corporate governance mechanisms: compliance and … ebenezer yemi… · web viewit is a burring...

2013 Cambridge Business & Economics Conference ISBN : 9780974211428

Title: Corporate Governance Mechanisms: Compliance and Pattern of Market

Valuation Quoted Companies in Nigeria (2003-2010).

By

Dr. AKINKOYE Ebenezer Yemi

Department of Management and Accounting

Faculty of Administration,

Obafemi Awolowo University

Ile Ife

Nigeria

Key words: Corporate Governance, code of best practice, compliance and pattern of firms’ value

July 2-3, 2013Cambridge, UK 1


Abstract

The study evaluates corporate governance practices among Nigerian firms across industries

and examines the trend and pattern of market value of non-financial quoted firms in Nigeria

during the sample period. Data set that included data on economic value of firms, corporate

governance mechanism and related stock prices were obtained from the firm’s annual reports,

the publication of the Nigeria Stock Exchange (NSE) as well as the website of the firms.

Panel data generated on the pattern of firms’ market value and the level of corporate

governance practices were analysed using descriptive analysis techniques. The results

showed that listed firms observed between 2003 and 2010 have embedded corporate

governance initiatives with a compliance level of 72.15 percent and a growth rate of 5.83

percent. The results also showed that market value of firms increased from 2003 to 2008 for

all measures by 6.49, 16.61, 6.36 and 10.27 percent and declined in 2009 and 2010 by 8.42,

14.51, 8.4 and 10.75 percent



Introduction

The potential role that may be played by good corporate governance in promoting economic

development and attracting both domestic and foreign investments has attracted considerable

attention. Several researchers ( Zheka (2006); William (2009); Lawrence and Marcus,(2006);

Black, (2001); Ang, Cole and Lin (2000) etc) have argued that the propagation of an

effective legal framework and the design of code of best practice in order to ensure good

corporate governance should be viewed as an integral part of country’s strategy. This

becomes so important because corporations, according to Zheka (2006), have reached a

remarkable output growth and at present produced more than 90% of all world output. Today

and more than before, corporate governance reform has become a highly charged political

issue and subject of heightened importance and attention in government policy circles,

academia and the popular press throughout the developed and developing countries. It is a

burring topic among policy-makers and academic because the role of capital market has

grown so drastically and a flood of recent academic research has clearly documented the

importance of effective governance in maximizing the value and productivity of a nation’s

publicly traded firms. The spread of privatization programmes around the world has also

forced governments to improve and impress on effective governance systems in order for the

programme to be perceived as economic success.

However, the monumental financial fraud in several corporate organisation worldwide (Asia,

the Pacific, Europe, America and Africa) and the crash in capital market are of great concerns

to scholars, investors, governments and all stakeholders as a whole. In fact, the financial

scandals affecting major American firms, such as Enron, WorldCom and Arthur Anderson,

Cadbury in Nigeria and the resulting loss of confidence by the investing public in the stock

market have led to dramatic decline in share prices and substantial financial losses to millions

of individual investors. Both the public and experts have identified a principal cause of these

scandals as failed corporate governance. Poor governance standards in both private and

publicly owned firms were blamed in part for the financial crisis (Andrei 2003). For instance,

the erosion of investor confidence was identified as one of the major factors that exacerbated

the financial crisis in most developing economies particularly in Malaysia and other Asian

countries. Erosion of investors’ confidence in Malaysia was brought about by the country’s

poor corporate governance standard and lack of transparency in the financial system (Kashif,

2008).



In reaction to the corporate governance scandal all over the world, the last 10 years in most

developing nations have brought about a series of reform to improve corporate governance

(Alberto, Florencio Lopez-De- Silanes, 2006). The policy process is going beyond

macroeconomic stability as effort is critically focused on the development of financial

institutions such as banks and capital market, the development of the legal infrastructure

supporting business and the creation of regulatory mechanisms compatible with best world

practice. Today, most developing economies have undergone substantial and fundamental

transformation as reforms are effected and the state monopoly is exchanged for more market

oriented ownership structure (Martin Hovey, Larry Li Tony Naughton 2003). But then, there

is still more ground to cover in order to reach the upward moving level of shareholders

protection brought about by corporate governance scandal. This is because in spite of the

recent reforms and the development of capital market in comparison with the developed

capital market, corporate governance in emerging economies appears still far from perfect as

the rate of financial scandal is very alarming.

In Nigeria, the level of the state of corporate governance is perceived to plays an important

role in attracting and holding the foreign investments, for building a robust capital market and

for maintaining/restoring the confidence of both domestic and foreign investors Thus,

corporate governance has a special significance to Nigeria. Towards achieving these goals,

regulators in Nigeria have brought a number of changes in laws and regulations over the last

10years, of which the common one enacted by the Securities and Exchange Commission

(SEC) is a significant one as it is aimed at bringing a substantial change in the arena of

corporate governance in Nigeria. The aim of the guidelines is to enhance good corporate

governance practice in the listed companies in the interest of the investors in the capital

market.. The guidelines, in the main time, have drawn attention of different stakeholders and

management as different professional institutes, chambers and associations are examining the

Security and Exchange Commission’s guideline and discussing their effects upon acceptance

and practice on business, behaviour of management and investors.

Numerous initiatives have also been proposed by government, and different regulatory bodies

to ensure good corporate governance practice and enhanced market value of firms in Nigeria,

for example, new listing/disclosure rules, mandatory training for board of directors, enforced

codes of governance etc. Emphasis is placed on good governance at the firm level in order to

ensure firm performance and an alignment with the international best practice. It is expected

that the guidelines would be practiced as a code of good corporate governance and therefore

have not been made mandatory to be followed Although, whether the adoption of best



practice and whether corporate governance mechanisms stimulate and enhance market value

can only be determined through empirical investigation. Nevertheless, as the Nigerian stock

market is expanding in terms of volume of trading and market capitalization there is a need to

determine the level of adoption and analyse the governance structure and values of firm as

this has not been explored sufficiently in the past study in Nigeria.

A review of the literature show that very little works exist on this issue in Nigeria and the

few studies on corporate governance in Nigeria focused on the relationship between corporate

governance mechanisms and performance of firms measured in terms of profitability and

productivity ( Ahmandu et al 2005, Oladimeji; Adetunji and Olawoye,2009). However, most

of the studies ignored the significant compliance level by firms. Thus, this, study therefore

looked at the adoption of code of best practice, compliance level and pattern of firms’ value

measured by Tobin’Q and other value indicators in a descriptive framework during the

sample period. . In achieving this, the study provides answers to the following research

questions: What is the pattern of value of non-financial quoted firms in Nigeria? And what is

the corporate governance structure of firms in Nigeria viz a viz the level of compliance.

