IMPACT OF CORPORATE STRATEGY ON FINANCIAL PERFORMANCE OF FINANCIAL INSTITUTIONS LISTED ON THE NIGERIA STOCK EXCHANGE

Abstract

This study examines corporate strategy and financial performance of financial institutions listed on the Nigeria Stock Exchange. Financial performance is an important concept that relates to the way and manner in which human, material and financial resources available to an organization and is judiciously applied to achieve the overall corporate objectives. The main objective of the study is to examine the significant relationship between corporate strategies. The research survey design was adopted and a sample size of 72 was used for effective result. The chi-square statistical tool was used in the study and it was found that there is a positive and significant relationship between corporate strategy and financial performance. And also there is a significant and positive relationship between corporate strategy and financial institutions and there is significant relationship between audit committee and investors. The study concluded that since there is a significant relationship between corporate strategy and financial performance, top management should ensure that strategic planning are made so as to increase the performance of the organization and that financial institution should ensure that proper strategies are put in place so as to increase the productivity of the organization also the investors will have confidence in their investment if there is effective audit committee.

TABLE OF CONTENTS

Title Page                                                                         i

Certification                                                             ii

Dedication                                                                       iii

Acknowledgements                                                  iv

Abstract                                                                   v

Table of Contents                                                     vi

Chapter One: Introduction                                    1

1. Background to the Study                                                 1
2. Statement of Problem                                              2
3. Research Questions                                                 3
4. Objective of the Study                                              4
5. Statement of Hypothesis(es)                                     4
6. Significance of the Study                                                 5
7. Scope of the Study                                                   6
8. Limitations of the Study                                          7
9. Definition of Terms                                                  8

Chapter Two: Review of Related Literature         10

2.1   Introduction                                                             10

2.2   Corporate Strategy Measures in Nigeria                   11

2.3   Corporate Strategy Mechanisms                              27

2.4   Types of Corporate Strategies                                   20

2.5   Agency Theory                                                         21

2.6   Stakeholder Theory                                                  24

2.7   Stewardship Theory                                                         26

2.8   Standard of Corporate Strategy and Financial

Institution in Nigeria                                                28

2.9   The Role of Debt in Financial Institutions                       29

Chapter Three: Research Method and Design       31

1. Introduction                                                             31
2. Research Design                                                      31
3. Description of Population of the Study                    31
4. Sample Size                                                             32
5. Sampling Techniques                                              32
6. Sources of Data Collection                                       32
7. Method of Data Presentation                                   33
8. Method of Data Analysis                                          33

Chapter Four: Data Presentation, Analysis and Interpretation                                                  35

4.1   Introduction                                                             35

4.2   Data Presentation                                                    35

4.3   Data Analysis                                                           36

4.4   Hypothesis Testing                                                  40

Chapter Five: Summary of Findings, Conclusion and Recommendations                                                         50

5.1   Introduction                                                             50

5.2   Summary of Findings                                              50

5.3   Conclusion                                                              51

5.4   Recommendations                                                   52

References                                                               53

Appendix I                                                               55

Appendix II                                                              55

CHAPTER ONE

INTRODUCTION

1.1   Background to the Study

Corporate strategy is part of managerial economics that described the scope and direction of an organization over a long period of time. Corporate strategy is the process of the overall scope and direction of a corporation and the way in which its various business operations work to achieve their goals.

This project is concerned about the responsibility among different participants in different organization such as the board, managers, shareholders, and other stakeholder and spells out the rules and procedures for making decisions on corporate affairs. Financial performance is an important concept that relates to the way and manner in which human, material and financial resources available to an organization and is judiciously applied to achieve the overall corporate objectives (Young, 2003).

Since the 1970, a growing number of studies have been going on linking corporate polices and performance with governance. The reason being that, allegations were not tested using the corporate governance variables and performance indices. Corporate scandals around the world in recent years contributed to raising awareness among managers, investors and regulators and in many countries to produce quantitative measures on governance, and estimate their impact on the decision-making process of firms.

Hence, financial scandals around the world and the recent collapse of major corporate institutions in the USA, South East Asia, European and Nigeria such as Adelphia, Enron, world’s corn, commerce banks and recently shaken investor’s confidence in the capital markets and the efficiency or existing corporate strategy practices in promoting transparency and accountability. This has revealed the need for practice of good corporate strategy and governance.

