ABSTRACT
This work tried to find out the impact of corporate governance on investment in Nigerian economy with particular interest in the banking industry. The need for this work is based on the fact that the quality of investments brought into Nigeria by foreign investors is below expectation. To arrive at its conclusion, the work was carried out based on systematic application of survey research procedures. The survey method was used because of the population involved, hence the need to stratify them in order to discover the relative distributions and correlations. On identification of the problem, research questions were formed followed by matching hypothetical statements as a guide towards the achievement of the objectives of the study. Related literature were reviewed to form a direction for the research. In the course of this work, data were gathered both from the primary and secondary sources. Being a survey research, a sample size of population was determined for the purpose of administering questionnaire in order to collect the necessary information relevant to this work. The data were analyzed using different statistical tools such as Regression Analysis, ANOVA and chi-square to arrive at a conclusion. Finally, the results obtained from the analysis of the instrument, questionnaire, administered on the population were used as a basis to determine the findings of the work. Based on these findings, some recommendations were made and conclusion drawn with a suggestion for further areas of research on this topic. In the course of this work, it was found out that corporate governance has a serious impact on investment in Nigeria. Also, people are getting more aware of their corporate rights, such as, rights to transparency of information, participation in corporate management, determination of appointments to boards of corporate organizations, etc. Hence, the work recommended that there is need to strengthen the anti-corruption war in the banking industry by the appropriate authorities to beef up the quality of corporate governance as practiced in Nigeria so that investors will find our economy attractive enough to do quality investment in it, thereby growing our economy.
CHAPTER ONE
1.1 BACKGROUND OF THE STUDY
The recent spate of corporate failures in Nigeria, especially in the banking industry, has brought once again to the fore the need to re-examine the issues of
corporate governance practices in Nigeria. On August 14, 2009, the Central Bank of Nigeria (CBN) forcefully removed the Chief Executive Officers (CEOs) and the Executive Directors of five commercial banks in Nigeria on the ground of poor corporate governance in their various banks. Some of the affected banks were regarded as big banks while some of their lesser peers were not affected. While reiterating the need for good corporate governance in Nigeria, the CBN (2006:2) says that the retention of public confidence through the enthronement of good corporate governance remains of utmost importance, given the role of the banking industry to the economy. In the United States of America, Weihrich and Koontz (2006:425) assert that since 2001, there has been renewed interest in corporate governance in modern corporations due to the high-profile collapses of a number of US firms such as Enron Corporations, MCI Inc (formerly known as WorldCom), Tyco (a conglomerate) and others. All these have rekindled the need to ascertain what makes up corporate governance and the attendant reasons for its failures. Weihrich and Koontz (op.cit) aver that corporate governance is concerned with truth and justice as the expectation of the society, fair competition, advertising, public relation, social responsibility, consumer autonomy and corporate bahaviour. The key points are truth, justice, and corporate bahaviour. Most authors and reports like Claessens (2001:6), Okereke (2004:4), Dike (2004:7B), IFC (2004:3), Anyaoku (1991:1) and CACG (1991:1) cited in Okorie (2005:31) summarize the benefits derivable from good corporate governance as follows:
It improves corporate performance through the sanitization of the corporate management practices and environment by enhancing the quality and integrity of management and governance structures and processed for better decision making. It increases the corporate capacity for succession planning for top management, consolidation of the opportunities for corporate growth and survival.
Good Corporate Governance assists the corporate environment and the economy to track, anticipate and flow with the changes and the challenges of technological progress and globalization.
It improves access to international finance, trade and investments by providing comfort to lengthen equity investment and creditors, and enhance stock market valuations.
Cross border issues especially investments and trans-cultural management issues in corporate governance results from the interaction and free flow of corporate governance principles amongst the international economic community
It improves economic performance in the stimulation, mobilization and allocation of resources within sectors.
Good corporate governance enhances the development of a private sector or market driven economy. Core development projects, strategic projects, and infrastructures receive greater attention with the development of strong and resilient financial sector.
Good corporate governance and reliable corporate environment improve the access to international capital markets and attracts quality foreign investments.
It is the powerful micro-economic policy instruments which when combined well with macro-economic policies provide the effective leverage for change at the business enterprise and sectoral levels.