The structure of the paper is organized as follows. Section 2 provides a brief summary of

framework for Corporate Governance in Nigeria. Section 3 gives the methodology adopted in

the work. Section 4 provides the discussion of results. The last section contains the

concluding remarks.

2. Framework for Corporate Governance in Nigeria

The Nigeria corporate governance legal framework is primarily governed by the Investments

and Securities Act (ISA) NO 29 of 2007, the rules and regulations of the Securities and

Exchange Commission (SEC) pursuant to the ISA, the Companies and Allied Matters Act

(CAMA) 1990 and the Trustees Investments Act 2004. Also a voluntary 2003 code of

corporate governance issued by SEC appointed committee outlines best practices with

regards to the roles and duties of boards of directors and management, the role and duties of

audit committees, and the rights of shareholders. Standards and regulations regarding

directors qualifications, responsibilities, remuneration, orientation, and credentials;

management succession; and the annual evaluation of board performance must be adopted

and publicly disclosed. The code is implemented on a comply-or-explain basis. However, in

order to improve enforcement, the commission in 2008 made some of the provisions legally

binding. For instance, certain sections of ISA 2007 contain provisions from the code and their



inclusion in the ISA has made them mandatory for operators and companies. But there is no

assessment directly addressing Nigeria’s compliance with the principles of corporate

governance developed by the Organisation for Economic and Cooperation Development.

The principal regulatory agency of the Nigeria capital market is the SEC. It is under the

supervision of the Federal Ministry of finance, but remains independent in its regulatory and

developmental activities. Its powers are derived from the investments and Securities Act of

2007, which repealed the investments and Securities Act of 1999. The ISA charges the SEC

with the registration and supervision of market operators, self regulatory organizations

exchanges clearing houses, depositories, venture capital activities collective investment

scheme, capital market trade associations, and public securities. The regulatory tools

available to the SEC are rule- making, registration, inspection, investigation, surveillance,

and enforcement. As the 2008 Doing Business Guide Published by the U.S Department of

Commerce mentions, Nigeria’s Legal Accounting, and Regulatory Systems are consistent

with international norms, but enforcement is uneven.

The Security and Exchange Commission regulates issues of corporate governance especially

with regard to public quoted companies. Security and Exchange Commission monitors and

supervises the activities of public companies in relation to issuance and trading in securities

and sanctions erring practitioners. Security and Exchange Commission also receives and

investigates petitions or complaints from members of the investigative public. It has achieved

a measure of success in ensuring good corporate governance with regards to the protection of

shareholders. Other organizations that are active in corporate governance advocacy in Nigeria

include the Lagos Business School (now pan African University), Institutes of Directors

(IOD) Nigeria, Conventions on Business Integrity (CBI) etc. The IOD and various regulatory

authorities for the professions, such as accounting and auditing, have also been at the

forefront of public enlightenment and advocacy on issues of good corporate governance.

The primary institution that regulates private sector activities in Nigeria is the Corporate

Affairs Commission (CAC) that was established by the Companies and Allied Matters Act

(CAMA), which was promulgated in 1990. The functions of the CAC as set out in section 7

of CAMA include administering the Act, regulating and supervising the formation,

incorporation, management and winding up of companies, establishing and maintaining

companies registries and offices; and arranging and conducting investigation into the affairs

of any company where the interest of the shareholders and the public so demand.



A code of best practice for corporate governance in Nigeria was in 2003 approved by the

boards of SEC and CAC. The code is designed to entrench good business practices and

standards for boards and directors, chief executive officer, auditors and the different

stakeholders of listed companies. The code is also to make provisions for the best practices to

be followed by public quoted companies and for all other companies with multiple

stakeholders registered in Nigeria in the exercise of power over the direction of the

enterprise, the supervision of executive actions, the transparency and accountability in

governance of these companies within the regulatory framework and market; and for other

purposes connected therewith. Some of the highlights of the code include: responsibilities of

the board of directors; composition of the board of directors ;compensation of board

members; reporting and control ;shareholders’ rights and privileges, the audit committee;

composition of audit committee; disclosure and financial transparency etc.

3. Methodology

Data and data sources

The study employed secondary data. A data set that includes data on economic value of firms

and covers the period of 2003-2010 was assembled with sources of information being the

firms ‘annual reports whereby the information about corporate governance was readily

available. Data gathered from the annual reports were of various forms ranging from

quantitative like; the number of independent director; number of shares held by each director;

number of board of director to categorical like; list of share holder holding more than 25% of

the company and ending with qualitative data involving the scoring of corporate governance

practice based on wording in the annual report suggesting compliance is being achieved. Data

on financial and accounting information necessary for the computation of firm value and

performance, were sourced from and gathered from the firm annual reports and publication of

Nigeria Stock Exchange (NSE).

Selection of sample

Two hundred and thirty seven (237) firms were listed on the stock exchange at the end of

2010. These firms were first screened for financial data availability during the sample period.

annual ending period. Listed firms that did not have up-to-date published financial data were

excluded from the study. The firms were also screened for corporate governance disclosure



for the sample period and firms that did not have corporate governance compliance disclosure

in any of the year of the sample period were excluded in order to allow for consistency and

comparability of data. One of the problems faced in the study of firms in Nigeria is that the

publicly available data is restricted to the relatively few listed firms. The limitation leads to

an unavoidable sample selection bias and the use of a purposive sampling technique. The

sample consisted of firms listed on the Nigerian Stock Exchange excluding all finance-related

firms, banks, and insurance and utilities companies due to their differences in the regulatory

requirements, financial reporting standard and compliance. Also, distressed firms and firms

whose shares were not traded in stock market during the sample period were excluded

leading to a sample consisting of 100 and representing a broad range of industry sectors.

The period chosen and the number of the firms meet the qualification that served the purpose

of this study. The sample firms represented about 67% of the number of firms and

approximately 71% of total market capitalization of NSE (Nigeria Stock Exchange Web site,

2010).

Measurement of variables

The selection of variables was primarily guided by the results of the previous empirical

studies such as Lawrence et al (2006),Parveen et al (2009), Zunaidah Sulong and Fauzias

Mat Nor (2010) The study measured firm value along two dimensions; Relative market

valuation (measured by Tobin’s Q and Market-to-Book Ratio). Tobin’s Q has been used as a

measure of firm value in variety of corporate governance studies including Gompers, Ishi and

Metrick (2003) Brown and Caylor (2004), Lawrence et al (2006), Aggarval et al (2007),

Adetunji et al (2009) and Parveen et al (2009). Specifically, Tobin’s Q is defined as total

assets (TA) plus market value of common stock (MVCS) minus book value of common stock

(BVCS) minus deferred tax (DT) divided by Total assets.

