AN ASSESSMENT OF INTERNAL AUDITORS ROLE IN FEDERAL MINISTRIES

AN ASSESSMENT OF INTERNAL AUDITORS ROLE IN FEDERAL MINISTRIES

(A CASE STUDY OF FEDERAL MINISTRY OF TRANSPORT ABUJA)

ABSTRACT

This research work assesses internal auditors role in Federal Ministries Transport, the main objective of this research work is to determine the extent of effectiveness of fraud detection and control mechanism, to examine the procedures in fraud detection and control in government organizations. In undertaking this research work, both primary and secondary data were used. The primary data were obtained through the use of questionnaires: the secondary data were obtained from the review of related literatures.  Questionnaires were administered and Ninety nine were duly completed and returned. Anova method was used for analysis of the questionnaires, it was found out from study that there is presence of effective and adequate internal control system in operation to curtail the future occurrence of fraud in Federal Ministry of Transport Abuja. And that without doubt, this fraud detection and control mechanisms are effective and also it was noted that fraud could be detected through normal audit. In the light of the above findings, the researcher recommends among others that staff should be made to rotate their job from time to time to eliminate any possible exploitation caused by long stay on a particular job to commit fraud. The researcher also recommended that the welfare of the staff in the Federal Ministries should be given priority as this will go a long way to reducing the rate of fraudulent activities in public offices. The researcher further stated that, thorough supervision should be carried out during and after a task is executed that is to say the activities of junior staff should be properly checked by another senior staff that has more years of experience in the field. Finally, Staff Welfare: since average remuneration has been identified as one of the reasons responsible for persistent cases of fraud, it is recommended that the audit staff in particular and the other staff in general, should adequately be remunerated. This will bring contentment to the staff and hence reduces the temptation to get involve in fraudulent activities in the Federal Ministries. All other benefits should equally be improved and paid as at when due.

CHAPTER ONE: INTRODUCTION

1. Background to the study

Auditing is the examination of accounting records with a view to ascertaining their accuracy and compliance with relevant statutory provisions, accounting standards, professional pronouncements, and the organisational policies.

The Chartered Institute of Public Finance and Accountancy (CIPFA), as cited by Johnson (1996:47), defined internal audit as “an independent appraisal function within an organisation for the review of activities as a service to all levels of management. It is a control which measures, evaluates and reports upon the effectiveness of internal control, financial and otherwise, as a contribution to the efficient use of resources within an organisation.”

According to Gupta (1999), internal audit is an independent appraisal function established within an organization to examine and evaluate its activities as a service to the organization.

Jocelyn (2003:67) traces the definition of internal auditing given by the Institute of Internal Auditors as “an independent appraisal function established within an organisation to examine and evaluate its activities as a service to the organisation.” The objective of internal auditing is to assist members of the organisation in the effective discharge of their responsibilities.

Internal auditing is an independent appraisal function established within an organization to examine and evaluate its activities as a service to the organization. The objective of internal auditing is to help members of the organization in the effective discharge of their responsibilities. In view of this, internal audit furnishes them with analysis, appraisal, recommendations, counsel and information concerning the activities reviewed (Institute of Internal Auditors, 1991).

According to Institute of Internal Auditors (1991), the scope of internal auditor is defined as “The examination and evaluation of the adequacy and effectives of the organization’s system of internal control and the quality of performance in carrying out assigned responsibilities”.

Danbatta (2004) concludes that a properly conducted internal audit is expected to reveal errors, strengths or weaknesses of internal control system of the organization. Base on his conclusion, there is significant positive relationship between internal audit and internal control.

Vos (1997) said that objective of internal auditor is to evaluate effectiveness of financial and operating control, confirm compliance with company policies, procedure, protect assets verify the accuracy and consistency of organization’s external and internal reports. Stoner (1994) was of the opinion or view that the objective of internal audit is to evaluate several of the organization’s reports for accuracy and usefulness and also recommending improvement of the control system.

