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The objective of this study is to empirically investigate the relationship between corporate governance (measured by Board Size, Ownership Concentration and CEO Duality) and profitability (measured by Return on Asset and Return on Equity) of selected Nigerian manufacturing companies.

The study adopted survey research design. Random sampling was used to select 10 companies out of a total population of 45 manufacturing companies listed on the Nigerian Stock Exchange, for a time period of 2006 to 2015. Secondary data (financial and non-financial) were collected from the annual reports and accounts of the selected listed manufacturing companies. Pooled OLS regression, Fixed Effect and Random Effect analysis and descriptive statistics were used in analyzing the data. F-stat was used to test the hypothesis.

The results of the study show that Board size had a positive relationship but not significant with performance of the sampled manufacturing companies. Also, it was found that CEO duality had a negative but significant relationship with the performance of the sampled manufacturing companies, while Ownership concentration had a significant positive relationship with performance of the sampled manufacturing companies.

In conclusion, the study revealed that the performance indicator (ROA) and (ROE) related with each component of the Corporate Governance Index in a peculiar manner.  It is therefore suggested that reform efforts should be directed towards improving the corporate governance of listed Nigerian manufacturing companies, especially emphasis should be devoted to ownership concentration.


Keywords: Corporate Governance, Performance, Board size, Ownership concentration, Returnon Asset and Return on Equity

Word Count: 233




Content                                                                                                Page

TitlePage                                                                                                                                 i

Certification                                                                                                                            ii

Dedication                                                                                                                              iii

Acknowledgments                                                                                                                  iv

Abstract                                                                                                                                  v

Table of Contents                                                                                                                   vi

List of Tables                                                                                                                          x

List of Figures                                                                                                                         xi




1.1 Background to the Study                                                                                                 1

1.2 Statement of the Problem                                                                                                             4

1.3 Objective of the Study                                                                                                     5

1.4 Research Questions                                                                                                           5

1.5 Hypotheses                                                                                                                       5

1.6 Justification for the Study                                                                                                6

1.7 Scope of the Study                                                                                                           6


Content                                                                                                                                Page

1.8 Significance of the Study                                                                                                 6

1.9 Operational Definition of Terms                                                                                       7


2.1 Conceptual Review                                                                                                           9

2.1.1 Agency Concept                                                                                                                        9

2.1.2 Agency Problem                                                                                                            10

2.1.3 Agency Cost                                                                                                                  11

2.1.4 Corporate Governance Mechanisms                                                                              13 Board Size                                                                                                                  13 CEO Duality                                                                                                               14 Ownership Concentration                                                                                           15

2.1.5 Firm Performance Measures                                                                                          17 Return on Assets                                                                                                         18 Return on Equity (ROE)                                                                                             18

2.2 Theoretical Review                                                                                                           19

2.2.1 Stakeholder Theory                                                                                                        19

2.2.2 Stewardship Theory                                                                                                       20

2.2.3 Resource Dependency Theory (RDT)                                                                           20

2.2.4 Agency Theory                                                                                                              21

2.2.5 Theoretical Framework                                                                                                  23

Content                                                                                                                                Page

2.3 Empirical Review                                                                                                              24


3.1 Research Design                                                                                                               36

3.2 Population                                                                                                                         36

3.3Sample size and sampling Technique                                                                                 36

3.4. Sources of Data                                                                                                               36

3.5 Method of Analysis                                                                                                          37

3.5.1 Justification of Method of Analysis                                                                              37

3.5.2Estimation Technique                                                                                                     37

3.5.3Model Specification                                                                                                        37

3.6 Instrument                                                                                                                         40

3.7 Apriori Expectation                                                                                                          40

3.8 Ethical Consideration                                                                                                       40




4.1 Data Analysis                                                                                                                    41

4.2 Results                                                                                                                              41

4.2.1 Descriptive Analysis Result                                                                                           41

4.2.2 Correlation Analysis Result                                                                                           42


Content                                                                                                                               Page

4.2.3 Regression Analysis Result                                                               42

4.3 Discussion of Result                                                                                            46




5.1 Summary                                                                                                                           48

5.1.1 Summary of Findings                                                                                                    49

5.2 Conclusion                                                                                                                        50

5.3 Recommendations                                                                                                            50

5.4 Contribution to Knowledge                                                                                              50

5.5 Limitation of the Study                                                                                                    51

