Relationship between Corporate Governance Mechanism and Profitability of Listed Nigerian Companies

Abstract

The main objective of this study was to investigate the relationship between corporate governance mechanisms and profitability of listed companies in Nigeria. The study established the effect of board size, executive compensation, ownership concentration, board oversight functions and risk management system on return on capital employed and earnings per share of listed companies in Nigeria. Survey research was carried out on the opinion of 285 selected staff of the listed Nigeria companies that was obtained with the use of a structured questionnaire using purposive sampling method. Secondary data that was obtained from the audited financial statement of the selected companies and the security and exchange commission fact book was also used as a source of data for the study. The descriptive statistics included the mean, median, mode and standard deviation while inferential statistics included the correlation and multiple regression analysis in which the hypotheses of the study were tested using the t- statistic.The study revealed a significant positive relationship between the board size,board oversight functions, risk management system and return on capital employed. The relationship between executive compensation, ownership concentration and return on capital employed was insignificant. The result also revealed that earnings per share had a significant positive relationship with board size, board oversight function and risk management system. The relationship between executive compensation and earnings per share was significant but negative while the relationship between board oversight functions and earnings per share was insignificant. The study thus recommends that the listed companies should increase the board size to accommodate more experience board members. They also need to shift from family ownership to real public trading as well as adopting the use of performance based incentive for the management while intensifying effort on board oversight functions. It is also expedient for the management to operate within the acceptable risk limit of the company. The major strength of this study was the use of both primary and secondary data which enabled the integration of both historical and current factors and thus increased the robustness of the study.