IMPACTS OF FIRM SIZE ON RETURN ON ASSETS OF LISTED MANUFACTURING FIRMS IN NIGERIA

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CHAPTER I

INTRODUCTION

1.1 Background to the Study

Corporate governance is a technique and structure used to control business exercises of the economic system of the organization towards expanding business triumph (Famogbiele, 2012). Corporate responsibility with the extreme target of acknowledging shareholder value, whilst bringing under record the interest for different stakeholders. (MFC) defines Corporate Governance as a framework that is eventually used to control and guide the organizations. Top managerial staff is answerable for the governance of organizations. The shareholders’ part for governance is to engage those executives and the auditors for the benefit of the firm and fulfill themselves to guarantee that a competent corporate structure is developed- Cadbury Report 1992. Corporate governance bargains with those components that guarantee that enterprises get a return based on their ventures (Shleifer et. al, 1999).

Corporate governance arrangements not only the internal administration of the firms, it also connected with a firm’s relationship with its suppliers, customers, and other stakeholders. The developing need for stocks and other assets from organizations expanded the vitality of corporate governance around the planet. Raising investment fund, liquidity with the view of profitability is highly competitive for the organizations.

Corporate governance turned a well known finance exchange platform in the modern world. Generally, corporate governance determines firm establishment that defend and flourish the expectations of stakeholders which expanding worldwide considerations. However, those possibilities of corporate governance varies between countries, relying upon the economic, radical and furthermore social contexts. Organizations in rich economic countries divide shareholdersjurisdictions that works in stable political, budgetary financial structures anddeveloped legislative frameworks of corporate governance.

Corporate governance varies from entity to entity and geographical region of countries. Its ultimate goal is to standardize, gain high rate of return and to prevent financial structure in attaining their targets at the expense of the investors (Luo, 2007). It must be acknowledged that feeble corporate governance or non-compliance of its doctrine could prompt financial abuses, corporate frauds and generate heavy losses for the companies (Jill, 2008).

Corporate governance can be defined as the process and structure that is used for directing and managing business’ affairs in order to enhance business prosperity and corporate accountability with the ultimate objective (Mohamed, Ahmad, &Khai, 2016). Practicing corporate governance for many Asian countries is considered as a crucial issue, especially after the financial crisis in 1997 (Mohamed et al., 2016).

Corporate governance is a matter of growing importance in developing countries, many companiespass-through significant transformations because of the combined forces of technological progress, sociopolitical changes, and economic trends toward globalization.

There are several studies which conclude that an effective firm performance was due to the good corporate

1.2 Statement of the Problem

The priority of any organization is to effectively, efficiently and ethically manage the company for profitable long term growth and perpetual existence; the policies and practices of management must also align with the interest of shareholders and other stakeholders. Thus, the development of good corporate governance is essential in order to protect corporate stakeholders, and maintain factors for control and prevention of collapse and long lasting economic depression. There seems to be some elements of doubt if the governance of corporate organizations is really effective considering the rate of bankruptcy and demise of large corporations all over the world, both in Nigeria and foreign countries (Inam, 2006). In recent times, the world has witnessed the failure of large corporations; in particular, the Nigerian banking sector is currently experiencing insider abuses of reckless granting of credit facilities running into several billions of naira without adequate security. This is contrary to accepted practice which has been attributed to large scale fraud by directors in connivance with auditors. Also identified by (Mehra, 2005) is the problem of window-dressings (eye-service) by the directors who are aided by the auditors, as well as the issue of negligence and misfeasance on the part of the auditors when auditing the financial statement of organizations which can be attributed to the lack of independence of the auditors. One will wonder at what was really wrong when a bank which has been declaring huge amount of profits and has been declaring dividends to shareholders is suddenly declared bankrupt (Mehra, 2005). With this as the background, this study seeks to examine the nature of corporate governance mechanism and firm Performance with a focus on listed manufacturing firms in Nigeria.

1.3 Objectives of the Study

The main objective of this study is to appraise the impact of corporate governance mechanisms on the performance of some selected manufacturing firms in Nigeria. The specific objectives are:

  1. To determine theimpacts of firm size on return on assets of listed manufacturing firms in Nigeria.
  2. To evaluate the extent of relationship existing between insider ownership and return on equity of listed manufacturing firms in Nigeria.
  3. To examine the influence of managerial ownership on the earnings per share of listed firms in Nigeria.

1.4 Research Question

  1. Does firm size have significant impact on return on assets of listed manufacturing firms in Nigeria?
  2. Is there any significant relationship between insider ownership and return on equity of listed manufacturing firms in Nigeria?
  3. Does managerial ownership influence the earnings per share of listed manufacturing firms in Nigeria?
    1. Research Hypotheses

H01:Firm size has no significant impact on return on assets of listed manufacturing firms in Nigeria.

H02:There is no significant relationship between insider ownership and return on equity of listed manufacturing firms in Nigeria.

H03:Managerial ownership does not influence the earnings per share of listed manufacturing firms in Nigeria.

1.6 Scope of Study

This study covers the Corporate Governance Mechanism and Firm Performance with a focus on listed Manufacturing Firms in Nigeria. The research work is focused on five manufacturing firms in Nigeria and how important this firm’s are to the economy. The manufacturing firms are Dangote Group,Nestle Nigeria, Flour Mills of Nigeria, Lafarge Cement WapcoNig and Unilever Nigeria.Several researches and debates on whether corporate governance components such as board size, board composition, audit committee and distinction between ownership and control have any influence on the performance of the firms have been carried out but diverse conclusions on the discourse have been found. Hence, this research work is expected to contribute to the previous body of literature on the performance of these manufacturing firms listed above from 2008 to 2018.

The choice for this period was to check the aftermath of the 2007 global financial meltdown on the manufacturing industry and to see if the crisis affected the existing corporate image of the selected firms and also the reason for choosing this firms is because this 5 manufacturing firms were selected based on their performances, they are outstanding firms in their various units or nature of business.

1.7 Significance of the Study

This research topic titled corporate governance mechanisms on firm performance in Nigeria” A study of listed manufacturing Firm in Nigeria is about the relationship of corporate governance mechanisms on firm performance in Nigeria. This studyis significant because it will investigate whether the existing corporate governance mechanisms influence the firm performance in Nigeria. These study will reveal if firms with robust corporate governance mechanisms seem to be more successful than those companies that having weak corporate mechanisms.