Three measures of Tobin’s Q were used; a simplified measures using the Market Equity-to-

Book. That is, Equity ratio (Qa) was calculated for each firm and this was done by dividing

the market value of equity by the net tangible assets attributable to shareholders. The market

value is the share price multiplied by the number of ordinary share on issue at year-end. The

market values were used because investors’ valuation of firm goes beyond book values of

assets and liabilities and they give a much better estimate of a company’s equity (John

Garger, 2010). Tobin’s Q was also estimated by determining the market value of the firm’s

equity plus total liabilities over the total assets of the firm (Qb) and this was done annually

for each firm. This measure looks at the firm as a whole and not just equity capital. Book



value was used for the debt and other liabilities in the absence of any secondary market for

such claim in Nigeria. Also book value of assets was used rather than replacement cost. This

is an expedient approach as any attempt to capture replacement costs open up considerable

measurement problems (Claessein et al, 1997; Clarkson & Satterly, 1997). Lastly, an average

of Tobin’s Q over eight years was determined based on the market value of the firm’s equity

plus total liabilities over the total assets of the firm. Lang, Stulz, and Walkling (1991)

propose that Tobin’s Q averaged over several years may improve the estimate over a one year

estimate.

Corporate Governance Index

From an empirical point of view, there has been a long debate in the literature on how to

measure the quality of firm corporate governance. This study used a broad corporate

governance index, instead of looking at a single control mechanism, to provide a

comprehensive description of firm level corporate governance for a broad sample of listed

firms in Nigeria. The major areas of internal corporate governance mechanism in Nigeria

based on the specific recommendation of 2003 code of best practice by the Board of the

Security and Exchange Commission and Corporate Affair Commission are; board structure,

executive compensation, ownership structure, shareholders right and interest and financial

disclosure and transparency.

In consistency with these five areas and the recommendation, this study constructed general

corporate governance index representing overall corporate governance in Nigeria and ranked

the listed firms in Nigeria. This approach has become very popular in the literature (Black,

Jang and Kim (2003), Klapper and Lover (2003) Drobetz, Schillhofer, and Zimmermann

(2004), Beiner, Drobetz, Schmid, Zimmermann (2004) Andre L et al (2004) and Lawrence et

al (2006) etc The corporate governance index was constructed and designed to capture

corporate governance commonly practiced by firms. The index was not survey-based. All

questions were answered from public information disclosed by listed companies and not by

means of potentially subjective or qualitative interview. Sources of information are company

filings and annual reports.

Basically each research possesses it own way of constructing CG score as it is contingent on

the researcher’s approach. Most part of the research done in this field have focused on the

available rating constructed by several rating agencies e.g, Klapper and Love (2004) made

use of Credit Lyonnais Securities Asia to build up their governance index. Brown and Caylor

(2004) adopted the Institutional Shareholder Services database. However, these ratings are in

the ogle of international debate as they are sometimes argued not to be related with



performance or if so only to limited extent due to significant factors being overlooked,

thereby encouraging the construction of own index. Therefore the scoring of corporate

governance is subjective and particular to the researcher and country and that is why this

study constructed a suitable index for the purpose of this study

The corporate governance index was composite of 30 questions, covering 5 broad categories;

board characteristics, ownership and controlling structure, executive compensation and

shareholders right and interest and financial transparency standard. The number of the

questions was set so that it would not be neither too small that would not capture the

multivariate nature of corporate governance, nor too large, that would render data gathering

difficult and subjective. Each question corresponds to yes or no answer. If the answer is

“yes”, then the value of 1 is attributed to the question; otherwise the value is 0. The index was

the sum of the points for each question. The maximum index value was 30. Index categories

were simply for presentation purpose and there was no weighing among questions. The

corporate governance index questions that were applied in this study are shown in the

appendix i.

The disclosure category contains six (6) governance attributes: disclosure date of

financial reports, the utilization of an International Accounting Standard or Statement of

Accounting Standard and the quality of the auditing firm. Firms adopting international

accounting standards must meet a number of requirements that make them disclose more

information and be more transparent. Greater disclosure in general leads to more value

(Klapper & Love (2003)). Michaely and Shaw (1995) find that more prestigious auditors are

associated with US IPO´s that are less risky and that perform better in the long run. Coffee

(2003) presents a thorough legal and economic discussion about the role of the external

auditor. Therefore, the hypotheses are that firms which produce financial reports by the

legally required date, use an international accounting standard and one of the leading global

auditing firms are considered to have “good” corporate governance disclosure.

The second category is related to board composition and functioning. The board size

is an important control mechanism, because the board of directors´ role is to monitor and

discipline firm´s management. Lipton and Lorsch (1992) and Jensen (1993) argue that large

boards may be less effective than small boards, because large boards can make coordination

and decision making more cumbersome. Yermack (1996) finds an inverse relationship

between board size and firm value in the U.S. On the other hand, a small board size may

prevent minority shareholders´ access to the board of directors, and may have a negative



effect on firm valuation, because of the potential expropriation. Jensen (1993) suggests an

optimal board size of 7 to 8 directors, while the Nigerian code of best practice on Corporate

Governance suggests an ideal board size of 5 to 15 directors.

The Security and Exchange Commission recommends one-year consecutive terms for

board members, suggesting that shorter terms are more effective than longer terms, because

shareholders are more flexible in changing board members if they are not effective in

monitoring firm´s management. Moreover, when there are short consecutive terms, if board

members are pursuing shareholders´ interests, they probably will be re-elected. On the other

hand, if board members have poor performance, new directors will replace them. It is

therefore believed that one-year consecutive terms create an incentive to prevent severe

governance malfunctions.

The independence of the board is related to the presence of outside directors on the

board. Since the board of directors is responsible for evaluating senior management and

replacing it if it does not pursue shareholder´s interests, an independent board is considered a

mechanism to prevent governance malpractices. Rosenstein and Wyatt (1990), and Agrawal

and Knoeber (1996) find that there is a relationship between the representation of outsiders

on the board, and firm valuation. Thus the study analyzed if the CEO and the Chairman of the

Board of Directors are the same person, suggesting that these firms are less likely to remove

the CEO, because he may have influence not only on senior management, but also on other

board members. Therefore, it is believed that firms where the CEO and the Chairman of

Board of Directors are the same person have a low valuation.

The ownership and control structure category is related to the recent literature

(Shleifer and Vishny (1997), La Porta et al (1998, 1999, 2000, 2002), Morck et al (1988) and

Claessens et al (2000a, 2000b)) suggesting that the concentration of voting rights and the

separation of voting from cash flow rights have a negative effect on firm valuation, because

of the potential expropriation of minority shareholders. Such companies are unattractive to

small shareholders and their shares have lower valuation.

