these economies have realised the importance of good governance systems and the need to signal transparency and accountability both at firm and country levels and have embarked on significant corporate governance reforms. In this paper we did a trajectory of corporate governance reforms in Nigeria and using time series data spanning over a decade we empirically investigated the determinants of foreign capital inflow arguing that in addition to the factors identified in the literature, FDI is positively related to improvement in corporate governance (CG). The paper further argued that although corporate governance prescriptions should be contextualised within the distinctive nature of the developing economies, this should not be stressed too strongly in order not to discourage potential foreign investors. The paper also attempted to identify future directions of the relationship between CG initiatives and FDI in Nigeria.