INTRODUCTION

CHAPTER ONE

1. BACKGROUND OF THE STUDY

The financial crisis around the world and the consequent collapse of major corporate institutions in both developed and developing economies has brought to the fore the issue of corporate governance. Today, corporate governance has attracted considerable attention of policy makers and academic researchers across the globe. Emphasis is on the need for the practice of good governance both at the public and private enterprises and this is due to the economic primacy of publicly quoted firms in most national economies. Corporate governance is increasingly understood among policy makers as a value enhancing strategy in a competitive environment and there is a growing consensus globally that corporate governance has a positive link to national growth and development corporate governance according to Cadbury Report UK (1992) is defined as the system by which businesses are directed and controlled. It is a system by which corporations are governed and controlled with a view to increasing shareholders values and meeting the expectation of other stakeholders (Zheka 2006). The fundamental objectives of good corporate governance according to the Security and Exchange Board of India (SEBI) Report (2013), is the enhancement of shareholders’ value keeping in view the interest of other stakeholders. In other words corporate governance is a general set of custom, regulation, habit and laws that determines how a firm should be run.

In the last few years, global attention has focused on business practices and corporate cultures. This has been prompted by the incidence of corporate scandals and business collapse. This is so because of high-profile scandals involving abuse of corporate power and, in some cases, alleged criminal activities by corporate officers (searchfinancialsecurity.com, 2009). Many businesses have collapsed due to poor management styles and approaches; others have done so because of accumulated debts thus shaking business confidence. The very tenets upon which capitalism is built have been called to question therefore.

Recent cases of corporate scandals/failures have shown a trend of failings on the part of directors in achieving their de facto function of protecting the interests of shareholders, even if they are minority shareholders. This has prompted increased focus on directors’ and executives’ roles and responsibilities which require systematic frameworks for implementing critical corporate governance principles on ethics, code of conduct, compensation, financial policy, and financial reporting (metricstream, 2009).

In many countries, both postulates of corporate governance regulation do not function mutually exclusively of each other. Usually, there is a synergy between the legal requirements of corporations contained in the company law and the self-regulatory instruments. Indeed self-regulation is only able to function on an existing legal platform for corporate regulation. Wymeersch (2005) argues that the enforcement techniques and efficiency of self-regulation are directly dependent on the legal nature of the codes. He also noted that whilst a sufficient synergy must be achieved between self-regulation and the legal system, this is often a complex matter which differs considerably from country to country. He further attributed the difference to the variance in the legal status of the codes and the differences in the surrounding legal system. However, ranking different countries on a continuum, which has self-regulation at one end and strict legal requirements at the other, would suggest that corporate governance regulation is country dependent. The potential rank of the United Kingdom, with its principle-based form of regulation which functions on a “comply or explain” principle, and the United States, with its hastily passed Sarbanes Oxley Act, has been suggested earlier. 

Recognition of the vital role that the modern corporation plays in the economic development of any nation, and the need to ensure good governance of these corporations, there has been an upsurge in global initiatives to provide governance principles for the effective management and control of these corporations. Most of these initiatives have featured prominently in the developed countries such as the UK, the US, Canada, France and Germany, amongst others. However, some developing countries such as South Africa (King Report 1994 and 2002) have also taken steps to address corporate governance issues.

1.2 STATEMENT OF THE PROBLEM

A large numbers of studies on corporate governance practices (Haniffa, and Hudaib,(2006); Hart, Oliver (1995); Hermalin, Benjamin, and Weisbach Micheal (2003); Adetunji Babatunde . and Olawoye Olaniran (2009); Ademola Oyejide and Soyibo. (2001); Anderson, Mansi, and Reeb.(2004); Andre,Paaul, Maher Kooli and Jean- Francosis Her (2004)) have been carried out in both developed and developing economies but most studies have focused on the relationship between characteristics of corporate governance and their consequence on performance. In Nigeria for instance, there are few studies on corporate governance (Adetunji et al (2009); Ademola et al (2001)) but the focus has been on the relationship between corporate governance mechanisms and firms’ performance measured in terms of profitability, productivity, efficiency etc. One aspect that is completely neglected or omitted in the literature is the study on level of compliance by firms. There is no clear evidence as to the level of compliance with corporate governance mechanism as entrenched in the 2003 code of best practices by listed firms in Nigeria. Literature also reveals that studies in Nigeria are based on some specific corporate governance components and not on overall component of corporate governance. Thus, this study is motivated to provide empirical evidence on the corporate governance practice currently employed in Nigeria and on firms’ level of compliance with corporate governance across industries using comprehensive and unique data on corporate governance from 2003-2010.