In this study, ownership attributes related to “good” ownership and control structures

are: the largest shareholder has less than 50% of the voting capital; the controlling

shareholders’ ratio of cash-flow rights to voting rights is greater than 1; the percentage of

voting shares in total capital is more than 80%, and the executives and director subject to

stock ownership

The shareholder rights dimension contains three (3) attributes, all of which related to

rights granted by the company charter, beyond what is legally required, to its shareholders,



especially minority shareholders. Nenova (2001) reports that when the law state more rights

to shareholders (for example, tag along rights), corporate values tend to rise. Our questions

are related to the use of arbitration as the vehicle to resolve corporate conflicts, additional

voting and tag along rights granted for the minority shareholders, beyond what is legally

required.

4. Descriptive Result

Descriptive statistics were employed to analyse the basic features of the corporate governance

and firms value variables. The frequency distribution consists of 100 firms with stocks traded

on Nigerian Stock Exchange from 2003 to 2010. This represents all firms that had available

data to construct the variables used in this study during the sample period. The frequency

distribution year by year for the sample, demonstrated in Table i, panel A (see appendix: ii)

indicates no clustering in any specific year. The sample is an unbalanced panel with annual

data. The study includes observation in the sample if in a year, a firm has at least one

corporate governance score and firm’s stocks were traded at least once in a year and have

financial data for this firm in the year. While panel A shows the distribution of firms by year,

Table i panel B (see appendix: iii) presents the distribution of firms by industry as defined by

Nigeria Stock Exchange.

Insert Table i Panel A and Panel B

Table ii presents descriptive statistics on Corporate Governance Index (see appendix: iv). A

review of Table ii panel A reveals that a firm can achieve a composite score from 0 to 30.

The mean composite governance score increased by approximately 1.25 from 2003 to 2010,

the standard deviation and variance declined by 0.198 and 0.533 respectively and the range of

scores was 9. This indicates that both the absolute and relative variation in the composite

governance score is declining.

Insert Table ii Panel A

The study examined further in Table ii Panel B (see appendix v), the scores of the governance

components. The maximum scores of the components vary overtime making comparison

difficult. As a result this study presented both the raw scores and standardised scores,

calculated by dividing the raw scores by the maximum possible value for the component.

Insert Table ii Panel B



From table ii Panel B, both the mean raw score and standard value for board structure /

composition and functioning increases overtime as the maximum score is unchanged. The

raw value for the executive compensation category stays approximately the same but the

standardized score increases by 4%. Both the mean raw value and standardized score for

Shareholder’s Rights decreased in 2005 and 2006. The mean value for ownership structure

and control increased in terms of raw value and especially the standardised value. Overall, the

data presented in the Table ii, Panel A and B suggest that some structural shifts are occurring

in the corporate governance structure and processes within Nigerian firms. These changes

might be driven by the firms’ desire to improve their reported rating in the media or genuine

desire of the management of the firms to improve the overall state of corporate governance in

these firms.

The summary statistics of the five (5) corporate governance components and the corporate

governance index for the sample period are shown in the table iii (see appendix vi),. These

also depict a number of features about governance structure of Nigerian firms. The table

gives a clear descriptive analysis of the structural shift in the corporate governance processes

among the non-financial firms in Nigeria. It shows the level of changes and improvement

year by year and average level of compliance. From the reported statistics on Table iii, the

mean of corporate governance index (pool data) is 21.996; the maximum is 26, while the

minimum is 15. This suggests that average firm score is 21 of all the corporate governance

questions and the maximum score is 26 recorded by a firm in 2009 (see Table ii Panel A).

The mean of ownership and control structure is 2.77 while the maximum is 4.00. This means

that the ratio of the Shareholders’ voting right, percentage of voting share in total capital and

share owned by directors to the total shares outstanding is high. The mean, maximum and

minimum of disclosure and financial transparency are 5.88, 6.00, and 3.00 respectively.

These also reveal that the ratio of disclosure requirement, the use of accounting standard and

the use of audit committee among firms Nigeria is high.

Insert Table iii



Non-governance Variables

The principal financial variables used in this study are defined and described in Table iv

panel A (see appendix: vii), The variables were measured as described in section three of this

study

Insert Table iv Panel A

Table iv panel B (see appendix: viii), shows the summary statistics of the firms’ value

variables used in the study. The mean (median) of tobin’s q is 6.23 (3.80) that is, market

value of the average (median) firm is slightly greater than the book value of its assets.

Insert Table iv Panel B

Evaluation of corporate governance practices.

Corporate governance practices among listed firms in Nigeria were analyzed to determine the

level of compliance in the sample period. A corporate governance index was constructed to

represent Nigerian corporate governance standard and listed firms were ranked according to

the index. The level of compliance was analysed based on individual firms.

Thirty (30) firms’ attributes that are often believed to correspond to good governance and on

which reasonably, data are complete and there is a reasonable variation across firms and

sufficient differences from another element are identified and included in the construction of

the corporate governance index. Each is coded “1” if a firm has the attribute, “0” otherwise.

The elements of corporate governance are grouped into indices as follows; Board structure

(with sub-indices of board independence and board committee); Disclosures / financial

transparency (with sub-indices for disclosure substance and reliability; Shareholders’ right;

ownership structure and control; Executive compensation

Table v (see appendix: ix), describes the components used to construct the corporate

governance index for 100 non-financial listed firms in Nigeria. All variables are coded yes =

1, no = 0. In the scores column, numerator is number of “1”, while the denominator is the

total number of variables.

Insert Table v

There are five categories that comprises the composite score index as shown in Table v. The

maximum composite score that a firm can achieve is thirty (30) points. Out of 30 points, a



firm could score six (6) points in the disclosure and financial transparency, eight (8) points on

the board structure, four (4) points on the ownership structure, nine (9) points on executive

compensation and three (3) points on shareholders’ rights. The philosophical principle

underlying the codes is that the disclosure of information about corporate governance

practices and investors’ protection by the firms allows the market to perceive the differences

among the policies followed by various firms. Information allows shareholders to distinguish

those that adhere to investors’ protection and in turn, making shareholders more willing to

give the firms funds. Thus, those firms with better practices should find it easier to access

capital and at a lower cost as they provide a more certain environment for the investors.

The adoption of the principles of the code of best practice in Nigeria as in most other

countries is voluntary but the disclosure by firm in their filings in the NSE is compulsory. All

publicly traded firms in the NSE must state in their annual report to the shareholders which of

the rules of the code they follow. The disclosed information about the corporate governance

practices indicates the mechanisms that firms have for the protection of investors. From the

corporate governance questionnaires, the study constructed a firm- level corporate

governance index by adding one point for every question where the firm meets the

recommendation of the code. The study standardized the index to lie between 0 and 1 by

dividing the numbers of positive answers by the total numbers of question in the

questionnaire.