5.6 Suggestion for further Research                                                                                       51

References                                                                                                                              52

Appendices                                                                                                                 57










Table                                                                                                                                   Page

2.1 Summary of Empirical review                                                                                          29

4.1 Summary of statistics                                                                                                        42

4.2 Correlation Matrix                                                                                                42

4.3 Corporate Gov: Panel Data Analyses for ROA                                                                44

4.4 Corporate Gov: Panel Data Analyses for ROE                                                                45






Figure                                                                                             Page

2.1 Triangular relationship of corporate governance, agency cost

and firm performance                                                                                                12

2.2 Conceptual Framework of Corporate Governance and Firm

Performance                                                                                                                17



















ROA Return on Assets

ROE Return on Equity

CEODChief Executive Officer

BSBoard size

OC Ownership Concentration

AG Age of Firm

FZFirm size

LM Lagrange Multiplier

ANOVA Analysis of variance

RSI Relative significance index

OLS Ordinary Least Square

RE Random Effect

FE Fixed Effect














  1. Pooled OLS, Random Effect and Fixed Effect Result
  2. Informed Consent
  3. Turnitin Report





















  • Background to the Study

The issue of corporate governance has brought about research interests with respect to principal-agent relationship currently existing in publicly quoted companies. This is in corroboration with Claessens and Fan (2002) who opined that corporate governance has received much attention in recent years due to failure of some firms in Asia.

Corporate governance reform has emerged as a critical business issue, thrust on the world stage by a number of high profile corporate failures (Strandberg, 2005). The famous corporate accounting scandals of Enron Corporation, World Com, Tyco, and Parmalat have led to contemporary discussion on the best mechanisms for protecting stakeholder’s interest and ensuring shareholders wealth maximization. Also, in Nigeria the emphasis on the need for corporate governance reform sprung up with the incidence of fraudulent financial reporting as reported in the case of Cadbury Nigeria Plc.In Nigeria, the growing incidence of corporate fraud has meant that investors’ confidence in the capital market has declined due to the current down turn in the market which is been blamed on the fraud at the Nigerian Stock Exchange (NSE) and investors in Cadbury (Nig)plc also lost heavily as the share price of the company took a downward turn. Organizations have monitoring mechanisms aimed at ensuring good corporate governance and minimization of corporate fraud. The primary objective of corporate governance is to try to align managerial incentives with that of stakeholders so that managers work in the best interest of the stakeholders (Nworji, Adebayo, & David, 2011).

In the area of monitoring, the non-executive members of the board of Cadbury were passive. The audit committee was ineffective while the internal auditor was compromised. Collusion among some members of top management ensured internal control override. In the case of the NSE, conflict of interest did not allow the non-executive directors to exercise their oversight function effectively as top management were behind the cases of asset misappropriations and reclassification of accounts, the internal control system could not work.The Nigeria stock exchange had no internal audit unit and audit committee although under the current Nigerian Law it was not mandatory for it to have one. The Nigeria stock exchange and Cadbury Nig Plc external auditors did not give an unqualified result and the auditors were indicted by SEC for negligence and lack of professional skepticism while the fees paid to the Auditor in the case of the Nigerian Stock Exchange was described as excessive.(Osundina, Olayinka & Chukwuma, 2016)

In both cases, members of the public, employees and shareholders of the organization lost their investments. Costly litigation has also resulted for both firms. Perhaps for the first time in Nigeria, an audit firm had been indicted and warned. The firms have been audited for many years by the same firm. The performance of some Nigerian auditors has led to the Central bank of Nigeria imposing selective ban onauditors providing non-audit services to its bank audit clients. It has also led to calls for mandatory rotation of auditors in all Public limited companies.On Cadbury ( Nig) Plc scandal, one said” What kind of organizational structure was in place in Cadbury(Nig.)Plc that would allow two persons to mindlessly, as reported, affect the health of the company?” Another queried the relevance of a board that still pleads excuses for its negligence for presiding over a staggering fraud to the tune of fifteen billion Naira (Solanke, 2007).

Abor and Biekpe (2005) intricately define corporate governance as the process and structure used to enhance business prosperity and corporate accountability with the ultimate objective of realizing long-term shareholder value, whilst taking into account the interest of other stakeholders.  Kyereboah (2007) submits that corporate governance is represented by the structures and processes lay down by a corporate entity to minimize the extent of agency problems as a result of separation between ownership and control. Simply put, corporate governance in an organizational context is the totality of the control, monitoring and directing mechanism utilized by strategic management in the best interests of its stakeholders.