Tracey (1994) is of the view that it is the responsibility of the internal auditor to review how well the accounting system works and also evaluate the effectiveness and efficiency of many operations in the organization. A lot of public sector has been operating without internal auditor. This can be attributed to the fact that few people outside the accounting profession realize the importance of the internal auditor. Emphasis was laid on discharging accountability for the use of owners fund through the internal auditor report. Some public sector management adduces the argument that internal auditors, being employees in public sector do not have the liberty to exercise the unbiased and independent attitude so necessary to an auditor.

1. Statement of the Problem

In spite of various pronouncements on internal audit in the Nigerian Public Sector, the general opinion according to literature is that most of the public enterprises have failed to deliver on the purposes for which they were established. Many people accuse managers of public enterprises in Nigeria of ineffectiveness and inefficiency in terms of resource control. They argue that poor application of internal audit principles and procedures leads to blatant diversion of scarce resources with its attendant consequences on the traditional accountability of government to the public. However, mention must be made that the ineffective implementation of internal audit procedures in the Nigerian public sector is not only attributable to unavailability of adequate legislations. It also hinges on whether there are adequate punishments for violations of internal audit procedures and whether the punishments are justly and effectively applied whenever need be. With these looming cases against the performance of internal audit procedures the researcher considered it a matter of urgency to have an in-depth assessment of internal auditors role in Federal ministries with particular interest in Federal Ministry of Transport Abuja.

1. Research Questions

To achieve the objectives of the study the following research questions are answered:

1. To what extent is the effectiveness of fraud detection and control mechanism used by internal auditors in Federal Ministries?
2. Are there procedures used in fraud detection and control in government organisation?
3. Do internal auditors report irregularities to the management?

1. Objectives of the Study

The main objective of this study is to assess the internal auditors role in Federal Ministries.

The following are the specific objectives:

1. To determine the extent of effectiveness of fraud detection and control mechanism in Federal Ministries by internal auditors
2. To examine the procedures in fraud detection and control in government Organizations.
3. To evaluate whether internal auditors report irregularities to management.

1. Statement of Hypotheses

H₀₁: Fraud detection and control mechanism used by internal auditors is not effective in the Federal Ministries.

H_A2: Fraud detection and control mechanism used by internal auditors is effective in Federal Ministries.

H₀₂: Internal auditors do not have procedures to use in fraud detection and control.

H_A2: Internal auditors have procedures to use in fraud detection and control.

1. Significance of the study

This study brings to light the role of internal auditor in fraud detection and control in Federal Ministries which is been limited to Federal Ministry of Transport Abuja as a case study.

Therefore this research study will be of great benefit to ministries, government parastatals, and corporation in order to know the weakness of internal control system of the organization that give room for the fraud and also to determine the existence of the fraud in the organisation.

It will also be of importance to those in academic and researchers in accounting and audit field to have more knowledge on the role of internal auditor, in fraud detection and control.

The above mentioned benefits will improve extensively if they use report Submitted by the internal auditor to management for corrective measures and also all the recommendations will be put into consideration.

1. Scope of the study

The researcher embarks on an assessment of internal auditor’s role Federal Ministries in Nigeria as a whole. But the resources and duration of the time and cost did not give enough room to cover the entire Ministries in Nigeria at large. For this reason, the researcher took Federal Ministry of Transport as a case study. The period under consideration and review was year 2016.

1. Limitations of the study

This research is limited to the role of internal auditor in fraud detection and control in Federal Ministry of Transport Abuja; this is because the researcher will not be able to cover all the ministries and government parastatals within the limited time.  The researcher also finds it difficulties in gathering data from the research population as they considered such information as confidential.

1. Definition of Terms

Auditor: An auditor is an independent person who is appointed to investigate the organisation, its records and financial statement prepared for them, and thus form and opinion on the accounting and correctness of the financial statement.

