Corporate Governance Mechanisms and Financial Performance of Listed Companies in Nigeria

Abstract

This study investigated the relationship between corporate governance mechanisms and financial performance of listed consumer goods manufacturing firms in Nigeria for the period of 2011 to 2020. The specific objectives were to investigate the relationship between board size on return on equity, and evaluate the relationship between board independence on return on equity, board compensation on return on equity and board diligence on return on equity of listed consumer goods manufacturing firms in Nigeria. The study adopted ex post facto and correlational research designs. The population of the study was twenty one (21) listed consumer goods manufacturing firms as at the end of 2020. The study used a census approach to determine a sample size of twenty one (21) firms. Secondary data from the published annual financial reports of the sampled firms were used for data analysis. Descriptive statistics, correlation coefficient and multivariate analysis were used. The results disclosed that board size has a negative and insignificant relationship with return on equity of listed consumer goods manufacturing firms in Nigeria; board independence has a negative and significant relationship with return on equity of listed consumer goods manufacturing firms in Nigeria; board compensation has a positive and significant relationship with return on equity of listed consumer goods manufacturing firms in Nigeria; and board diligence has a negative and significant relationship with return on equity of listed consumer goods manufacturing firms in Nigeria. The study concludes that corporate governance mechanisms influence the financial performance of listed consumer goods manufacturing firms in Nigeria. The study recommends among others that board sizes should be enhanced as this allows for the appropriate combination of directors. A large board increases the chance of directors having appropriate knowledge, skill and networks. The knowledge, skill and networks of directors may increase the performance of an organization; non-executive directors who act as professional advisers to ensure competition among insiders encourage measures consistent with maximization of shareholder value.