Corporate Governance and Manufacturing Firms’ Financial Performance in Nigeria

Abstract

The corporate governance mechanism was initiated to curb the excesses of managers that are saddled with the running of firm and also protect the shareholders and public interest. However, the collapse of big firms all over the world few years ago has awaken a renewed interest in firm adherence to corporate governance mechanism. Similarly, in Nigeria some firms also face similar situation. This study set out to examine the impact of corporate governance on manufacturing firms’ financial performance in Nigeria. The data used were collected from 39 listed manufacturing firms in the Nigerian Exchange Group from 2003 to 2022. The panel regression technique was used to determine the impact of corporate governance on financial performance. The study used three measures of manufacturing firms’ financial performance namely; Return on Asset (ROA), Return on Equity (ROE) and Tobin Q. Seven variables were used to measured corporate governance namely; Independence Board (IND), Board Meeting (BM), Audit Committee (AUD), Board Structure/Composition (BOC), Board Size (BOS), Executive Stock Ownership (EXS) and Nomination Committee (NOC), and the control variable was Firm Age. These variables were subjected to several test; Variance Inflation Factor (VIF). The Breusch-Godfrey Serial Correlation Langragian Multiplier Test, Breusch-Pegan-Godfrey Heteroskedasticity and the Hausman Test selected the Random Effect Panel regression. The study found that AUD had a positive effect on ROA and Tobin Q but negative with ROE, BOS had a negative effect on ROA, and ROE but positive with Tobin Q, BM had a negative effect on ROA, and Tobin q but positive with ROE. BOC had a negative effect on ROE and Tobin Q but positive ROA. EXS had negative effect on ROA and Tobin Q, but positive with ROE. IND had a positive effect on ROA and ROE but negative with Tobin Q. FAGE had a positive effect on ROA and ROE but negative with Tobin Q while NOC had positive effect on all the three measures of manufacturing firms’ financial performance. We concluded that corporate governance had significant effect on manufacturing firms’ financial performance in Nigeria. However, when different measurements were used to proxy firm financial performance the effect contrasts, this may be attributed to both the market value and operating value of financial performance adopted for this study. Hence, the study cannot draw conclusion on which of the manufacturing firm’s financial performance is better.