Key Features:
No of Pages: 77
No of Chapters: 5
Introduction:
1.1 Background to the study
The modern business environment poses a number of challenges that require sound decision-making and appropriate corporate governance practices. According to Edwards & Clough (2005)recent failures in corporate governance have led to the proliferation of corporate governance codes which emphasize, in particular, accountability and conformance measures in organizations. The essence of these codes is to determine what entails good corporate governance in an organization. For any organization to succeed in achieving good performance, it must be able to embrace conventional good corporate governance attributes as stipulated in codes such as the Cadbury code in the United Kingdom (UK) (Edwards & Clough, 2005).
Maher and Anderson (1999) assert that corporate organizations have a responsibility to various parties such as shareholders and other stakeholders such as employees, suppliers, and even society. They further argue that the corporate governance practices in an organization are very significant in determining the incentives and disincentives faced by all the above stakeholders who potentially contribute to firm performance. Corporate governance is primarily concerned with how effective different governance systems are in promoting long-term investment and commitment amongst the various stakeholders. Kester (1992) indicates that the central problem of governance is to devise specialized systems of incentives, safeguards, and dispute resolution processes that will promote the continuity of business relationships that are efficient in the presence of self-interested opportunism.
Corporate governance practices dictate the means through which performance is achieved and measured. According to Yacuzzi (2005), in every organization, there are always forces that oppose change. Corporate governance ensures that there exist policies that can encourage performance. It is the work of the governing body to ensure that corporate performance is measured appropriately. This involves putting in place the measures that the organization will adopt in measuring or evaluating the level of performance.
The National Insurance Commission (NAICOM) recently launched the Code of corporate governance for the Insurance Industry in Nigeria as part of its strategic efforts to rebuild and sustain the waning confidence of stakeholders in insurance. Indeed, the insurance industry regulator expects that “the hidden potential of the sector will be unleashed for maximum impact that will induce economic growth in Nigeria” through compliance with the Code. It is trite to state that the initiative could not have come at a better time than now when the major causal factor of the current global economic meltdown is attributed to unwholesome and sharp practices of corporate leaders in advanced jurisdictions and in our local environment. The global economy has lost a lot financially in terms of stock market crashes, credit squeeze, unemployment, depreciation of the various currencies, fall in growth rates, etc. and as a result, the necessity for the empirical analysis into corporate governance and performance of insurance companies in Nigeria.
1.2 STATEMENT OF RESEARCH PROBLEM
As an important element of the financial system, insurance plays a vital role in Nigeria's fast-growing economy. Notwithstanding its numerous contributions, this sector is faced with some problems that have hindered its progress and goal actualization. This problem ranges from ethical issues, poor premium management, poor labour practices, weak regulatory mechanism, and enforcement mechanism (Akingbola, 2010). Also, insurance in Nigeria lacks a proper code of conduct on how its activities should be carried out and lacks ethical behavior in insurance business practice (Soares, 2014 and Irukwu, 2009).To add voice to the poor performance of insurance practice, Nduna, (2013) opined “that lack of bank account by citizens hinders the collection of a life insurance premium which has also slowed down the development of insurance in Africa. In year 2003, three top officers of Skanda insurance company in Sweden were interrogated for not utilizing properly, the corporate assets (Momoh&Ukpong, 2013). It is in the light of the identified problems above, and to bridge the gap in the body of existing literature, an empirical investigation is carried out to ascertain corporate governance's impact on the financial performance of quoted insurance companies in Nigeria.
1.3 Research Question
1. What is the relationship between board size and performance of insurance companies
2. What is the relationship between board meetings and the performance of insurance companies
3. What is the relationship between independent directors and the performance of insurance companies
4. What is the relationship between audit committee meetings and the performance of insurance companies
1.4 OBJECTIVES OF THE STUDY
The main objective of this study is to empirically investigate the relationship between corporate governance and performance of insurance companies in Nigeria, while the specific objectives are to;
1. Examine the relationship between board size and performance of insurance companies.
2. Determine the relationship between board meetings and the performance of insurance companies.
3. Ascertain the relationship between independent directors and the performance of insurance companies.
4. Investigate the relationship between audit committee meetings and the performance of insurance companies.
1.5 RESEARCH HYPOTHESES
H1: there is no significant impact of board size on audit quality in insurance firms in Nigeria.
H2: there is no significant impact of board independence on audit quality in insurance firms in Nigeria.
H3: there is no significant impact of insurance firms size on audit quality in insurance firms in Nigeria.
H4: there is no significant impact of directors’ shareholding on audit quality in insurance firms in Nigeria.
1.6 SCOPE OF THE STUDY
A period of 7 years will be considered for the study between taking variable data used in this study like board size, board meeting, independent directors, and audit committee meetings from the financial records of selected insurance companies from 2009-2015 as this will capture the current trend in corporate governance as it relates to the performance of insurance companies in Nigeria.
1.7 SIGNIFICANCE OF THE STUDY
Management: The study will improve the quality of the principal-agent relationship that exists between the management and owners of the firm and reduce the conflict of interest using the result of the findings if implemented will create the expected value on firm performance.
Stakeholders: Furthermore, it will enhance the knowledge of all stakeholders and serve as reference material to another researcher interested in the subject matter
Regulatory Authorities: this study will be insightful to the body in charge of formulating the policy of the code of corporate governance in Nigeria. As emphasis will be drawn from this research work as to the right mixture or attributes of corporate governance that will facilitate firm performance especially in the insurance industry.
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