Errors: This refers to an unlimited mistake or act committed by employee in the financial statement and accounting records, whether of the mathematical or clerical nature, whether in application of the accounting principles or due to oversight or misinterpretation of relevant facts

Fraud: This is an intentional act by one or more individuals among management those charged with governance, employees, or third parties, involving the use of deception to obtain an unjust or illegal advantage.

Fraudulent practice: This is an intentional violation of internal control system in an organisation for the acquisition of unjust benefits either in monetary terms or in kind by a fraudster in the Federal Ministry of Transport Abuja Nigeria Misrepresentation: this refers to the reporting of wrong facts in financial statement for the use of the management and other regulatory bodies.

Irregularities: This refers to intentional distortion of financial statements and accounting records for whatever purpose and misappropriation of assets whether or not accompanied by distortion of financial statement and accounting records.

Misappropriation: This could be seen as taking somebody’s money or property for yourself especially when they have trusted you to take care of it.

Finance: the management of large amounts of money, especially by governments or large companies.

Financial Statements: Financial statements present the results of operations and the financial position of the company. Four statements are commonly prepared by publicly-traded companies: balance sheet, income statement, cash flow statement and statement of changes in equity.

Parastatal: A company, agency, or intergovernmental organisation, that possesses political clout and is separate from the government, but whose activities serve the state, either directly or indirectly.

Fiction: Is a deliberately fabricated account of something. It can also be a literary work based on imagination rather than on fact, like a novel or short story. The Latin word fictus means “to form,” which seems like a good source for the English word fiction, since fiction is formed in the imagination.

IMPACT OF PUBLISHED FINANCIAL STATEMENT ON SHAREHOLDER’S INVESTMENT DECISION

IMPACT OF PUBLISHED FINANCIAL STATEMENT ON SHAREHOLDER’S INVESTMENT DECISION

(A CASE STUDY OF WEST AFRICAN CERAMIC COMPANY AJAOKUTA)

ABSTRACT

This research project was designed to examine “the impact of Published Financial Statement on Shareholders Investment Decision” (A Case Study of West African Ceramic Company Ajaokuta). The primary and secondary sources of data were adopted. Questionnaires were distributed by hand and ninety nine were returned. Upon presentation and analysis of data, hypotheses were tested empirically using analysis of variance (ANOVA). The research revealed the following: Investors do not analyze financial statement before making an investment decision. Published financial statement of a company does not show true and fair view. Majority of the respondents agreed that information contained in the company’s annual report could be reliable for effective investment decision. The researcher recommends that all public limited enterprise should continue to publish their financial statement every year; hence it helps shareholders in making investment decision.

CHAPTER ONE: INTRODUCTION

1. Background to the study      

Corporate organizations owe a duty to fully disclose matters concerning their operations so as to aid investors in making investment decisions. Both large and small organizations in addition to satisfying the legislating requirement tend to retain existing investors and to attract potential ones through the publication of their financial statements where the capital stock of a corporation is widely held and its affairs are of interest to general public relations.

The purpose of financial statement is to provide reliable information about the financial position, performance, and relevant changes in financial position of a company or business. Listed companies use financial statements as one of the major medium of communication with their equity shareholders and public at large (Cheng and Yang, 2003; Sloan, 1996; Hribar and Collins, 2002).Financial statements according to Illoumezie (2006:33) are like compasses “which navigators use to locate their bearing and find direction”. People use them to gauge their financial positions at various points in their lives in order to judge their progress towards their financial goals.

Financial statements according to Meigs and Meigs (1981:28) refers to reports which summarize the financial position and operating results of a business (balance sheet and income statements). It referred to as general purpose that satisfy the need of many groups generally called stakeholders. These groups are particularly concerned with the risk inherent in and returns provided by their investments, and who require accounting information to enable them assess the ability whether they should buy, hold and sell their investments.

According to Anayaogu (2002:14) financial accounting provides information to eternal decision makes such as shareholders, government, creditors, employees etc, these are people with whom or from whom money is ultimately paid or received. Anayaogu (2002:20) also states that records of financial accounting includes various ledges accounts, profits and loss accounts, balance sheet and other financial records. These records are intended to show the strength, progress, portability, management effectiveness and stewardship.