Aggregating the five components constituting the provision of the corporate governance, it is

encouraging to note that above 50% of the sample has excellent corporate governance

framework in place covering the governance issues and thus, most firms are implementing

the requirements of the code. Moreover, on average 74.97 percent of the firms depict clearly

the enthusiasm and firms’ commitment towards upholding of the wide spectrum of the

provision of the 2003 code of best practice. However, there are still some firms found lagging

behind in the pursuance of their compliance with much improvement needed to meet the

intent of corporate governance practice. Table vi and Figure i (see appendix x & xi), show the

level of CGI compliance. The highest level of compliance is 80 percent while the lowest level

of compliance is 52.2 percent of the codes. It is interesting to report that only five firms out of

the 100 firms met 80 percent on average. Also, 66 firms in the sample met more than 70

percent of the code. Another 29 firms met between 52.5 and 70 percent of the code bringing

cumulative percentage of the level of non-compliance with certain aspect of the code to 27.85

percent



Insert Table vi/Figure i Here

The study also analyzed further the level of corporate governance compliance year by year.

Figure ii and table vii (see appendix xii & xiii), show that level of compliance with the

recommendation of the 2003 code of best practices has increased by 5.83 percent in 2010.

Insert Table vii/Figure ii Here

In 2003, firms with publicly traded securities in Nigeria met 69.1 percent of all the codes

while that number was 71.73 percent two years after. The sample period 2003 - 2010 saw

smaller increase leaving the total compliance close to 75 percent at the end of the period.

Compliance increased only by 3.87 percent from 2003 – 2006, suggesting a slow-down in

change of corporate governance practice. The seemingly large level of compliance in 2003

could mean some firms may have been confused on the exact meaning of the code or that the

code introduced some pressure for firms to change quickly.

Table viii and Figure iii (see appendix xiv & xv), go into the details of the data gathered,

showing the level of compliance each year and the percentage of firms that met each specific

recommendation for the year separately. The 30 questions of the index were grouped in five

sections from which sub-indices were created. The five sub-indices and the percentage of

compliance level which ranges from 67.42 to 97.69 percent compliance level are shown in

the Figure iii

Insert Table viii/Figure iii Here

Level of structural change

Table viii shows the level of structural changes in the corporate governance practices and

processes in Nigeria firms. In 2003, five (5) firms complied with 80 percent or more of the

principles while 24 firms complied with less than 70 percent. The level of compliance

increased overtime as the number of firms with more than 80 percent level of compliance

increased to 26 firms by year 2010 while less than 7 firms had compliance level of a range

between 50 and 70 percent. This suggests that corporate governance practice which has

gained substantial ground in developed economies has begun to make inroads into emerging

market like Nigeria. Today, it has become a part of the regulatory framework for Nigeria

listed companies.



An analysis of the specific component of the corporate governance reveals several interesting

corporate governance patterns of Nigeria firms. Figure iii shows the average level of

compliance with the specific components. On average, 97.69 percent of the firms followed

the recommendation of the 2003 codes of best practice in disclosure and with respect to

financial transparency requirements while 67.53 and 67.42 percent of the firms met the

ownership and control structure and the protection of the shareholders’ right respectively.

The disclosure and financial transparency requirement which has the object substantial

means of communicating the required information to all stakeholders is an area which most

firms meet best corporate governance practice as specified in the code. The assumption here

is that firms adopting international accounting standard and using a leading global auditing

firm must meet a number of requirement that make them disclose more information and be

more transparent. It is encouraging to note that a good number of the firms in the sample (on

average 97.69 percent, Fig, iii) adopted and complied with the components of good corporate

governance practices. This suggests that the vast majority of Nigerian firms produce their

legally required financial report by the required date and make use of leading global/ local

auditing firms. The audit committee which was also the object of substantial changes in

regulation is another area where most firms meet good corporate governance practices. Over

97.69 percent of firms disclose director’s total emoluments and those of the chairman and the

highest paid directors.

Another area where most firms had followed the suggested principles is the operation or

internal workings of the board. The analysis shows that an average 67.27 percent complied

with the recommendation of the 2003 codes. In terms of board structure/ composition and

functioning, Nigerian firms have substantially reduced the size of their board in the last ten

(10) years. As at 2010, over 62.27 percent of the firms that issue equity have boards between

5 and 15 members specified or disclosed in their annual reports. Also, classification of

directors as independent owner and related is properly done in the annual report. Also, listed

firms comply with the code dealing with the functions of the board and the general structure

of the specialized board committees. More importantly, it was found that with close to 80

percent of all firms meet the target in terms of seeking shareholders’ approval to change

board size.

Another area of the code deals with shareholders’ right. As previous work has shown firms

rarely deviate from the package of shareholders’ right that is mandated by law and regulation.



This analysis shows that over 67.42 percent level of compliance with best corporate

governance practice as suggested in the 2003 code was achieved among Nigerian firms. The

evaluation of the ownership and the control structure shows that on average 67.53 percent of

all the firms have the percentage of voting share in total capital and the ratio of the cash flow

right to voting right of the controlling shareholders greater than 1. Cash flow rights were

defined as the percentage of outstanding shares held by the controlling shareholder while the

voting rights were defined as the percentage of voting shares held by the controlling

shareholders. For the purpose of constructing the corporate governance index, this variable

(cash flow to voting right) takes a value of 1 and 0 otherwise. Also, the analysis of ownership

structure and control was also based on the stock free float which refers to the shares of the

firms that are not directly or indirectly owned by the controlling shareholder. A minimum

free float of 25 percent indicates that the percentage of outstanding shares controlled by the

main shareholder and related entities is equal or less than 75 percent. The minimum free float

variable in corporate governance index takes a value of 1 if free float is greater than or equal

to 25 percent and 0 otherwise. Overall, the level of compliance with the attributes related to

good ownership and control structures is 67.53 percent as shown in Figure iii

The question of the compensation and evaluation committee show one of the largest

deficiencies in Nigerian corporate governance practice. Though the compliance with the

recommendation of the code on average shows 63.38 percent, more than half of the listed

firms do not disclose the policies employed in this area.

Analysis of the Patterns of Firms Value between 2003 and 2010

The study analyzed the value of the firms within the sample period. The pattern of the firms

is reported in Table ix and Figure iv (see appendix xv &xvi),. The study measured firm value

along two dimensions; Tobin’s Q and market-to-book ratio. In the analysis, three measures of

Tobin’s Q were used; firstly a simplified measure using the market equity to book (qa);

secondly Tobin’s Q was determined dividing the market value of firm’s equity plus total

liabilities by the total assets (qb); (This was done annually for each firm); thirdly an average

of Tobin’s Q over eight (8) years was used (q3) and determined based on the market value of

the firm’s equity plus total liabilities over the total assets of the firm divide by the number of

years.

