CORPORATE GOVERNANCE AND FINANCIAL PERFORMANCE OF LISTED HEALTH CARE FIRMS IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

Corporate governance has become an issue of concern to totally different stakeholders during this dispensation of company failure arising from the manifested dishonest practices that has led to the collapse of some good corporations. The problem of company governance has equally attracted scholars’ interest resulting in various empirical studies on company governance and the way it influences financial performance. Because of various company failure globally with even the collapse of some good valuable corporations within the world like Enron, Arthur Anderson and Saga,, the arrogance of the investors in corporate organizations has been impaired thereby poignant adversely their investment in corporations. The impairment within the confidence may be attributed to lack of answerability, transparency and revelation and unreliable audit work. In Nigerian nation however, persistent company failures, money indecency and failure of CSR coverage and observe to be inclusive and controlled have precipitated credibleness gap in company governance culture by companies (Emeseh & Songi, 2014). There are various definitions of corporate governance by scholars within the field of management provided within the literature. Scholars like, Shleifer and Vishny (2015) outline corporate governance as the ways that suppliers of finance to companies assure themselves of obtaining a come back on their investment. On a broader perspective, corporate governance is all concerning running a corporation in a way that guarantees that its homeowners or stockholders receive a good come back on their investment, while putting into thought the expectations of alternative stakeholders to the business (Magdi & Nedareh, 2012) as cited in Duke and Kankpang (2011). Gillan and Starks (2000) views corporate governance as the system of laws, rules, and factors that management operations at a firm whereas corporate governance was viewed by (Jenkinson and Mayer, 2010) as entailing the processes and structures by that the corporation and its affairs are directed and managed, so as to enhance long run shareholders' price by enhancing company performance and answerability, whereas taking under consideration the interest of alternative stakeholders. Despite the definition used, corporate governance mechanisms are typically viewed by researchers as falling into one amongst 2 categories: the inner governance and also the external governance (Dembo & Rasaratnam, 2014). The inner focuses on the board of administrators appointed by the shareholders to observe and run the daily affairs of the corporations therefore on guarantee realisation of the target of the corporations whereas on the opposite hand, the external focuses on the shareholders, lenders World Health Organization have vital stake during a firm. From the mix of the 2 classes we are being able to view corporate governance as the ways and manners during which the affairs of a corporations are directed and coordinated by the appointed administrators in such how which will enhance price creations for the involved stakeholders. Corporate performance has been given a lot of attention by stakeholders, because they use it in measuring management efficiency and effectiveness within the use of resources at their disposal. The common measure for gauging management performance is often through profitability. Profit is the ability of corporations to get revenue that is larger than the direct and indirect price incurred in generating the revenue. The definition is in line with the matching thought of accounting that postulates the matching of revenue generated with price incurred in generating the revenue therefore on ascertain the worth supplementary. Profitability according to Owolabi and Obida (2011) is that the ability of a firm to create advantage of its key activities. The activities embrace the operative, investment and finance that square measure tailored towards generating revenue and profit that triggers the going concern and survival of corporations. The common indices for measure profit are come back on quality, come back on equity, come back on investment and earnings per share. Majority of existing literature on company governance has instructed positive relationship between company governance and performance (Love, 2011). Despite this acknowledged role that company governance has on profit of corporations, several company corporations are finding it therefore troublesome to create profit so as to maximise shareholders wealth and secure their going concern that has been attributed to company governance unskillfulness and its failure. Also, a lot of typically most administrators do pursue personal interest as against interest of shareholders that drastically impede on their ability to create profit. Because of this, the effectiveness and potency of corporate governance is a very important tool for enhancing company price and improve firms’ performance by guaranteeing correct utilization and security of quality among the organization. In Nigeria, the collapse of corporations arising from dishonest practices that are that the outcome of weak control system and corporate governance as questioned the effectiveness of company governance mechanism as a tool for the bar of corporate collapse. Arising from this, various scholars have conducted various studies on corporate governance mechanism and financial performance of corporations each in Nigeria and abroad. A number of researchers have debated on the result of company governance on performance of corporations supported their findings. Despite this varied try by totally different students, the puzzle on the precise result of company governance on performance of listed corporations stay unsettled resulting in dialogue among these researchers which can even be attributed to variations in adopted methodologies, scope, variables, cultural variations and atmosphere. During this regard, scholars like Abdulazeez, Ndibel and Mercy (2016) using correlation and regression as analytical technique discovered that larger board size contributes completely and considerably to the money performance of deposit cash banks in African nation. However, students like Shungu, Ngirande and Ndlovu (2014) found negative relationship between board size and profit of business banks in Zimbabwe. Similar result was discovered from the studies of Palaniappan (2016) in utilization of multivariate analysis as analytical technique and Ali (2016) in Pakistian. From this reviewed study, it's apparent that there are conflicting findings in literature on corporate governance mechanism and financial performance. Also, it's been ascertained from the casual investigated the present literature that the majority of them haven't considered directors’ financial remuneration as one of the proxies for corporate governance. This study will fill the existing gaps in literature by investigating the impact of corporate governance on listed health care firms’ financial performance in Nigeria.

