Abstract
This study investigates the relationship
between share price and corporate governance of selected Nigeria quoted
companies. The broad objective of the study is to find out if the size of the
board is positively related to share price and also to ascertain if the
independence of the board is related to share price. This study used a sample
of 30 quoted companies in Nigeria between 2013 and 2015. In analyzing the data,
the unbalanced panel multiple regression was adopted to identify the possible
effects of board characteristics on share price in selected Nigerian quoted
companies. The findings revealed that share price random effect panel
regression results shows that all our board characteristics variables such as Board Size, board
independence, CEO duality, board gender diversity and board members
representation in committees had not significant influence on share
prices of quoted companies in Nigeria. This study therefore, recommended that
better share price improvement targets and cost efficiency be given top priority
in the practice of good corporate governance in Nigeria.
TABLE OF CONTENTS
Title Page i
Certification ii
Dedication iii
Acknowledgments iv
Abstract v
Table of Contents vi
Chapter
One: Introduction
1.1
Background to the Study 1
1.2
Statement of Problem 4
1.3
Research Questions 4
1.4 Objectives of the Study 5
1.5
Statement of Hypotheses 5
1.6 Significance of the Study 6
1.7 Scope
of the Study 7
1.8
Limitations of the Study 8
1.9
Definition of Terms 8
Chapter
Two: Review of Related Literature
2.1 Introduction 11
2.2 Concept of Share Price 14
2.3
Board Size 19
2.3.1
Board Composition (Independence) 20
2.3.2 Board Duality (Leadership) 24
2.3.3
Board Committee 26
2.3.4
Board Diversity (Gender) 30
2.3.4.1
Gender Diversity 31
2.3.4.1
Age Diversity 32
2.4 Empirical
Literature 33
2.4.1
Board Size 33
2.4.2 Board
Independence 34
2.4.3
CEO Duality 37
2.4.4
Board Committee 38
2.4.5
Board Diversity (Gender) 39
Chapter
Three: Research
Methods and Design
3.1
Introduction 43
3.2 Research design 43
3.3
Description of the Population of the
Study 43
3.4 Sample Size 43
3.5
Sampling Techniques 43
3.6
Sources of Data Collection 44
3.7
Method of Data Presentation 45
3.8 Method of Data Analysis 45
Chapter Four: Data Presentation, Analysis and Hypothesis
Testing
4.1
Introduction 47
4.2
Presentation of Data 47
4.3 Data Analysis 51
4.4 Hypothesis Testing 57
Chapter
Five: Summary of Findings, Conclusion
and
Recommendations
5.1
Introduction 63
5.2 Summary of Findings 63
5.3
Conclusion 64
5.4
Recommendations 64
References 66
CHAPTER
ONE
INTRODUCTION
1.1 Background
to the Study
Researchers over the years have
established that the performance of a board is influenced by the
characteristics of the board. These characteristics include board size, CEO
duality (leadership) board composition (Independence), board committees and
diversity (Gender) (Christopher, 2012).
However, interest in board
characteristics has grown tremendously in the past decade with the general
feeling that sound financial performance excuses poor board. Corporate
scandals, environmental concerns and globalization have all played their part
in raising shareholders and public awareness on how companies should be
governed.
The call for increased and more
restrictive corporate governance mechanism in Nigeria have stemmed after the
World Bank (2008) issued a report on the observance of standards and codes
regarding the country’s compliance with the corporate governance regulations by
the Organization for Economic Cooperation and Development (OECD) in the report,
majority of the guidelines set by the OECD have been partially observed in
Nigeria, which triggers the need to intensify the implementation of corporate
governance in the country. As a result, in 2001 the Securities and Exchange
Commission of Nigeria set up a committee that came up with a Code of Best
Practices for public Companies in Nigeria (“The Code”) that became operational
in 2003. The review of the code began in 2010 and finally became operational in
March 2011.
The Code of Corporate Governance (CCG)
has stated that “the essence of corporate governance is transparency
disclosure”. Such transparency must be evident in the timely disclosure of
information which may adversely affect the viability and interests of the
shareholders. This requirement aims to strengthen the regulatory framework for
Nigeria institutions wherein strict monitoring, board independence, surveillance,
transparency, and accountability are of great importance.
Despite numerous research efforts on
corporate governance and company performance in Nigeria, little has been done
to finding out the effects of the corporate governance practices of listed
Nigerian companies on one of the most obvious aspects of company affairs i.e.
share price (Uwuigbe, 2013).
The recent international disasters in
financial reporting including Enron and WorldCom in the US, Parmalat in Italy,
the Maxwell Saga in the UK, Daewoo in Korea, Leisurenet and Regal Bank in South
Africa, CADBURY and Oceanic Bank in Nigeria confirmed the growing need for transparency in governing companies.