Analysis of the specific value of firms within the sample period using variables described

above reveals several interesting value pattern of Nigerian firms. Although, the study does



not have firm-by-firm disaggregated data for previous years that is data on firms’ value prior

to 2003. Table ix and Figure iv show the pattern and percentage of value of firm year-by-

year. Using the three measures of value, qa, qb, and qc, the value of firms increased in year

2003 to 2004 by 1.74, 3.05, and 1.63 percent respectively. This suggests that the introduction

of the codes in 2003 and the adoption by firms sent a signal to the capital market of the

existence of good corporate governance practices among the listed firms. The pattern show an

upward movement in the value of firm between 2005 and 2008. The values of firms were at

the peak in 2008 across the three measures of value (qa, qb, and qc). Figure iv shows a

graphical representation of the value of firms within the sample period. It is interesting to

report that the value of firm measured by market-to-book ratio (as a sensitivity check) also

moves in the same direction with Tobin’s Q.

Insert Table ix/Figure iv Here

From the table and graphical representation, the pattern of the value of firms in Nigeria

between the period of 2003 and 2010 can be described as downward and upward slope. The

rising pattern and the downward slope of both measures of value (Tobin’s Q and market-to-

book) look similar and are almost at the same rate. However, there are variations, though not

significant, in the rate and level of progress. The increasing values from 2003 to 2008 for all

measures (qa, qb, and qc, market-to-book) by 6.49, 16.61, 6.36 and 10.27 percent

respectively began to decline in 2009 and 2010 by 8.42 (qa), 14.51 (qb), 8.4 (qc) and 10.75

(market-to-book ratio) percent. The pattern reflects and conforms to the behaviour of the

value of firms in Nigerian capital market. The Nigerian capital market witnessed a drastic fall

in the share prices of firms in 2009 and 2010. This fall has been linked with the global

financial crisis and poor corporate governance by the operators in the capital market. Though,

the pattern of the value conforms with the theoretical prediction that good corporate

governance leads to an increase in the value of firms. Figure v (see appendix xvii), shows a

graphical representation of the rate of changes in both corporate governance index and

market value.

Insert Figure v Here

It is interesting, though not surprising to note that both corporate governance index and

market value show the same pattern and movement graphically. This may suggest the



existence of relationships between the two variables as predicted by the theory, but then the

subsisting relationships can only be determined by using econometric model in which other

firms’ characteristics will be controlled.

Concluding remarks

This study analyse corporate governance practices and market valuation among the non-

financial listed firms in Nigeria using time series and cross-sectional data between the year

2003 and 2010.The main objective of the study is to provide answers to the following

questions; firstly, does the adoption of good corporate governance relate to market valuation

or similar measures of financial performance? Secondly, what is the corporate governance

structure of firms in Nigeria viz a viz the level of compliance? And what is the pattern of the

value of non-financial listed firms in Nigeria during the sample period.

The study used secondary data. Data set that include data on economic value of firms, data on

corporate governance mechanism and related stock price were sourced and obtained from the

website and the publication of the Nigeria Stock Exchange (NSE), website of the firms, and

the annual financial report of the selected firms. The study also constructs corporate

governance index based on the list of corporate governance mechanisms recommended by a

combined board of CAC and SEC in 2003.

The study employed descriptive analysis method and the primary assumption is that good

corporate governance will improve performance of firms and investors will expect an

increase in future profitability and hence, an improved value. Although, many other firms

specific characteristics are critical to market valuation but the lack of good governance will

limit the contribution and effects of other variables on market valuation and firm’s

performance. The result shows that firms in Nigeria that were observed between 2003-2010

have embedded corporate governance initiatives and mechanisms that exist at the firm level.

Their initiatives and mechanisms have evolved overtime to reflect compliance with national

and international as recommended by the combined board of CAC and SEC and the OECD

respectively. An interesting extension of this result is the conclusion reached from the

findings that investors in Nigeria are willing to pay a significant premium to better-governed

firms. This casts doubt on the popular view that the Nigerian stock market is full of

speculative investors who fail to value firm’s fundamentals and their governance structure.



References

Adetunji Babatunde M. and Olawoye Olaniran (2009) “The effects of internal and External Mechanisms on Governance and Performance of Corporate Firms Nigeria” Corporate Ownership and Conrol/ Vo/ 7, issue 2 winter 2009

Aggarwal, R., Erel. I., stulz, R.., and Williamson. R (2007). “Do US firm have the best Corporate Governance? A Cross- Country Examination of the relation between Corporate Govdernance and Shareholder Wealth” Final Working Paper No 145/2007 of the European Corporate Governance Institute.

Agrawal, A and Knoeber C.R (1996). “Firm Performance and Mechanisms to control agency problems between managers and shareholders”. Journal of Financial and Quantitative Analysis, Vol.31 pp. 377-397

Ahmadu Sanda, Aminu, S. Mikailu and Tukur Garba. (2005). Corporate Governance Mechanisms and Firm Financial Performance in Nigeria. AERC Research paper 149 African Economic Research Consortium, Nairobi.

Alberto Chong, Florencio lopez-De-Silanes (2006) “Corporate Governance and Firm Value in Mexico. Inter American Development Bank Bango Internamericano De Desaeeollo (BID) Research Department working paper no 564

Andre,Paaul, Maher Kooli and Jean- Francosis L’ Her (2004). The Long run performance of mergers and acquisitions: evidence from the Canadian stock Market Financial Management 33, pp 27-43

Ang, James,S, Rebel, A Cole and James Wish Lin (2000) “Agency Costs and Ownership Structure” The journal of Finance, LV: 1 pp. 81-105.

Beiner, S. Drobetz, W. Schmid, F. and Zimmermann, H. (2004) “Is board size an independent corporate governance mechanism? Kyklos, Vo. 57, no. 3 pp. 327-356.

Black, B. S. (2001): “The Corporate Governance Behaviour and Market Value of Russian Firms Emerging Market Review 2, pp. 89 – 108.

Black, B.S., H. Jang and W. Kim. 2003. “Does Corporate Governance Affect Firms’ Market Values? Evidence from Korea.” Stanford Law and Economics Paper 237/Texas Law and Economics Paper 26. Stanford and Austin, United States: Stanford University and University of Texas. Available at http://ssrn.com/abstract=311275

Brown, L.D and Caylor, M.L. (2004). “Corporate Governance and Firm Performance Available at SSRN: http// ssrn.com/abstract= 586423

Brown, L.D and Caylor, M.L. (2004). “Corporate Governance and Firm Performance Available at SSRN: http// ssrn.com/abstract= 586423

Claessens, S. Djankov, S. And Lang, L (2000a) “Ultimate Controlling Owners of East Asian Corporations and Expropriation of Minority Shareholders’ Mimeo,Word Bank, Washington D. C.