Financial statement are the means of communicating to interested partners information or the resource, obligation and performance of the reporting enterprise in a simple, clear and understandable form to all its user with such attributer of relevance to decision reliability, consistency and comparability materiality efficiency and understandability.

The annual report and accounts are said to be published owing to the fact. It is being printed and dispatched to each shareholder and any other unfrosted where person on request. The annual reports and accounts are the primary means of communicating vital economic information in the cooperation’s resources and obligation to absentee owners and could be investor by the management. The published financial statement serve as a means of conveying business information to the equity investor groups (shareholders), the loans creditors group, the employee groups, the business contract group, the government and its agencies as well as the general public. It gives a concise and genuine picture of an enterprise profitability trend and its financial position. The information contained in the published financial statement act as a basis for which shareholder maker investment decisions. However, the account days of pre-colonial administration, the preparation and publication of financial reports used by owner managers for internal control and cost determination. At the onset of industrial revolution, trade begins to increase and expand. This necessitated employing managers to manage the business on behalf of the shareholders. Managers positions now necessitated companies to prepare and publish a financial report that would reveal to the owners (shareholders) the operational state and financial position of the company and how the capital contributed by the shareholder had been utilized in the realization of the set out objectives of the company.

The company Act 1963 outline that every registered business organization should maintain and submit audited financial statements every year during the Annual General Meeting (AGM) where it is laid to the members. This is in consonance with the provision of schedule two of the Companies and Allied Matter Decree of 1990 which states internally that the form and contents of published financial statements and with the accounting standard issued from time to time by the Nigeria Accounting Standard Board (NASB).

Meigs & Meigs (1981:14) states that the preparation of financial statement is not the first step in accounting process. At the close of financial period, the stakeholder such as investors of a company naturally desires to ascertain the following:

• The result of the company’s operations for the period.
• The resources and hostilities of the company over the period in question.
• Wealth created by the company and how it has been distributed.
• Financial resources acquired and how they have been expanded.

Thus, published financial statement prepared under companies and allied matter decree (CAMA) 1990 supplies information about the above. As a matter of fact, shareholders of any corporation would require annual corporate report published about the entity and which must be relevant, sufficient and reliable.

1. Statement of the Problem     

Virtually, every economic entity maintains its records on a historical cost basis. The historical cost figures alone are inadequate. This is because net profit is over stated, the balance sheet does not reflect the current worth of the enterprises and inflationary situation, and the charging of the historical cost of operations to profit and loss account may endanger the maintenance of the operating capital of the entity. It is obvious that the current situation of published financial statement has some limitations. This is because the result of operation (net profit) is a function of accounting standards, policies and conventions adopted by a company and used in the preparation of the financial statements. Hence this study examine the impact of published financial statement on shareholders’ investment decision making with a particular interest in West African Ceramic Company Ajaokuta.

1. Research Questions

The research questions help keep the research in focus in order to achieve the desired aims of this research. Therefore the following research questions about the impact of published financial statement on shareholders’ investment decision making are being asked so as to find answer to them.

1. Do investors understand financial statement very well?
2. What do shareholders see as the importance of published financial statement of companies?
3. To what extent do the financial statements of a company encourage investors to invest?

1. Objectives of the study

The main objective is to ascertain the impact of published financial statement on shareholders’ investment decision making in West African Ceramic Company Ajaokuta. The specific objectives are stated as follows;

1. To know whether the information in the financial reports of companies are understood and used for investment decision making.
2. To ascertain the extent the company’s published financial statement are capable of meeting shareholders and investors need.
3. To determine how financial statement deficiency affects the shareholders investment decision.
   1. Statement of Hypotheses       

The research would test the following research hypothesis to ascertain whether their correct or not.

H0₁:   Most investor does not analyze financial report before making an investment decision.

HA₁: Most investor does analyze financial report before making an investment decision.