It was observed that good board
characteristics has been evident to be associated with greater firm performance
(Carcello & Neal 2003; Attiya & Robina, 2007). As seen in these
studies, in any organization, the share price is the first brief pinpoint when
one thinks about an indicator for the performance of a listed company. If it is
on an increase, the default reaction is that things are going well in that
corporation and people do buy the shares. However, if it is a decline, one may
not be so sure about way the business is shaping up its operations. As observed
by Klein (1998), implementing a better corporate governance practice is
anticipated to improve the monitoring of management and reduces information
asymmetry problems. This invariably will increase share price of the firm.
Moreover, Samontaray (2008)
prognosticated that transparency in business organizations influence, which is
eventually reflected in the company’s share prices.
It is against this backdrop that this
study therefore aims to find out the relationship between corporate governance
mechanisms and share price among listed firms in Nigeria.
1.2 Statement
of Problem
Given the circumstance mentioned above
and the need to further explore the impact of board characteristics and firm
performance; measured in terms of share prices, among publicly – listed holding
companies in Nigeria.
1.3 Research
Questions
This study attempts to find answers to
the following research questions;
1. Does
the size of the board positively related to share price?
2. Is
the independence of the board related to share price?
3. Is the CEO duality negatively related to
share price?
4.
Is the board committee negatively
related to share price?
5. Is
the board diversity negatively related to share price?
1.4 Objective of the Study
The following are the objectives of the
study:
1. Find
out if the size of the board is positively related to share price.
2. Ascertain
if the independence of the board is related to share price.
3. Find
out if the CEO duality is negatively related to share price.
4.
Examine if the board committee
negatively relate to share price.
5. Examine
if the board diversity negatively relate to share price.
1.5 Statement
of Hypotheses
The following hypothesis shall be tested
in the course of this study:
Hypothesis One
HO: The size of the board is negatively related
to share price
HI: The size of the board is positively related
to share price.
Hypothesis Two
HO: The independence of the board is negatively
related to share price.
HI: The independence of the board is positively
related to share price.
Hypothesis Three
HO: The CEO duality is negatively related to
share price
HI: The CEO duality is
positively related to share price.
Hypothesis Four
HO: The Board Committee is negatively related to
share price
HI: The Board Committee is positively related to
share price.
Hypothesis Five
HO: The board diversity is negatively related to
share price
HI: The board diversity is negatively related to
share price
1.6 Significance
of the Study
The following individuals/bodies will
benefit from this study;
i. Literature: It
is expected that this study would contributes to existing literature, by
providing empirical evidence on the relationship between the board
characteristics and share prices in
Nigeria (Edem & Noor, 2013). The study would also facilitate or influence
the examination of the effect of board characteristics and share prices
behaviour and thus boosting the empirical evidence from Nigeria.
ii. Policy makers:
Given the empirical nature of the study, the outcome of this study would aid
policy makers and regulatory bodies in economic modeling and policy simulation
with respect to the selected valuables examined in the study.
iii. Investment analysts/investors: The
result of the study would benefit investment analysts, investors and
corporations in examining the influence of board characteristics and share
prices behaviour. It will also be useful in stimulating public discourse given
the depth of the empirical researches in this area from emerging economy like
Nigeria.
1.7 Scope of the Study
This study covers all listed companies
on the Nigerian Stock Exchange, in other to investigate the effect of corporate
governance on firm share prices. The annual report of the selected firms for
three years period between 2013 and 2015 was studied.
1.8 Limitations
of the Study
The study has some limitations for
firms’ auditors, investors and regulators. All these parties play an important
role in improving the transparency and disclosure practices of corporations
(Ali, Merve & Nizamattin, 2013). These limitations vary in different stages
and form;
1. The
study was conducted solely on listed companies. The results may not be
generalisable to non-listed companies (Ali, Merve & Nizamattin, 2013).
2. The
study is limited by time and data. Due to time constraint, the data and
information used is not the product of primary research but are published
information obtained from articles, journals and financial statements.
3. The
ability to obtain a completely random sample.
4. Imprecise
measurement of variables.
1.9 Definition of Terms
1. Corporation: A
corporation is a company or
group of people authorized to act as a single entity and recognized as such in
law.
2. Corporate
Governance: Corporate
governance broadly refers to the mechanisms, processes and
relations by which corporations are controlled and directed.
3. Governance:
Refers to "all processes of governing, whether undertaken by a government,
market or network, whether over a family, tribe, formal or informal
organization or territory and whether through laws, norms, power or language
4. Share: In financial markets,
a share is a unit
of account for various investments. It often means the stock
of a corporation, but is also used for collective investments such as mutual funds, limited partnerships, and real estate investment trusts.
5. Price: Price is the quantity
of payment or compensation given by one party to another in return for goods or services.
6. Share Price: A share
price is the price of a single share
of a number of saleable stocks
of a company, derivative or other financial
asset. In layman's terms, the stock price is the highest amount someone is
willing to pay for the stock, or the lowest amount that it can be bought for.
7. Audit Committee: This is a committee that works closely with the
external audit firm and generally influences the company’s control environment.
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