1.2   Statement of Problem

Strictly speaking, corporate governance rest with the board which is expected to exhibit ethics, integrity and probity in ensuring that corporate affairs are in line with the corporate objectives. But what appears to be the thing is that financial institutions in developing countries are characterized by instability, tenure of office, ineptitude, share incompetence; inter personal disagreement and hostilities within the board which often lead to polarization of rank and file of staff (Kyereboad, 2007). More so, board members and top management staff often take advantage of this scenario and engage in arbitrage opportunities and rent seeking activities rather than planning for high corporate performance and survival strategies all of which are systematically involved in negative effect on the organization.

1.3   Research Questions

The study seeks to find answers to the following questions;

• Is there any significant relationship between corporate strategy and the financial performance?
• Is there any significant relationship between corporate strategy and financial institution?
• What relationship exists between audit committee and investors?

1.4   Objective of the Study

The objective of the study is to examine corporate strategy and financial performance of financial institutions listed on the Nigerian stock exchange and the specific objective includes:

• To examine the significant relationship between corporate strategy and the financial performance.
• To ascertain the significant relationship between corporate strategy and financial institution.
• To determine the significant relationship between audit committee and investors.

1.5   Statement of Hypotheses

Hypothesis One

HO:   There is no significant relationship between corporate strategy and the financial performance.

HI:    There is significant relationship between corporate strategy and financial performance.

Hypothesis Two

HO:   There is no significant relationship exists between corporate strategy and financial institution.

HI:    There is significant relationship corporate strategy and financial institution.

Hypothesis Three

HO:   There is no significant relationship between audit committee and investors.

HI:    There is significant relationship between audit committee and investors.

1.6   Significance of the Study

Companies draw up financial plan to efficiently direct the change of an economy. The study is thus significant in the following ways;

Firm: This also help firms set themselves up for making sure corporate strategists seize market opportunities that emerge in the short and long terms without a sound, focused financial strategy, the financial institution may lack the occupational framework needed to motivate employees and improve their productivity importance.

Security Exchange: Securities exchange players keep across on company’s financial performance and corporate strategy takes an in-depth look at how accounting manager prepares financial statement, making sure the report adhere to regulatory guidelines in the Nigeria stock exchange.

1.7   Scope of the Study

This scope of this study is to cover the sufficient evidence of relationship between corporate strategy and financial performance as a corner stone of an effective corporate strategy system in the Nigerian stock exchange. They go hand in hand although both concepts are distinct. The corporate strategy affect how senior leadership raise operating funds and spends corporate cash, decision that have ultimate impacts of the company’s profitability. Benin City, Edo State was used as the geographical location, using a time frame of 5 years (2009 – 2013). However, a sample size of 72 was used to yield effective result.

1.8   Limitations of the Study

Gary (2002) coined the term strategy convergence to explain the limitation of the strategic being used by rivals in greatly differing circumstances, he lamented that successful strategies are limited by firms that do not understand the strategy for the specific of each situation. But in the world where strategies must be implemented, the factors are interdependent means that are likely to determine end as end are to determine means. These factors are:

• Time frame as a result of the very short period, it has a difficult task in combining activities with going to the field to collect materials for the research work.
• Smallness in sample size.
• Inability to get a complete random sampling.
• Respondents might not disclose true fact about their organization.
• Finally was dearth of materials getting up to date, (i.e. materials for the research were a very big task.

1.9   Definition of Terms

1.     Corporate Strategy: this is the over all scope and direction of a corporation and the way in which its various business operations work together to achieves particular goals.

2.     Strategy: This is the direction and scope of an organization over the long term which achieves advantage for the organization through its configuration of resource within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations.

3.     Financial Performance: This is an important concept that relates to the way and manner in which financial resources available to an organization are judiciously used to achieve the overall corporate objective of an organization, in keeps the organization in business and creates a greater prospect for future opportunities.

4.     Corporate Governance: This is the process affected by a set of legislative, regulatory, legal, market mechanisms, listing standard, best practices and effort of all corporate participants including auditors and financial advisors which create a system of checks and balance with the goals of creating and enhancing and sustainable value while protecting the interest of external environment.