The concept of performance supports the effective and efficient use of financial resources of the company to achieve overall objectives which include both shareholders wealth maximization and profit maximization objectives. Performance is a quality of any company or firm which can be achieved by valuable results. For example, a firm having high return on assets (ROA) is said to be performing well and high ROA is not a sign of good performance: there are some other variables to be considered such as sales, profit and expenses which will be highlight in this study. Performance can be analyzed by various methods, such as parametric (Stochastic Frontier Approach) and non-parametric (such as Data Envelopment Approach). The focus of this study is on accounting ratio, the non-parametric method. Many studies have focused on this aspect(Ertugrul & Hegde, 2013).

Financial ratio is helpful and easy tool to identify weakness and strength (performance) of any company by looking at their financial statements. Through this, the study can identify the ratios across time for example the 10-year period which have been taken for this study and this study can compare the ratios to other companies in different time periods. Beside its advantages, the disadvantage is that performance analysis cannot be done only by financial ratios which are based on traditional accounting data as they can no longer meet information needs.

Performance of any organization is directly related to efficiency. In other words, performance will be higher, if it achieves desired output with minimum consumption of input and time. There are numerous studies available which have been done on performance evaluation and efficiency analysis to support and guide the business organizations to achieve their objectives. Performance can be measured using long term market performance measures and other performance measures that are non-market-oriented measures or short term measures (Zubaidah, Nurmala, & Kamaruzaman, 2009). The measure of firm performance employed in this study is from a non-market oriented perspective which is most common and requires the use of accounting ratios which are the profitability and investor ratios. This study intends to contribute to the few researches on the Nigerian environment as most of the researches on firm performance and corporate governance which resulted in mixed outcomes were conducted in the United States of America, the United Kingdom, Pakistan and Malaysia (Ertugrul & Hegde, 2013; Gisper,Jong, kabir & Renneboog, 2012; Javid & Iqbal, 2009; Zubaidah et al 2009). It would also provide credible findings to support deliberations on this topical issue.

  • Statement of the Problem

Corporate governance is a nonfinancial factor that affects the performance of any company, hence prior literature support increasing disclosure of nonfinancial information in the reports of every organization (listed or not listed).  PricewaterhouseCoopers (2002) found that most top managers and executives in multinational companies believe that non-financial performance measures outweigh financial performance measures in terms of creating and measuring long-term shareholder value. Coram, Mock and Monroe (2006) opined that non-financial performance indicators can offer key insight into future performance, and at the same time serve as a proxy for identifying well-managed companies. This is to an extent a reasonable assertion because corporate governance indicators can help see how well an organization is being managed and determined by the future performance of such organization.

Kajola (2008) asserts that financial scandals around the world and the collapse of major corporate institutions in the USA, South East Asia, Europe and Nigeria have shaken investors’ faith in the capital markets and the efficacy of existing corporate governance practices in promoting transparency and accountability. The loss of confidence by investors in the capital market is therefore an indicator of poor corporate governance practice in quoted companies. The shares of the listed companies on the Nigerian stock exchange are gradually declining to a state of less investment and shareholders have lost interest in trading on the stock exchange because of the crash in share prices just as in the Cadbury Nigeria Plc. case when it overstated its earnings and its shares which dealt a heavy blow on the Nigerian Stock Exchange Market (Oyebode, 2009).

In a nutshell, weak corporate governance  largely contribute to systemic failures, corporate scandals and failures resulting from fraud and other forms of malfeasance, this on the long run will affect negatively the financial performance of any company. As a result of corporate governance failure, many companies around the world, even those assumed as too big to fail, have experienced crises and scandals that led to their end. Due to all this failure the study seeks to examine the relationship between corporate governance and also check which variable affect performance or profitability of manufacturing firms in Nigeria.

  • Objective of the Study

            The main objective of this study in a broad sense is to measure the relationship between firm performance and corporate governance mechanisms. The specific objectives are to:

  1. examine the extent of relationship between board size and firm performance;
  2. examine the significance of CEO Duality on firm performance and
  3. examine the extent of relationship between ownership concentration and firm performance


  • Research Questions

The study tends to provide answers to the following questions:

  1. What is the relationship between board size and firm performance?
  2. To what extent does CEO duality affect performance?
  3. To what extent does concentration of ownership affect firm performance?