In view of the above, corporate governance has been given several definitions by different authors. Kachru (2005:479), defines corporate governance as a system by which companies are directed and controlled. He posits that corporate governance leads the leaders because it determines the strategy of the organization and how it is to be implemented. It also determines who the organization is there to serve and how the priorities of the organization are determined. Molokwu (2004:2) states that corporate governance facilitates the achievement of economic development, provides the tools for plugging loopholes, checking of pilfering and leakages and encourages rationality and virtues which are highly needed in the Nigerian economy. It empowers and strengthens the enterprise culture, which is needed to motivate entrepreneurs.
Anyaoku (1999:1) could not agree more by saying that there are strong and positive economic linkages and multiplier effects arising from the relationship between good corporate governance and enterprise culture.
Accordingly, Al Faki (2005:29) believes that good corporate governance practice is a catalyst for performance excellence because it adds value to the assets of companies. Perhaps, that was why the Federal Government of Nigeria, in pursuit of good corporate governance established the Economic and Financial Crime Commission (EFCC) in 2003 saddled with, among other responsibilities, prosecuting people who have in one way or the other looted the treasury of corporate organizations – be it public or private. The Commission is fallout of massive corruption in the private and public sectors of the economy – which by extension is due to non adherence to the ethics of good corporate governance.
Sulaimain (2004:3) cited in Okorie (2005:1) exposes the reasons behind most corporate failures to include undisclosed huge debts, insider dealings, accounting fraud, manipulating of Initial Public Offers (IPO), undeserved and inflated welfare package for CEOs and management, manipulation of control system, illegal business practices and tax evasion. The above findings have gone further to show why some less valued organizations in the same industry thrive while their giant counterparts go under.
To further underscore the importance of corporate governance, Image (2001:67) states that industries (organizations) requiring large capital investment appear to require a correspondingly heavy investment in high- talent managerial resources. He goes further to say that if large expenditures
are made for the acquisition of equipment and machinery without a corresponding investment in the technical, professional and managerial aspects to make such expenditure effective, then the investment will remain unproductive, hence losing the essence of such investment. The import of this assertion is to highlight the importance of managerial acumen to manage a given resources with the ultimate goal of delivering the required result. As such, there is need for us to examine what impact corporate governance has on investment.
1.2 STATEMENT OF THE PROBLEM
In Nigeria, the economy has been threatened by corporate crisis thus impairing the quality of investment attracted into the country. Every year, the government will propose budgets hoping to realize part of it through local and foreign investments but these dreams are, in most cases, not fulfilled. Yauri (2006:32) cited in CBN Economic and Financial Review states that recognition of Nigeria (ns) as top-ranking in corruption, fraud, and other financial improprieties such as “419” has resulted to loss of investors’ confidence to invest in Nigeria generally and to partner with Nigerians. Also, investors are wary of investing in Nigeria due to poor practices of corporate governance, especially in the banking industry. The bottom-line of this failure is drifting economy, retrenchment in banks, loss of public confidence in the system, underdevelopment, poor rate of returns on investment, corruption, criminality, and pariah status in the comity of nations.
The major problems of corporate governance in Nigeria banking industry include the overbearing dominance of the Chief Executive Officer, non-adherence to internal control measures, manipulation of employment procedures (a situation whereby appointment goes to the highest bidder), family-affair ownership structure, doctored annual financial reports, ineptitude of the regulatory authorities, insider dealings, undeserved welfare packages for CEO and management, use of ad hoc (contract) staff, among others. Hence, on August 14,
2009, the Central Bank of Nigeria (CBN) forcefully removed the Chief Executive Officers (CEOs) and Executive Directors of five commercial banks in Nigeria on the ground of poor corporate governance of their various banks. These scenarios have given rise to the need for this research to look into Corporate Governance (CG) as an issue with a view to finding out its effect on investment in Nigeria economy.
Based on the above identified problems, the study aimed at determining their effects on investment in Nigeria economy.