Ho₂:   Financial statement does not show true and fair view of the statement of a company.

HA₂: Financial statement show true and fair view of the statement of a company.

1. Significance of the study

This research work is expected to be of great importance to investors and shareholders in particular. It will serve as a guide to individuals who are interested to acquire shares in any firm, company or business organization. It is expected to serve also as an indispensable tool for current and potential investors of business organization as well as companies in their investment decision making by way of providing sound investment strategies for shareholders and other users of published financial statement.

1. Scope of the Study

This research work is limited to the impact of published financial statement on shareholders’ investment decision making with particular interest in West African Ceramic Company Ajaokuta. The researcher find out all  the relevant accounting information that was needed by investors / shareholders of West African Ceramic Company Ajaokuta and the investment states of West African Ceramic Company Ajaokuta using its published annual report and financial statements.

1. Limitations of the study

This research work is limited to the Impact of Published Financial Statement on Shareholders Investment Decision Making with Particular Reference to West African Ceramic Company Ajaokuta. 

In carrying out a research work of this nature, a lot of problems are encountered and the degree varies from one research to another. The obstacles faced in this research work include distance, security challenges, lack of research materials etc.

1. Definition of Terms
2. Dividend: Is the distribution of part of the earnings of a company to its shareholders. The dividend is normally expressed as an amount per share on the par value of the share.
3. Dilution of Earnings: This is when additional shares of stock are sold without an immediate increase in income. This result is a decline in earnings per share until earning can be generated from funds raised.
4. Earning Per Share: Is the amount of profit after tax and preference dividend (but before taking accounting of extra-ordinary income and expenses attributable to each ordinary share in issue and ranking for dividend during the period.
5. Financial Information: This is any information dealing with the operation of company and how the fund acquired.
6. Efficiency: This refers to achievement of organization goals within minimum waste of resources that is best possible use of resources.
7. Financial Statement: This is a periodic financial reports accounts and other related documents that highlights the financial position of an enterprise as well as the financial profitability.
8. Investment: This is the commitment and utilization of funds and other scare resources in a project with the expectation, that the utilization will generate return.
9. Ordinary Shares: These are the common stock of a company which is to be issued out for sale to individual public.

Profitability: Profitability refers to the relationship between profit and the resources employed in earning it. Its resultant effect is usually expressed as a percentage.

AN EMPIRICAL ANALYSIS OF BANK PERFORMANCE IN NIGERIA

AN EMPIRICAL ANALYSIS OF BANK PERFORMANCE IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.           Background to the Study     

Banks serve vital intermediary role in a market oriented economy and have been seen as the key to investment and growth. Falegan (2016) and Bashir and Kadir (2017) observed that commercial banks play a crucial role in the nation’s economy, by using various financial instruments to obtain surplus funds from those that forgo current consumption for the future. They also make same funds available to the deficit spending unit (borrowers) for investment purposes. In this way, they make available the much need investible funds required for investment as well as for the development of the nation’s economy.

Performance failure among Nigerian banks has resulted in loss of public confidence in the banking sector. Performance links an organization’s goal and objectives with organization decisions. Public confidence on the banking industry in Nigeria depends greatly on the profitability of the participating banks in Nigeria. This explains why the call for the critical assessment of the performance of the banking system in Nigeria. The efficiency of the banking system has been one of the major issues, in the new monetary and financial environment of the world today. The efficiency and competitiveness of financial institutions cannot easily be measured, since their products and services are of an intangible nature.

There have been several attempts in the past to improve the performance of Nigeria’s banking sector through the periodic review of bank reforms. However, the recent policy reform tagged “Bank Consolidation and Restructuring” was aimed at resolving the critical issue of financial distress, restoring public confidence in the banking industry and putting the banks in a leadership position to compete with banks in other countries of the world (Soludo, 2004). In Nigeria, the ability of the banking industry to play its role has been periodically undermined by its vulnerability to systemic financial crises and macroeconomic instability. Some banks are still tottering, and worse still are at the verge of distress and liquidation. Even though several studies have been embarked upon in this area, still the paramount truth is that there are inconsistencies in the findings of these studies. Thus, the present study would go beyond determining the effectiveness of these reforms for ensuring the stability of bank industry to determining their impact on bank performance.

