Introduction
The concept of corporate governance refers to various decision-making processes and control measures undertaken by the board of governors of a specific firm and their working procedures. Corporate governance forms a set of interrelated rules that control the behaviors of corporations, management, and shareholders. Every country has its rules and regulations that set different standards of governance and systems of control determined by firms operating in the country. Corporate governance systems established in each country recognize the reality of organizational law, control and ownership, and relevant regulations in the market (Tricker 2012). Issues related with corporate governance have dominated most headlines in the recent past, especially in the developed countries like United States (Brown and Caylor 2006). Ineffective ethical considerations act as a major contribution to the problems of corporate governance experienced in most countries today. Company ethics is written to provide rules that orient employees to the organization and improve their commitment to firm stakeholders. The corporation boards of directors play a critical role in ensuring such complete adherence to ethics (Zimmerli, Richter & Holzinger 2007). The following proposal focuses on the relationship between corporate governance and firm performance in two different countries, the United Kingdom (UK) and Nigeria.
The corporate governance practices in UK have attracted the attention of many investors since the last decade. The country has issued different reports on the impact of corporate governance towards improving the economy of the country. On the other hand, the Nigerian government practices effective corporate governance bearing in mind that it is one of the richest countries in Oil and Gas production. The reports issued concerning corporate governance in UK and Nigeria helps in formulating different regulations that control the functions of both local and international firms operating within these countries. Effective corporate governance practices help in achieving and maintaining public confidence and trust in organizations, which results into good financial performances (Ogbechie & Koufopoulos 2010).
The following research examines corporate governance in U.K. and Nigeria for a number of purposes. Firstly, the study will investigate the influence of corporate governance in firm performance using three main performance measures. These are Return on Equity, Net Profit Margin, and Dividend Yield. Firms use different performance measures in determining their financial position after one year or on a quarterly basis depending on the management decision. The research will establish the impact of each of these performance measures on the effective running of corporations in U.K. and Nigeria. Secondly, the research will study the impact of corporate governance mechanisms on general firm performance. As stated earlier, different countries have various governance mechanisms set in place by law. The research will investigate how using Board of Directors, Audit Committee, and board sizes/structure mechanisms will influence performances of firms in U.K. and Nigeria.
Statement of the problem
Most researchers have investigated about the issue of corporate governance in different perspectives but few have studied the relationship between corporate governance and financial performance of firms. Corporate governance and financial performance are two most related elements of an organization. The effective governance of the firm leads to quality service delivery and higher productivity that has a positive impact on the financial performance. Few studies have been conducted to determine the relationship between corporate governance and firm performance in UK and Nigerian markets.
Objectives
The objectives of this proposal are:
Literature review
The literature review will focus on three major areas. The effects of corporate governance on firms’ performances, the effect of incorporating performance measures such as Return on Equity in establishing the effect of corporate governance in firm performance, and the role of corporate governance mechanisms on firms’ performance will be reviewed below.
Corporate governance and firm performance
Few studies have investigated the relationship between corporate governance and firm performance with most concentrating on developed countries. The process of corporate governance adopted by a nation influences the performances of firms in the local and international markets. A study conducted by Manaweduge to investigate the nature of cooperation with corporate governance best practices by the Sri Lankan listed firms and their performance revealed that better governance promoted higher financial performance. The study utilized questionnaire surveys research designs in gathering data from 60 companies that formed the respondent. In addition, stakeholders and stakeholder-groups were investigated to determine the level of firms’ compliance with corporate governance practices. Manaweduge’s research revealed that firms and stakeholders were in agreement with corporate governance practices, a move that made them improve their financial, market and social performance (Manaweduge 2012). Although the research achieved its objectives, it would have achieved more reliable results by incorporating questionnaires with face-to-face interviews with board of directors, government committees, and firm managers. The following research will utilize a mixed methodology approach in order to improve ensure respondents provide the necessary information.
The impact of using performance measures in relating corporate governance to firm performance
Firms use different financial indicators to measure the level of performance achieved after a specific period. Corporate governance holds a strong relationship with financial performance of firms. The type of performance measures established in identifying this impact contributes to the compliance of the firm with corporate governance practices. In order to investigate the above issue, Robinah conducted a study that established a relationship between corporate governance, board roles and effectiveness, contingency, and financial performance of Ugandan Public Universities. Four public universities formed the correspondent in the study. The study results findings showed that board size has a negative influence on financial performance, but policy and decision making contributes positively to financial performance (Robinah 2013). The research did not utilize any performance measure to prove their results, an aspect that questioned the validity of results achieved. Every firm must choose a specific corporate strategy in order to excel and improve performance (Wade and Recardo 2001).