Claessens, S. Djankov, S. and Lang, L. (2000b), “The Separation of Ownership and Control in East Assian Corporation”Journal of Financial Economics vol. 58, pp.81-112.


http://ssrn.com/abstract=311275


Claessens, S. Djankov, S. and Pohl, G. (1997), “Ownership and Corporate Governance: evidence from the Czech Republic, World Bank policy Research working paper no. 1737 Washington D.C.

Clarkson, P.M. and A. Satterly, 1997. "Australian Evidence on the Pricing of Estimation Risk", Pacific-Basin Finance Journal, July, 281-299.

Coffee, J. (2003). The future as history. The prospects for global convergence in corporate governance and its implications. Northwestern University Law Review, 93. 641-708

Drobetz, W. Schillhofer. A and Zimmermann,H (2004). “Corporate Governance an Expected stock Returns: Evidence from Germany: European Financial Management, 10 (2) pp. 267- 293

Gompers, P. L. Ishii and A. Metrick (2003): “Corporate Governance and Equity Prices Quarterly journal of Economics 118, pp. 107 – 155.

Jensen Micheal (1993) “ The modern Industrial Revolution Exit, and the Failure of Internal Control System.” Journal of Finance, 48: pp.831-880

John Garger (2010) “Equity and Market value: How much is a Company Worth to an Investor? Edited and published by Michele McDonough (189,436pts). Available at www.brighthub.com/office/ finance/articles/ 19318.aspx

Kashif Rashid (2008). “A Comparison of Corporate Governance and Firm performance in Developing (Malaysia) and Developed (Australia) Financial Markets

Klapper, L. F., and I. Love (2003), “Corporate Governance, Investor Protection, and Performance in Emerging Market” Journal of corporate Finance. 195-564

Klapper, L. F., and I. Love (2003), “Corporate Governance, Investor Protection, and Performance in Emerging Market” Journal of corporate Finance. 195-564

La porta, L… Lopez –de- Silanes, F. Shleifer, A and Vishny (2000) “Investor Protection and Corporate Governance. Journal of financial economics, 58, pp. 3-27

La Porta, R. Lopez-de-Silanes, F. And Shleifer A. (1998) “Corporate ownership around the world” NBER working paper no. 6625, National Bureau of Economic Research Cambridge.

La Porta. R. Lopez-De-Silanes, F and Shleifer, A (1999). “Corporate Ownership Around the world “The journal of Finance, Vol.54, no 2 pp. 471-518

La Porte, R. F. Lopez-de-Silanes, A shleifer, and R. Vishny (2002): “Investor protection an corporate valuation” Journal of Finance 57, pp. 1147-1170

Lang, L.. R . Stulz and R . Walkling (1991). “ A Test of the Free Cash Flow Hypothesis: The Case of Bidder Returns. Journal of financial Economics, 29 pp. 315- 336

Lawrence D, Brown and Marcus L. Caylor (2006) “Corporate Governance and Firm Valuation”Journal os Accounting and Public Policy 25 PP. 409-434. Available at www.elsevier.com/locate/jaccpubpol


http://www.elsevier.com/locate/jaccpubpol

http://www.brighthub.com/office/


Leora F. Klapper, Inessa Love (2004) Corporate governance, investor protection, and performance in emerging markets Journal of Corporate Finance, Volume 10, Issue 5, November 2004, Pages 703-728

Lipton, M. and J.W. Lorsch, (1992), A modest proposal for improved corporate governance. Bus. Lawyer,48: 59-77

Martin Hovey, Larry Li Tony Naughton (2003) “The Relationship between Valuation and Ownership of Listed Firms in China Corporate Governance: An international Review. Vol II Issue 2, pages 112-122

Michaely. R. and Shaw, W. (1995). Does the chouce of auditor convey quality in an initial public offering? Financial Management, 24: 15-30

Morck, R..,A Shleifer, and R. Vishny (1988) “ Management Ownership and Market Valuation: An Empirical Analysis:” Journal of Financial Economics 20:pp.293-316

Nenova, T. (2001). Control values and changes in corporate Law in Brazil. World Bank working paper. Washington

Parveen P. Gupta, Duane B. Kennedy and samuael C. Weaver (2009). “Corporate Governance and Firm Value: Evidence from Canadian Capital Markets

Rosenstein S. and Wyatt, J.G (1990) “Outside Directors, Board Independence, and Shareholder Wealth. Journal of Financial Economics 26, pp.176-191

Shleifer, A. and R. W. Vishny (1997): Ä Survey of Corporate Governance” Journal of Finance 52. Pp. 737 – 783.

Valuation in Malaysian Listed Firms: A Panel Datal Analysis. Journal of Modern Accounting, ISSN 1548- 6583 USA Vol. 6 No1 (Serial No 56)

William, Sun (2009) “How to Govern Corporations so they serve the public good: A theory of corporate Governance Emergency, New York Endwin Mellen: ISBN: 9780773438637

Yermack, D. (1996): “Higher market valuation of companies with a small board of directors” Journal of financial economics 40, pp, 185 – 211.

Zheka, Vitaliy (2006) “ Corporate Governance and Firm Performance in Ukraine. Discussion paper Centre for Economic Reform and Transformation, School of Management and Languages. Available at www.sml.hw.ac.uk/cert

Zunaidah Sulong and Fauzias Mat Nor (2010) “Corporate Governance Mechanism and Firm Valuation in Malaysian Listed Firms: A Panel Datal Analysis. Journal of Modern Accounting, ISSN 1548- 6583 USA Vol. 6 No1 (Serial No 56)


http://www.sml.hw.ac.uk/cert


Appendix:i

Corporate governance index questions

Disclosure and Financial transparency

1. Does the company produce its legally required financial reports by the

required date?

2. Does the company use an international accounting standard?

3. Does the company use one of the leading global auditing firms?

4. Does the company have audit committee?

5. Does audit committee have a written charter or terms of reference?

6. Does the company clearly and fully disclose directors total emoluments and

those of the chairman and highest paid directors including pension

contribution and stock options where the earnings are in excess of

500,000naira?

Board Structure / Composition and Functioning

7. Are the chairman of the board and chief executive officer not the same?

8. Is the board clearly not made up of corporate insiders and controlling

shareholders?

9. Do members include at least one director representing minority shareholder?

10. Do board members serve consecutive one-year term as recommended by the

security and exchange commission?

11. Does annual report indicate the position and function of each board

member?

12. Is the classification of directors as independent, owner and related included

in the annual report?

13. Is the board size between 5 and 15 as recommended by the security and

exchange commission?