  • Hypotheses

The following null hypotheses would be tested in this study.

H01: Board size has no significant relationship with firm performance

H02: CEO duality does not significantly affect firm performance

H03: Ownership concentration does not significantly impact on firm performance positively

1.6 Justification for the Study

The corporate environment of the Nigerian economy has experienced different mix of management practices and failure of some high profiled firms. Cadbury Nigeria Plc and the Nigeria Security and Exchange Commission. The high levels of corporate failure encountered which are largely due to poor management practices have not been fully eradicated. The efficiency of the performance measures has shown varying trends over the years. The most revealing of all is the level of mismanagement in Cadbury Nigeria Plc, Dunlop, unilever brothers and that of the Security and Exchange Commission which lead to the loss of investment by public investors in the Nigerian economy, Putting all these into perspective, there is the need to properly analyze the role of corporate governance on firms profit till date. Specifically how their effect robs-off on current performance level in the manufacturing firms in Nigeria. This thus forms the rationale for this research work.

1.7 Scope of the Study

The study covered a 10years periods (2006 – 2015) of selected manufacturing companies listed on the NSE of which ten (10) firms was selected using their Annual Reports and Accounts. The focus on manufacturing companies was partly because most studies have studied banking sector due to the financial crisis in the past. In another part, available statistics shows that manufacturing sectors ownership structure exhibit a degree of concentration. The period of 2006 to 2015 gave room for larger observation for the panel analysis. In all total observation equals 100.

1.8 Significance of the Study

The importance of this study lies in its ability to fill an identified gap and contribute to existing researches in the subject area.

The previous empirical studies conducted on the Nigerian environment do not cover information drawn from the most recent periods. The studies provide evidence from the period of 1996 to 2006 (Kajola, 2008; Sanda, et al., 2005), whereas this study provides evidence from 2006 to 2015. Most importantly, this study advances on kajola (2008) which hitherto is not the most recent study in this area on the Nigerian Stock Exchange. In addition to being more recent in terms of coverage, several measures of corporate governance as well as profitability measures not considered by the most recently available works on Nigeria. Whereas, this study makes use of a smaller sample size of ten (10) companies and examines the relationship between two performance measures (Return on Equity and Return on Assets) and three corporate governance variables. Apart from bridging the existing literature gap, another significance of the study is the bid to resolve the information asymmetry problem between managers and shareholders which is known as the agency problem.

This study would be beneficial to the following categories:

Top executives: This includes the CEO, Chairman and members of the board. The study would assist them in managing the agency problem which would help widen their perspective of effective corporate governance that results in improved firm performance.

Shareholders/Investors: This study would assist existing shareholders and potential investors to make meaningful investment decision as regards their investments and performance of the companies in which they are stakeholders.

Regulators: This study would assist the regulators in developing better corporate governance regulations that will be more encompassing and contribute effectively to enhancing firm performance and resolving agency conflict.


1.9 Operational Definition of Terms

Accounting scandal: an event of an accounting nature that causes public outrage or censure such as the understatement of profit, overstatement of assets.

Agency: fiduciary relationship between two parties in which one (the “agent”) is obligated to the other (the “principal”).

Audit Committee: It is a body formed by a company’s board of directors to oversee audit operations and circumstances. Besides evaluating external audit reports, the Committee may evaluate internal audit reports as well.

Board of Directors: A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. The body sometimes has a different name, such as board of trustees, board of governors, board of managers, or executive board.

Corporate Governance: Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a company is directed, administered or controlled.

Financial Reporting: the presentation of financial information about an entity to potential users of such information. The term usually refers to reporting to users outside of the entity.

Insolvency: the situation where entities cannot raise enough cash to meet its obligations, or to pay its debt as they become due for payment.

Return on Assets (ROA): ROA gives an idea as to how efficient management is at using its assets to generate earnings. It is displayed as a percentage and calculated as

Profit after Tax/ Total Assets.

Return on Equity: Return on equity measures a corporation’s profitability by revealing how much profit a company generates

With the money shareholders have invested. ROE is expressed as a percentage and calculated as:

Profit after tax /Shareholder’s Equity.

Stakeholders: persons with interest in an organization such as its owner, employees and creditors.

Shareholder: an individual or group who holds one or more shares in an organization, and in whose name the share certificate is issued


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