CORPORATE GOVERNANCE ATTRIBUTES AND PERFORMANCEOF LISTED PHARMACEUTICAL FIRMS IN NIGERIA

Abstract

The study examined the effect of Corporate Governance (CG) attributes on the financial performance of six listed pharmaceutical firms (LPF) in Nigeria. Using ex-post facto design, panel data was extracted from the audited account of the listed pharmaceutical firms from 2010-2020 on corporate governance attributes such as board size, board independence, audit committee size and the size of the firms while Return on Asset (ROA) and Earnings per Share (EPS) were the financial performance proxies. The data was analysed using mixed models of fixed and random effects and the result shows that the relationship between the corporate governance attribute of board independence has a significant effect on EPS in line with the extant theoretical prescriptions of the corporate governance mechanism. The effect of the control variable – firm size also significantly affected EPS in a positive way. The other corporate governance attribute; audit committee size and board size had positive but insignificant effects on EPS. The study also establishes that all corporate governance attributes had negative and insignificant effect on the ROA of the LPF in Nigeria. However, the control variable, firm size had a positive but insignificant effect on ROA. It can be concluded that CG has a significant effect on the performance of LPF in Nigeria.The study recommends the use of General Methods of Moments (GMM) models to analyse the relationship between CG attribute and ROA since the coefficient of determination in the model of 15% indicating that the model cannot account for 85% of variability between dependent and independent variable. Other measures of performance should be added to determine the best fit for CG and performance of LPF in Nigeria

Keywords: Mixed Models, Corporate Governance Attributes, Performance, Pharmaceutical Firms, Nigeria

Introduction

Corporate Governance (CG) is a term used to explain the mechanism used by companies detailing how they are ruled and controlled. This is with the sole aim of achieving shareholders’ value maximization objective as well as to meet the expectations of other stakeholders. This is necessary to achieve corporate control through a system that sets the structures for strong leadership and monitoring of operations as required under separation of ownership, management and oversight functions and roles of firms in order to curtail the inclination for unethical engagements, accountability breaches and entrench transparency. It is thought that effective CG propels increases in shareholders’ equity and lowers the cost of capital in capital markets through risk mitigation and enhances a firm’s competitiveness (James, 2020; Tachiwou, 2016; Jensen & Meckling, 1976). The global financial scandals of Enron, World.com, Cadbury and the 2009 Nigerian banking crisis among other global corporate irregularities that triggered a global financial meltdown were all linked to lack of sound corporate governance practices. An examination of the dominant causes for these corporate malfeasances revealed: corporate corruption, exemplified in tax avoidance, financial misstatements, earnings management, bloated executive compensation, frauds and insider abuse of power by top management in collaboration with the board of directors of the firms (Financial Crisis Inquiry Commission [FCIC], 2011). The aftermaths of these crises necessitated the push for the codification of corporate governance mechanisms through the enactment of laws, guidelines, codes of corporate governance and mandatory corporate governance practice requirements to guide the operation of firms across the world.


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