Several bank reforms have been adopted by the CBN to resolve issues of financial distress, restore public confidence in banking industry and to put the banks in a leadership position to compete with banks in other countries (Akingbola, 2006). Notably, the Nigerian banking industry has evolved through four major reforms including the laissez-faire regime(1930-1959), the control regime(1960-1985), the de-control regime(1986-2004) and the consolidation and restructuring regime(2005-present). In spite of this, the base of Nigeria’s bank industry has continued to remain too fragile to play the supportive role to the public and private sectors. The continuing rise in interest rate and the prevailing macroeconomic instability in Nigeria have raised the issue bordering on the effectiveness of the various reforms in the banking industry. It is against this background that this study seeks to carry out an empirical analysis of Bank performance in Nigeria.

1.           Statement of the Problem

The problem which this study seeks to solve is to ascertain the reasons for banks poor performance in the post consolidation era in Nigeria. As a result of poor performance the Nigerian banking sector have witnessed several regulations, despite the regulation in place, more banks have continued to be in distress even with forceful merger and acquisition initiated over the years aimed at reducing the rate of bank distresses in Nigeria. The Soludo administration in CBN started in 2004 with a new form of reform. Soludo (2004), the then governor of the CBN described the industry as being generally characterized by small-sized and marginal players with very high overhead cost. The primary objective of his reform was to guarantee an efficient and sound financial system. These reforms were designed to enable the banking system develop the required resilience to support the economic development of the nation by efficiently performing its functions as the fulcrum of financial intermediation (Lemo, 2005). The CBN 2004/2005 raised the share capital to twenty-five billion Naira (N25Bn) from the existing two billion (2Bn) and upheld the existing 2005 compliance period under. It is against the backdrop of several reforms and consolidations that this study seeks to empirically analyse the bank performance in Nigeria.

1.3     Objectives of the Study                   

The general objective of this study is to carry out an empirical analysis of bank performance in Nigeria. The specific objectives include to:

1. Ascertain whether shareholders fund have positive significant impact on Return on Asset (ROA)
2. Determine if shareholders fund have positive significant impact on Return on Equity (ROE)
3. Examine if shareholders fund have positive significant impact on Net Interest Margin (NIM)

1.4     Research Questions

1. Does Shareholders fund have positive significant impact on Return on Asset (ROA)?
2. Does Shareholders fund have positive significant impact on Return on Equity (ROE)?
3. Does Shareholders fund have positive significant impact on Net Interest Margin (NIM)?

1.5     Statement of Hypothesis       

H₀₁: Shareholders fund does not have positive significant impact on ROA.

H₀₂: Shareholders fund does not have positive significant impact on ROE.

H₀₃: Shareholders fund does not have positive significant impact on NIM.

1.6     Significance of the Study      

The findings of this study will of great significance to the following peoples:

1. Policy Makers and Regulators in the Industry:  To policy makers and regulators in the industry, it will present a scheme, through its analysis that could assist them in enunciating policies that will not only positively impact on banks’ performances but also remain relevant in the economy of Nigeria.
2. Bankers: To bankers in general, it will expose the relationship existing between our relevant variables, which will be of great interest to them in their respective banks. Specifically, to bankers in the banks under study, it will expose to a large extent the goings-on in their organizations with respect to our relevant variables and a comparative analysis of their actions over some relevant years.
3. Academicians: In the academic arena, this study will prove to be significant in the following ways: v It will serve as a body of reserved work and knowledge to be referred to by researchers.  It will add value and enrich other literatures on banks’ performances in Nigeria and the world at large. It will suggest ways of enhancing the performance of the banking industry in Nigeria and the entire Nigerian economy. This will in turn, boost development positively which is usually affected by banks and their activities.