1.3 OBJECTIVES OF THE STUDY
Given the identified problems of this work, the following are the objectives of this study:
1. To find out if and to what extent adherence to corporate governance attracts investors in the banking industry.
2. To examine the degree of accountability to investors by corporate managers in the banking industry.
3. To assess if and how the quality of corporate managers attract investors in the banking industry.
4. To determine the extent to which transparency in information disclosure attracts investments in the banking industry.
1.4 RESEARCH QUESTIONS
This work intends to find answers to the following questions:
1. To what extent does corporate governance affect investment in the banking industry?
2. How accountable are corporate managers to their investors in the banking industry?
3. What are the determinants of recruiting corporate managers in the banking industry?
4. To what extent are corporate managers transparent in disclosure of information to investors in the banking industry?.
1.5 RESEARCH HYPOTHESES
Based on the objectives of this study and the research questions above, the following hypotheses are formulated:
1. Corporate governance has no effect on investment.
2. Investors do not get proper accounts of their investments from corporate managers.
3. Corporate managers are not recruited based on skills, knowledge, experience and qualification.
4. Investors do not get adequate and transparent information about their investments.
1.6 SCOPE OF THE STUDY
This work used two banks, namely, United Bank for Africa PLC (a first generation bank) and Oceanic Bank International PLC (a second generation bank) as study organizations. These banks were chosen due to their branch network and years of existence. Also, Enugu and Ebonyi States were selected as areas of coverage because Enugu is the capital of old Eastern region of Nigeria; thus it is the domain of very influential investors in the South Eastern Nigeria.. On the other hand, Ebonyi State was chosen being a relatively new State that has a lot of investment potentials and it has closer link to the South-South zone of Nigeria. The banks have a total of nineteen (28) branches in the two States.
1.7 LIMITATIONS OF THE STUDY
The major constraints of this study are:
1) Time. Being a time-bound work, there was not enough time owing combination of my official job with the academic research.
2) Also, the issue of classified document syndrome in the society is another constraint as some relevant documents are not handy for the sole excuse of being “classified”.
3) Some management/senior staff of the study organizations are reluctant with detailed information, hiding under the excuse of “oath of secrecy” in the banking industry.
4) The economic crunch is another limitation. The cost of obtaining information from the internet is enormous coupled with the issue of crises- crossing from Enugu to Abakaliki to obtain information. As such, it was not an easy task.
1.8 SIGNIFICANCE OF THE STUDY
On completion, this work will be useful to prospective investors, corporate organizations, government, researchers and students.
1.9 BRIEF HISTORY OF STUDY ORGANISATIONS
1.9.1 Oceanic Bank International PLC
Oceanic Bank International PLC was incorporated on March 26, 1990 and licensed on April 10, 1990. The bank commenced full banking business on June
12, 1990 at its corporate office, Waterfront Plaza, Plot 270 Ozumba Mbadiwe venue, Victoria Island, Lagos. It commenced universal banking in January 2001
and has a branch network of over 360 business offices spread across the States of the Federation. It has staff strength of about 3500 workers. Its mission statement is “To provide excellent and comprehensive services to all our customers in a friendly environment using qualified and experienced personnel with appropriate technology” (Source: www.oceanicbanknigeria.com).
1.9.2 United Bank for Africa Plc
The history of United Bank for Africa Plc dates back to 1961 when it was established by a consortium of five international banks to take over the banking business carried on in Nigeria since 1949 by the British and French Bank Limited. However, today’s UBA Plc is the product of the merger of Nigeria’s erstwhile Standard Trust Bank (STB) Plc, the old United Bank for Africa Plc, and the subsequent acquisition of the erstwhile Continental Trust Bank (CTB) Limited.
Currently, the consolidated UBA Plc is one of the largest financial service institutions in West Africa with a balance sheet size in excess of one trillion Naira and more than six million customers’ accounts, operating out of the two most vibrant economies in the sub-region – Nigeria and Ghana. It has over six hundred and thirty (630) retail distribution centers across Nigeria, its main operating base, and eight (8) branches in Ghana. Outside Africa, it also has presence in New York and Cayman Island.
The Mission statement of the Bank is “To provide first class service to our customers delivered by well trained and highly motivated people aided by the best technology, generating superior returns to shareholders while positively impacting the country served
This material content is developed to serve as a GUIDE for students to conduct academic research
EFFECT OF CORPORATE GOVERNANCE ON INVESTMENT IN NIGERIA BANKING INDUSTRY>
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