The government and organizational management recognize performance measures as the most critical elements that promote total quality management. Using performance measures ensures the firm achieves better results that compare the past financial position with the present position. Return on Equity, Net Profit Margin, and Dividend Yield form the best performance measures utilized by most organizations when determining their financial performance. According to Kellen (2003), using performance measures in establishing the performance of the business improves data quality, applicability and visualization. In addition, business performance measures help in monitoring and control, drive improvement, maximize the effectiveness of the business and help aligning an organization to its goals and objectives. In the proposed research, the above named performance measures will be utilized in ensuring the data collected from selected firms achieves the expected results. Moreover, the following approach will increase the effectiveness, efficiency, and quality of research materials utilized.
The role of corporate governance mechanisms on firms’ performance
On the other hand, firms that follow corporate governance practices achieve desirable financial performances but the type of corporate governance mechanism utilized matters. The following statement was proven by Wu, Lin, Lin, & Lai’s research that investigated the impact of corporate governance mechanism on firm performance. The study was conducted in Taiwan and used different performance measures as an indication of firm’s performance. The main corporate mechanisms utilized in the research were the board size and ownership structure. Board of directors plays a significance role in establishing the compliance of the firm to corporate governance practices. According to Wu et al (n.d), the number of directors involved in decision making process has no effect on the firm’s agreement with the country’s corporate governance practices. The results from the study revealed that a positive and significance performance occurs when independent and focused board of directors engage in the decision-making process of the firm. In addition, the ownership structure of the firm determines the firm’s compliance with the corporate governance practices.
The research concluded that insider ownership contributes to the positive and significant relation with performance. A higher inside ownership increases the board between authorities and investors’ interests promoting high performance (Wun et al n.d). The above review closely relates to the proposed research but only utilizes two mechanisms. In order to ensure all aspects of the firm are dealt with, the proposed research will use an extra mechanism, the audit committee. The use of Audit committee mechanism will assist determining the significance of audited records in determining firm performance and why the government should request audited records from all firms. In addition, the research had no comparison of different nations. The above research will compare practices of the developed and developing country, U.K. and Nigeria respectively. According to Talaulicar (2010), interests of different stakeholders should be considered and balanced in order for a corporate governance system to promote performance of a firm.
Proposed methodology
Research design
In order to ensure the research achieves its desired results, it will utilize a mixed method design. A mixed research design combined qualitative and quantitative data collected in a research (Ragin, Nagel and White 2004). The quantitative method will be more objective where the researcher will record findings in their normal form. On the other hand, the qualitative method the research will provide an interpretation of the quantitative data collected and generalize to fit a large group of firms. In additional, analytical research designs will be administered to the target group in order to get the relationship between variables. The quantitative research method will be used to collect data from selected participants from different firms. Both quantitative and qualitative methods will be mixed during data analysis and interpretation.
Study population
The population of focus on this study will compose of corporate firms in U.K. and Nigeria. U.K. was selected because it is one of the developed countries in the world and the researcher wanted to establish how developed countries comply with corporate governance. On the other hand, Nigeria was targeted in order to establish the effect of corporate governance on firm performance in developing countries.
Sample size and sampling design
Four firms from each country will be randomly selected. A total of ten participants from each country will form the respondent making a total of 80 respondents. Shareholders, board of governors, and firm managers will be selected to form the ten respondents from each firm. Stratified and simple random sampling will help in selecting the sample of ten members in each firm.
Data collection methods
Interviews and questionnaires will form the main data collection methods. The primary data will be collected using semi structured questionnaires while secondary data.
Data processing and analysis
The data collected will be coded and analyzed using statistical tools. The Statistical Package for Social Sciences (SPSS) will be used to compare variables in tables and charts. Descriptive statistics will help in analyzing corporate governance, financial performance measures, and corporate mechanisms. On the other hand, Analysis of Variance (ANOVA) will be used to determine the level of financial performance of each firm. ANOVA helps in determining the relationship between variables (Caldwell 2004).
List of references
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