CORPORATE GOVERNANCE AND INVESTORS DECISION MAKING IN THE NIGERIAN CAPITAL MARKET
1.1 BACKGROUND TO THE STUDY
Since the first half of the 1990s, the issue of corporate governance has been the subject of significant interest and debate around the globe due to increasing globalization, financial reporting and disclosure issues, the differential treatment of domestic and foreign investors which all influences investment decision. Corporate governance is an important concept, which has attracted a fairly good deal of public interest because of its great importance for the financial and economic health of corporations, and society in general. (Nwokoma, 2005). More than ever, the subject of ethics has crept stealthily yet forcefully into the discussions of all aspects of human existence-religion, corporate governance, marketing, university administration, and public service, advertising and, of course, banking.(Adewunmi, 1998).
As a matter of fact, the question of corporate governance has seemingly taking a front burner position in the field of financial services business over the years especially in the light of the consolidation reform that took the Nigerian banking sector by storm.
The World Bank report (2002)defines corporate governance as “the organization and rules thataffect expectations about the exercise of control of resources in a firm. Nwosu(2007)analyzed thataneffectivecorporate governance system should be able to identifywhich are its strategic stakeholders, to whom its system of financial reporting should address itsflow of information about the corporate activities.Nwosu (2007),states that,the Nigerian code ofCorporate Governance is primarily aimed at ensuring that managers and investors of companiescarry out their duties within a framework of accountability and transparency. This should ensurethat the interests of all stakeholders and investors are recognized and protected as much as possible which is expected to encourage investment decision.
Lemo (2004) states thattheidea of corporate governance was quickly adopted in different parts of the world butwith some major variations because circumstances vary from country to country.According toEgwuonwa (1997), “Corporate governance refers to the control of corporate policy through thepower legally vested in a group or groups of people to chart a course of action to be followed bythe organization in areas of fundamental importance to its survival, prosperity and properfunctioning. It encompasses the mode of structure, the power that determines the rights andresponsibilities of the various groups involved in running the organization, the legitimacyexpectation of the business, the method of operating and the overall accountability of managementand of the directors”(Egwuonwa, 1997).
Solomon and Solomon(2004)urged thata variety ofcorporate governance frameworks weredevelop, however, two main approaches of corporategovernance can be identified, with distinctions arising from the different legal systems at work indifferent countries.They claimedthat countriesthat followed civillaw.According to them, in thosecountries, the role of corporate governance was to balance the interests of a variety of key groupssuch as employees, managers, creditors, suppliers, customers and the wider community.Inam(2006)is of the opinion that corporate governance is now an international topic due to globalizationof businesses.
Nwokoma (2005)arguesthatcorporate governance practices are not uniform acrossnations. In fact,Sanusi (2003)acknowledges the lack of a single model of corporate governancepractice that is applicable to all organizations evenwithin one country. Therefore, every countryadopts a unique set of corporate governance procedures that are based on factors such as thecountry’s legal and financial system, corporate ownership structures, culture and economiccircumstancesDavies and Schlitzer (2008).
1.2 STATEMENT OF THE PROBLEM
There are large numbers of investment avenues available in the capital market. The investors choose avenues, depending upon their specific need, risk appetite, and expected return. Recently, investors also considered the method of corporate governance. Investment avenues can broadly be categorized into two spheres, namely, Real Investment and Financial Investment. Real investments, involve a tangible (physical) asset, such as land, machinery etc. Financial investments, on the other hand, involve investment in financial instruments like shares, debentures, insurance policies, mutual fund units etc. however, the researcher is examining the effect of corporate governance on investors decision making in the Nigeria capital market.
1.3 OBJECTIVES OF THE STUDY
The following are the objectives of this study:
- To examine the effect of corporate governance in investors decision making in the Nigeria capital market.
- To identify the issues related to corporate governance.
- To determine how corporate governance can be used as a tool for attracting investors.
1.4 RESEARCH QUESTIONS
- What is the effect of corporate governance on investors decision making in the Nigeria capital market?
- What are the issues related to corporate governance?
- How can corporate governance be used as a tool for attracting investors?
HO: There is no significance relationship between corporate governance and investor decision making in the Nigerian capital market.
HA: There is significance relationship between corporate governance and investor decision making in the Nigerian capital market
1.6 SIGNIFICANCE OF THE STUDY
The following are the significance of this study:
- The results from this study will educate the stakeholders in business management and the general public on the relationship between corporate governance and investor decision making in the Nigerian capital market.
- This research will be a contribution to the body of literature in the area of the effect of personality trait on student’s academic performance, thereby constituting the empirical literature for future research in the subject area.
1.7 SCOPE/LIMITATIONS OF THE STUDY
This study is limited to the Nigerian capital market. This study will also cover the relationship between corporate governance and investor decision making in the Nigerian capital market.
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
Adewunmi, W., 1998. Ethics in the financial services usiness. Lagos, Nigeria The CIBN Press
Davies, M. and B. Schlitzer, 2008. The impracticability of an international “one size fits all ” corporate governance code of best practice. Managerial Auditing Journal, 23(6): 532-554.
Egwuonwa, R., 1997. Interlocking directories and corporate governance. 1st Edn.: Lagos, Nigeria: Stride Associates.
Inam, W., 2006. Corporate governance-new corporate mantra? Available from www.templers-law.com
Lemo, T., 2004. Corporate governance issues. In: NSE Biannual Conference.
Nwokoma, N.I., 2005. Issues and challenges in banking sector consolidation and economic development in nigeria. The Nigerian Stockbroker 6(3): 3-12.
Nwosu, C., 2007. The effectiveness of corporate governance in financial reporting of an organization. An undergraduate research work in Covenant University, Ota. Ogun, Nigeria. (Unpublished).
Sanusi, J.O., 2003. Embracing good corporate governance practices in Nigeria. 19th Annual Directors’ Seminar organised by the Financial Institutions Training Centre. Abuja: BIS Review 27: 1-2.
Solomon, J. and A. Solomon, 2004. Corporate governance and accountability. Chichester: Wiley