Large Shareholders and Monitoring Efficacy: Empirical Examination of Nigerian Listed Oil and Gas Firms

Abstract

The need for good corporate governance is germane and derives from expectation gap which arises when behaviours and goals of corporate agents fall short of their principals’ and other stakeholders’. Governance experts, academics and policy makers have argued that the persistent colossal failure of corporate giants, have put the efficacy of the role of large shareholders in doubt especially in aligning the conflicting interests and improving firm performance. Using both the agency and stakeholder hypotheses as theoretical underpinnings and Generalised Method of Moments (GMM) as an econometric tool, this study examined the efficacy of large shareholders in monitoring the activities of executive management in a sample of oil and gas firms listed on the Nigerian Stock Exchange (NSE). The findings support the Active Monitoring Hypothesis (AMH) proposed by Friend and Lang (1998) and the interests alignment hypothesis proposed by Jensen and Meckling (1976) positing the need for relevant authorities to encourage share concentration. Against the popular view that higher leverage relates with superior performance, our results suggest minimising the use of bonds, debentures and long-term loans to maximise performance. The empirical results further demonstrated that the sample firms are scale efficient.