The Impact of Board Structure on Corporate Financial Performance in Nigeria

Abstract

This study examines the impact of board structure on corporate financial performance in Nigeria. It investigates the composition of boards of directors in Nigerian firms and analyses whether board structure has an impact on financial performance, as measured by return on equity (ROE) and return on capital employed (ROCE). Based on the extensive literature, four board characteristics (board composition, board size, board ownership and CEO duality) have been identified as possibly having an impact on corporate financial performance and these characteristics are set as the independent variables. The Ordinary Least Squares (OLS) regression was used to estimate the relationship between corporate performance measures and the independent variables. Findings from the study show that there is strong positive association between board size and corporate financial performance. Evidence also exists that there is a positive association between outside directors sitting on the board and corporate financial performance. However, a negative association was observed between directors' stockholding and firm financial performance measures. In addition, the study reveals a negative association between ROE and CEO duality, while a strong positive association was observed between ROCE and CEO duality. The study suggests that large board size should be encouraged and the composition of outside directors as members of the board should be sustained and improved upon to enhance corporate financial performance.

The Effect of Board of Directors Characteristics, Audit Committee Characteristics and Executive Committee Characteristics on Firm Performance in Oman: An Empirical Study

“…Thus, hypothesis H1b is supported. This finding is consistent with previous studies that found a positive relationship between board size and Tobin`s Q either in developed countries such as Khanchel, 2007;Larmou & Vafeas, 2010;Premuroso & Bhattacharya, 2007;Sueyoshi et al, 2010 or in developing countries like Kang and Kim (2011), Khan and Javid (2011, Kyereboah-Coleman (2007, Kyereboah-Coleman andBiekpe (2006), Ll, Kankpang andOkonkwo (2012), Najjar (2012), Obiyo andLenee (2011), Swamy (2011), Uadiale (2010) and Yasser, Entebang and Mansor (2011). One probable clarification for the positive significant association between board size and Tobin`s is that this result is supported by resource dependence theory, which postulates that the board has to be more strict when it comes to monitoring of management to ensure minimal financial fraud.…”

“…Several studies have generally reported a positive effect of board composition upon performance in developed countries like Nanka-Bruce (2011), O`Connell and Cramer (2010), Saibaba and Ansari (2011) and Shan and McIver (2011). Also, many researchers in the developing countries have been getting a positive relationship between the board independence and firm performance (Hasnah, 2009;Hsu & Petchsakulwong, 2010;Kang & Kim, 2011;Khan et al, 2011;Ll et al, 2012;Nuryanah & Islam, 2011;Obiyo & Lenee, 2011;Swamy, 2011;Uadiale, 2010;Yasser et al, 2011).…”

“…The board composition is defined as the proportion of independent non-executive members in the board to the total number of members (Lawal, 2012;Uadiale, 2010). According to , external directors are more conscientious about their reputations and social status which propel them to oversee management and guarantee the company's effective running.…”

Outside Directors, Corporate Governance and Firm Performance: Empirical Evidence from India

“…However, the authors suggest that independent board was able to mitigate agency problem arising out of dual class common stock. Ehikioya (2009) and Uadiale (2010) for Nigerian companies find the positive association proportion of outside directors and firm performance. Ameer et al (2010) for Malaysian companies suggest independent directors perform better than affiliated (grey) directors.…”

Managerial Ownership, Horizontal Agency Costs and Monitoring Mechanisms

“…There are few studies on ownership (Ehikioya, 2009;Uadiale, 2010) in Nigeria. However, to the best of the knowledge of the researchers, none of the studies is on horizontal-agency-costs.…”