The Relationship between Corporate Governance and Organizational Performance in Nigerian Companies

The Relationship between Corporate Governance and Organizational Performance in Nigerian Companies by Toyin Ishola Lasisi MS, Walden University, 2014 LL.B, University of London, 2002 Dissertation Submitted in Partial Fulfillment of the Requirements of the Degree of Doctor of Philosophy Management Walden University February 2017 Abstract The growing lack of confidence in public companies arises from the recent accounting scandals and corporate collapses, which have been attributed to the consequences of separation of ownership and control in modern firms. Agency theory predicts a conflict of interest between managers and shareholders that leads to agency costs and weak performance. This study used agency, stakeholders’, and stewardship theories as the theoretical framework and multiple regression analysis to examine the relationship between corporate governance mechanisms and organizational performance in nonfinancial firms listed on the Nigerian Stock Exchange. The results of the study could help clarify understanding of corporate governance to managers, investors, and regulators who seek to understand how corporate governance impact firms’ performance. In this study, corporate governance mechanisms included board independence, audit committee independence, board size, number of board meetings, and executive compensation. The data were collected from the firms’ published accounts on their websites and on the archives of the Nigerian Stock Exchange for a period starting from January 1, 2011 to December 31, 2015. The measures of financial performance in the study were return on assets, return on capital employed, and Tobin’s Q. The study found a positive but not statistically significant relationship between corporate governance mechanisms and financial performance. This study has implications for positive social change by showing managers and other stakeholders of firms how a good corporate governance system assures investor confidence, employee loyalty and commitment, the reduction in conflict of interest and agency costs, and a strong financial performance.The growing lack of confidence in public companies arises from the recent accounting scandals and corporate collapses, which have been attributed to the consequences of separation of ownership and control in modern firms. Agency theory predicts a conflict of interest between managers and shareholders that leads to agency costs and weak performance. This study used agency, stakeholders’, and stewardship theories as the theoretical framework and multiple regression analysis to examine the relationship between corporate governance mechanisms and organizational performance in nonfinancial firms listed on the Nigerian Stock Exchange. The results of the study could help clarify understanding of corporate governance to managers, investors, and regulators who seek to understand how corporate governance impact firms’ performance. In this study, corporate governance mechanisms included board independence, audit committee independence, board size, number of board meetings, and executive compensation. The data were collected from the firms’ published accounts on their websites and on the archives of the Nigerian Stock Exchange for a period starting from January 1, 2011 to December 31, 2015. The measures of financial performance in the study were return on assets, return on capital employed, and Tobin’s Q. The study found a positive but not statistically significant relationship between corporate governance mechanisms and financial performance. This study has implications for positive social change by showing managers and other stakeholders of firms how a good corporate governance system assures investor confidence, employee loyalty and commitment, the reduction in conflict of interest and agency costs, and a strong financial performance. The Relationship between Corporate Governance and Organizational Performance in Nigerian Companies by Toyin Ishola Lasisi MS, Walden University, 2014 LL.B, University of London, 2002 Dissertation Submitted in Partial Fulfillment of the Requirements of the Degree of Doctor of Philosophy Management Walden University February 2017 Dedication I dedicate this work to the late sage, Chief Obafemi Awolowo, the former Governor of Western Nigeria, for his believe in equal access to education, knowledge, and progress. Without his program of free education in Western Nigeria in the 1950s and 1960s, I would have had no access to any form of formal learning. Acknowledgments I like to acknowledge and thank all my teachers and mentors at Walden University who have encouraged and supported me throughout this program. Specifically, I thank Dr. Godwin Igein, the chair of my committee, Dr. Doreen McGunagle, committee member, Dr. Danielle Babb, the University Research Reviewer, and the my Program Director, for their support and understanding. The committee members have encouraged me to learn and achieve what I originally set out to accomplish. I also thank Dr. David Bouvin, my mentor, for his advice and support since I enrolled as a KAM student at Walden University. I would also like to thank members of the faculty that I met at the residencies and online throughout this journey, and also all the departments that have assisted me, including the library, writing center, support, research, and international advising. Finally, I thank members of my family for their perseverance, encouragement, and support for this program. My wife, Olayemi Omodeleola Toyin-Lasisi, bought dozens of statistics text books from the U.S. and brought them to me in Nigeria at considerable financial and personal costs. I also thank her for enduring many inconveniences when I attended residency and other programs. Thank you all. Table of