1.7     Scope of the Study                

The research covers all the commercial banks in Nigeria which amount to 21 Banks operating presently in the country. The scope of the study is further limited to the period of 2010-2019.

1.8     Definition of Terms

Bank: A bank is a financial institution that accepts deposits from the public and creates credit. Lending activities can be performed either directly or indirectly through capital markets.

Performance: Performance can be defined as an approach to determining the extent to which set objectives or goals of an organization are achieved in a particular period of time. Bank Performance is defined as the capacity to generate sustainable profitability (European Central Bank, 2010).

Return on Asset (ROA): Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets. It shows the percentage of how profitable a company’s assets are in generating revenue.

Return on Equity (ROE): The Return on Equity is a measure of the profitability of a business in relation to the equity, also known as net assets or assets minus liabilities. ROE is a measure of how well a company uses investments to generate earnings growth.

Net Interest Margin (NIM): Net Interest Margin is a measure of the difference between the interest income generated by banks or other financial institutions and the amount of interest paid out to their lenders (for example, deposits), relative to the amount of their (interest-earning) assets.        

DETERMINANTS OF CORPORATE GOVERNANCE STRUCTURE IN NIGERIA FIRMS

DETERMINANTS OF CORPORATE GOVERNANCE STRUCTURE IN NIGERIA FIRMS

ABSTRACT

This study examines the determinant of corporate governance structure in Nigeria firms. Specifically the study seeks to determine the effect of Board Composition on the performance of Nigeria firms, examine the relationship between board size and on the performance of Nigeria firms. This research work was designed using descriptive research design to the relationship between the determinant of corporate governance structure and firm performance.  The regression analysis was used for data presentation and analysis using the Statistical Package for Social Science (SPSS). The findings of the study line with tested hypothesis shows that board composition has no effect on financial performance of Nigeria firms  and that there is no significant relationship between board size and financial performance of Nigeria firms. In line with the findings of the study, the research recommends that board members should adhere strictly to firms corporate governance guidelines, portfolio selection and good management (stocks, bonds, treasury bills, mutual funds, etc.) that maximizes the investor’s utility should be put in place.

CHAPTER ONE

INTRODUCTION

1. Background of the Study

Corporate governance is the system by which an organisation is directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different stakeholders such as the board, managers or shareholders, and spells out the rules and procedures for decision-making in corporate affairs. Good corporate governance requires an effective system of mutual checks and balances among the top corporate bodies (Swiss Re, 2013).

Corporate Governance is the process by which companies are directed, controlled and held to account (Standard, 2003). This shows that corporate governance encompasses the authority, accountability, stewardship, leadership, direction and control exercised in managing organizations. The concept of corporate governance originated in the 19th century but began to be widely used in the 1980s (Parker, 1996; Fletcher, 1996; Vinten, 2001). Corporate Governance gained prominence in the 1980s as a result of stock market crashes experienced in different parts of the world and failure of some organizations due to poor corporate practices (Reynolds & Francis, 2017).

By definition, corporate governance is a system or an arrangement that comprises of a wide range of practices (accounting standards, rules concerning financial disclosure, executive compensation, size and composition of corporate boards) and institutions (legal, economic and social) that protect the interest of corporation’s owners. According to Laporta et al (2000) “corporate governance is to a certain extent a set of mechanism through which outside investors protect themselves against expropriation by the insiders.”

Corporate governance is of significance to the growth, expansion and stability of the economy. It enhances investors’ confidence as well as provides platform for ensuring that duty of loyalty by managers to shareholders exist and that managers will efficiently and effectively strive to maximize the firm’s wealth (Kihumba, 1999). According to the McKinsey and Company Investor Opinion Survey (2000), more than 80% of investors are willing to pay for the shares of well-governed firms than poorly governed firms of comparable financial performance. Previous studies have shown that having effective corporate governance in place does not always translate into high firm profitability. Suffice it to say that, a firm may demonstrate good corporate governance, but still has low profitability level. The implication is that there may be other determinants of corporate governance structure which could influence profitability of firms. It is against this background that this study seek to examine the determinants of corporate governance structure in Nigeria firms.