With the growing interests in corporate governance in Nigeria and the relative development in Nigeria capital market, corporate governance in Nigeria is seemingly far from perfect as companies’ still record incidence of financial scandals resulting from mismanagement and misappropriation of fund (Habeeb 2010). This was also evident with the crash in capital market in 2009-2010 in which companies suffered losses in share value and consequent loss of shareholders’ confidence. Therefore, this study will investigate the relationship effect of corporate governance compliance and business growth in Nigeria. It will ascertain the level of compliance of firms. The study will also evaluate the need of corporate governance in business sector. It will ascertain the role of corporate governance to the overall business growth in Nigeria business sector and also make suggestions and policy recommendation based on the findings.

1. AIM AND OBJECTIVES OF THE STUDY

The aim of this study is to investigate the relationship effect of corporate governance compliance and business growth in Nigeria.

The specific objectives will be:

1. To ascertain the level of compliance of firms to corporate governance.
2. To evaluate the need of corporate governance in business sector.
3. To ascertain the role of corporate governance to the overall business growth in Nigeria business sector
4. To make suggestions and policy recommendation based on the findings.

1. RESEARCH QUESTIONS

Arising from the research objectives, the following research questions will be address in the study:

1. What is the level of compliance of firms to corporate governance?
2. What is the need of corporate governance in business sector?
3. What are the roles of corporate governance to the overall business growth in Nigeria business sector?
4. How to make suggestions and policy recommendation based on the findings.

1. RESEARCH HYPOTHESIS

The following hypothesis is presented below:

H0: Corporate governance has not significantly improved the growth of the Nigerian business sector.

H1: Corporate governance has significantly improved the growth of the Nigerian business sector.

1. SIGNIFICANCE OF THE STUDY

There are so many controversies about corporate governance compliance and business growth in Nigeria; therefore this study will investigate the role of compliance of business sector to corporate governance.

The findings of this study will enable corporate governance know their role towards ensuring compliance of firms for business growth to thrive.

1. SCOPE OF THE STUDY

The study is limited to the effect of corporate governance compliance and business growth in Nigeria. It will concentrate on the roles of corporate governance to the overall business growth in Nigeria business sector, the level of compliance of firms, and the need of corporate governance business sector.

1. LIMITATION OF THE STUDY

TIME CONSTRAINTS: One the challenges experienced by the researcher is the issue of time; the research will simultaneously engage in departmental activities like seminars and attendance to lectures. But the researcher was able to meet up with the deadline for the submission of the project.

FINANCIAL CONSTRAINTS: Every research work needs funding; however lack of adequate funds might affect the speed of the researcher in getting materials for completion of the project.

1. DEFINITION OF TERMS

Corporate governance is the collection of mechanisms, processes and relations used by various parties to control and to operate a corporation. ... These include monitoring the actions, policies, practices, and decisions of corporations, their agents, and affected stakeholders.

Business development can be taken to mean any activity by either a small or large organization, non-profit or for-profit enterprise which serves the purpose of ‘developing’ the business in some way. In addition, business development activities can be done internally or externally by a business development consultant. External business development can be facilitated through Planning Systems, which are put in place by governments to help small businesses. In addition, reputation building has also proven to help facilitate business development.

Regulation is the management of complex systems according to a set of rules and trends. In systems theory, these types of rules exist in various fields of biology and society, but the term has slightly different meanings according to context.