1.2. Statement of Problem

Aremu (2014) observed that corporate governance is still at infancy in the Nigerian listed firms and corporations as only a few seem to have recognized corporate governance codes. The weakness inherent in the application of corporate governance ethics is perhaps the most vital factor responsible for corporate failures and financial distress among companies. The recent overtime is high profile of corporate fraud which tends to lead to failures in the Nigerian firms. Poor application of corporate governance mechanism is identified as one of the major possible factor in virtually all known instance of health firms’ failure in the country due to their non-compliance to corporate government ethics. Aremu (2014) lamented that the past distresses experienced by Nigerian listed health care firms is as a result of lack of proper oversight, regulatory, supervisory and corporate governance functions by the board of directors, in which some them run their organizations for their own personal interest.

1.3. Objective of the Study

The main objective of the study is to examine the impact of corporate governance on financial performance of listed health care firms in Nigeria. The specific objectives of the study are:

1. To examine the significance of board independence and its role in corporate governance.
2. To examine the relationship between corporate governance and listed health care firms’ financial performance.
3. To examine the impact of corporate governance on financial performance of the listed healthcare firms in Nigeria.
4. To examine the relationship between board competence and financial performance of listed healthcare firms in Nigeria

1.4. Research Questions

1. To examine the significance of board independence and its role in corporate governance.
2. To examine the relationship between corporate governance and listed health care firms’ financial performance.
3. To examine the impact of corporate governance on financial performance of the listed healthcare firms in Nigeria.
4. To examine the relationship between board competence and financial performance of listed healthcare firms in Nigeria

1.5. Research Hypotheses

Hypothesis 1

H0: Corporate governance has no significant impact on financial performance of the listed healthcare firms in Nigeria.

H1: Corporate governance has a significant impact on financial performance of the listed healthcare firms in Nigeria.

Hypothesis 2

H0: There is no significant relationship between board competence and financial performance of listed healthcare firms in Nigeria.

H1: There is a significant relationship between board competence and financial performance of listed healthcare firms in Nigeria.

1.6. Significance of the Study

The study provides a picture of where banks stand in relation to the codes and principles on corporate governance introduced by the Nigerian health insurance scheme. It will further provides an insight into understanding the degree to which the banks that are reporting on corporate governance have been compliant with different section of the codes of the best practice and where they are experiencing difficulties.

Health care institutions, private sectors, stakeholders in health system and as well as other corporate titans will find this study as an invaluable asset which spelt out ways of improving an organization’s financial performance via corporate governance

The research study will also be beneficial to future researchers and undergraduate and postgraduate students wishing to carry out similar study in their future research undertakings.

1.7. SCOPE OF THE STUDY

The study is delineated to examine corporate governance and financial performance of listed health care firms in Nigeria.

1.8. LIMITATION OF STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.9. DEFINITION OF TERMS

Corporate Governance: These refer to the set of rules, controls, policies and resolutions put in place to dictate corporate behaviour to the stakeholders of a firm.

Financial Performance: This is a measure of how well a firm can use assets from its primary mode of business and generates revenue. This term is also used as a general measure of firm’s overall financial health over a given period of time.

Returns on Asset: This measure of a company’s profitability equals to a fiscal year’s earnings divided by its total asset, expressed as a percentage.

Returns on Equity: This measure of how well a company used reinvested earning to generate additional earnings, equal to fiscal year after-tax income (after preferred stock dividends but before common stock dividends) divided by book value expressed as a percentage.

Total Assets: This refers to the final amount of all gross investments, cash and equivalents, receivables and other assets presented on a firm’s balance sheet. Total assets are the aggregation of fixed assets and current assets.

Net Profit Margin: This refers to how much of a company’s revenue are kept as net income. The net profit margin is generally expressed as a percentage.