THE RELATIONSHIP BETWEEN CORPORATE GOVERNANCE AND FINANCIAL PERFORMANCE OF PARASTATALS IN NIGERIA

THE RELATIONSHIP BETWEEN CORPORATE GOVERNANCE AND FINANCIAL PERFORMANCE OF PARASTATALS IN NIGERIA

ABSTRACT

Recent and continuous global events involving major corporate and business failures continue to reverberate the importance of good corporate governance as a catch phrase necessary for ensuring the financial health and viability of business entities so that the interests of all stakeholders are protected and to prevent the unfair dominance of the interests of any stakeholder over those of the others. Studies on Corporate governance have mainly focused on private firms. Inefficiency, financial impropriety and mismanagement have characterized most public sector financial management. Therefore, corporate governance needs to be emphasized as a means of revitalizing government’s investment and increasing profitability of parastatals. This study sought to establish the relationship between corporate governance and financial performance of parastatals in Nigeria. The financial performance parameter used for the study was return on asset while four attributes of corporate governance practice were used, namely, board size, board structure, multiple directorship and audit committee. The study used descriptive research design. The population was 127 parastatals and a sample of 30 was chosen for the study. Data were obtained from 27 of the 30 selected parastatals and analyzed using descriptive statistics and multiple regression analysis between April 2012 and July 31, 2012. In general, the study found that there exists a positive relationship between corporate governance and return on asset. This implies that good corporate governance practices enhance financial performance of parastatals. Therefore, policy makers and management of parastatals must ensure that tenets of good corporate governance should be applied to the latter to enhance performance.

CHAPTER ONE
INTRODUCTION

1.1 Background of the study

The study derives from the fact that competition within the global business environment has continued to get intense and complex thereby increasing the scramble for more resources and increment in perceived better performance and economic standard of good business health. With global market and large scale productions, the size and capital requirement of firms have sharply risen and performance requirement has placed huge burden on managers as they strive to ensure that firm performance is enhanced. However, incidence occurring between 2000 and 2002 revealed the uncovering of various unethical practices undertaken by management to present a profitable picture of their entities. The scandals of WorldCom, Enron, Global Crossing amongst others presented a misleading picture of financial status and financial manipulations by management and auditors.

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