1.2     Statement of the Problem

In recent years, the subject of corporate governance has generated much debate. The main interventions in corporate governance matters have been a reaction to crisis situations, seeking to restore trust and confidence in the markets. In the United Kingdom, the Cadbury code (1992) was the response to a number of corporate and financial scandals that occurred in the late 1980s, such as the Guinness scandal. In Continental Europe, the OECD Principles issued in 1999 were a reaction to the Asian financial crisis in 1997 and 1998. The accounting fraud in major companies like Enron and Worldcom, the access to privileged information and the episodes of tax evasion, have increased the debate on this issue. The aforementioned cases have raised serious questions about the adequacy of the existing solutions to a wide range of problems, such as strengthening the credibility of financial information and the efficiency of the supervisory systems of listed companies. Although, many studies such as (Wen et al. 2012; Anderson & Reeb 2013; Abor & Bikpie 2015; Abor 2017; Hussainey & Al-Nodel 2019) have been conducted to investigate the relationship between corporate governance and performance of Nigeria firms, but none have categorically discuss the determinant of corporate governance structure in Nigeria firms.

Therefore it is have become important to carrying analysis on the efficiency of board composition and board size on the financial performance of an organization.

1.3     Objectives of the Study

The broad objective of this study will be to examine the determinant of corporate governance structure in Nigeria firms.

The specific objectives of this study will include:

1. To determine the effect of Board Composition on the performance of Nigeria firms.
2. Examine the relationship between board size and on the performance of Nigeria firms.

1.4     Research Questions

1. What is the effect of Board Composition on the performance of Nigeria firms?
2. What is the relationship between board size and performance of Nigeria firms?

1.5     Research Hypotheses

H₀₁: Board Composition has no effect on the performance of Nigeria firms

H₀₂: There is no significant relationship between board size and performance of Nigeria firms.

1.6     Significance of the Study

The findings of this study will be of benefit to the following categories of people;

1. Top Executives: this includes the CEOs, chairman and members of the board. It will aid them in managing the issues arising from agency relationship. It will also broaden their perspective on the aspects of corporate governance that need to be enhanced that will result in improved performance.
2. Shareholders/ Investors: it will assist existing shareholders and potential investors to make appropriate judgments as regards to their investments and performance of the company in which they are stakeholder.
3. Future Researchers: The study will enable academics and scholars to bridge the gap on the relationship between of corporate governance practices and stock market performance in Nigeria. It will also be useful to future researchers as it will form part of the empirical literature on corporate governance practices.
4. Regulators: It will assist the regulators in promulgating better corporate governance regulations that will be more encompassing and contribute effectively to enhancing firm performance and resolving agency conflict.

1.7     Scope of the Study

This study will focus on the examination of the determinants of corporate governance structure in Nigeria firms. The study will be limited to companies listed on the Nigerian Stock Exchange between 2010 – 2019.

1. 8 Definition of Terms
2. Corporate Governance: corporate governance is the set of processes, customs, policies, laws and institutions affecting the way a company is directed, administered and controlled.
3. 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.
4. 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.
5. Profit Margin: it is a measure of operating efficiency and pricing strategy; the ratio is usually computed using net profit before ordinary extraordinary items and taxes i.e. net sales less cost of goods sold and selling, general and administrative expenses. It is expressed as a percentage and calculated as net profit divided by sales.
6. Return on Asset (ROA): Return on asset 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 divided by total assets.
7. Return on Equity (ROE): return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. It is expressed as a percentage and calculated as profit after tax divided by shareholders equity.
8. Stakeholders: persons with interest in an organization such as its owners, employees and creditors.
9.  Shareholders: An individual or group who holds one or more shares in an organization and in whose name the share certificate is issued