14. Is shareholder approval required to change board size?

Ownership and Control Structure

15. Do controlling shareholders own less than 50% of the voting right?

16. Is the percentage of voting share in total capital more than 80%?

17. Is the controlling shareholders ‘ratio of cash-flow rights to voting rights



greater than 1?

18. Are the executives and directors subject to stock ownership structure?

Executive Compensation

19. Does company have a remuneration committee?

20. Does the chief executive officer not the chairperson of the committee?

21. Were stock incentive plans adopted with shareholders approval?

22. Are the goals used to determine incentive awards aligned with the

company’s financial goals?

23. Is remuneration committee wholly composed of independent board

members?

24. Are non-executive board members paid in cash and some form of stock-

linked compensation?

25. Are non-executive board members paid entirely in some form of stock-

linked compensation?

26. Does company remuneration committee have written charter or terms of

reference?

27. Non-executive directors do neither participate in share option schemes with

the company nor be pensionable by the company?

Shareholder Right

28. Do all common or ordinary equity shares have one-share, one vote with no

restriction?

29. Does the company charter grant additional voting rights beyond what is

legally required?

30. Does the company charter establish arbitration to resolve corporate

conflicts?



Appendix: ii

Table i : Panel A, Distribution of Firms

Year No of firms Percentage of sample

2003 96 96

2004 97 97

2005 100 100

2006 100 100

2007 100 100

2008 100 100

2009 100 100

2010 100 100

Source: Based on computation of data from NSE Publication (2003- 2010)

Appendix: iii

Table i: Panel B Sample breakdown by Industries

Industry No of observation Percentage of sample

Agric 3 0.03

Airline 1 0.01

Automobile 4 0.04

Breweries 3 0.03

Building 6 0.06

Chemical 3 0.03

Commercial services 1 0.01

Computer and office Equipment 4 0.04

Conglomerate 8 0.08

Construction 5 0.05

Emerging market 4 0.04

Engineering 2 0.02

Food, Beverages and Tobacco 14 0.14

Health care 8 0.08

Hotel and Tourism 2 0.02

Industrial/ domestic 5 0.05

Machinery 1 0.01



Packaging 9 0.09

Telecommunication 2 0.02

Petroleum 8 0.08

Printing 3 0.03

Real estates 2 0.02

Textiles 2 0.02

100 100

Source: Based on computation of data from NSE Publication (2003- 2010)

Appendix: iv

Table ii: Panel A: Descriptive Statistics CGI (Analysis year by year)

2003 2004 2005 2006 2007 2008 2009 2010

Mean 21.39 21.36 21.45 21.73 22.10 22.53 22.71 22.64

Standard Deviation 1.51 1.50 1.51 1.38 1.31 1.27 1.17 1.32

Variance 2.28 2.25 2.27 1.89 1.73 1.60 1.38 1.74

Median 21.50 21.00 21.50 22.00 22.00 23.00 23.00 23.00

Maximum 24.00 24.00 24.00 24.00 24.00 25.00 26.00 26.00

Minimum 15.00 15.00 15.00 17.00 18.00 18.00 19.00 17.00

Range 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00

N 96 97 100 100 100 100 100 100

Source: Based on computation of data from NSE Publication and firms annual reports (2003- 2010)

Appendix: v

Table ii: Panel B Components Score (N = 100)

Mean value

2003 2004 2005 2006 2007 2008 2009 2010 % 2003 - 2010

DSFT 5.98 5.90 5.86 5.90 5.92 5.91 5.92 5.92 -0.06BOD 5.30 5.24 5.21 5.29 5.43 5.59 5.69 5.70 0.40OWN 2.56 2.57 2.57 2.66 2.78 2.88 2.90 2.87 0.31EXC 5.61 5.62 5.59 5.69 5.74 5.88 5.94 5.95 0.34SHA 2.06 2.06 2.00 2.02 2.03 2.05 2.05 2.05 -0.01Std valuesDSFT 99% 98% 97.6% 98% 98.6% 98.5% 98.5% 98.6% -0.004



BOD 66% 65% 65% 66% 68% 70% 71% 71% 0.05OWN 64% 64% 65% 64% 69.5% 72% 72.5% 72% 0.08EXC 62% 62% 63% 62% 64% 65% 66% 66% 0.04SHA 69% 69% 67% 66.7% 67.6% 68% 68% 68% 0.01


Appendix: vi

Table jjj : Summary of Descriptive Statistics

N Minimum Maximum Mean Standard deviation

CGI 769 15.000 26.000 21.996 1.474

DSFT 769 3.000 6.000 5.886 0.400

BOD 769 4.000 7.000 5.495 0.661

OWN 769 2.000 4.000 2.775 0.467

EXC 769 3.000 7.000 5.858 0.737

SHA 769 1.000 4.000 2.026 0.208


Appendix: vii

Table iv: Panel A: Variable Definitions

Variable Description / Measurement

Tobin’s q Widely used to measure the valuation of listed firms

Market-to-

book

Ratio

A ratio of market value to book value of total asset/

market value of common stock+ book value of debt

book value of total asset

ROA return on asset/ net profit after tax divided by total asset

ratio of book value of debt/ total asset

Appendix: viii

Table iv: Panel B: Summary of Descriptive Statistics of Valuation Variables. Based on all available observation of each variable.

Variable No of

observation

Mean Median Standard

Deviation

Minimum Maximum

Tobin’s Q. Qa



781 6.23 3.80 7.89 0.08 77.24

Qb 781 7.92 2.27 27.67 -23.36 49.00

Qc 781 0.77 0.47 0.98 0.01 9.65

Market-to-

book

781 4.39 2.10 7.06 0.00 73.68


Appendix: ix

Table v: Corporate Governance Index

Corporate governance attribute Scores Mean%

Disclosure and financial transparency 4689/4800 97.69

Board structure / compensation and function 4305/6400 62.27

Ownership and control structure 2161/3200 67.53

Executive compensation 4563/7200 63.38

Shareholders’ Right 1618/2400 67.42


Appendix: x

Table vi: CGI % Level of Compliance on average

No of Firms Level CGI Range %

5 80 percent

66 > 70 percent 79.58 – 70.83

29 < 70 percent 52.50 – 70

Source: Author’s Computation from CGI Question 2012



Appendix: xi

Fig i

Pie chart on CGI Compliance level

Appendix: xii

Table vii: CGI Compliance on average 2003-2010

Year 2003 2004 2005 2006 2007 2008 2009 2010

GCI 69.1 70.83 71.73 72.97 74.4 74.97 74.73 74.93

%3.87 5.83




Appendix: xiii

Fig ii

64

66

68

70

72

74

76

2003 2004 2005 2006 2007 2008 2009 2010

CGI COMPLIANCE



Appendix:xiv

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

100.00

DSFT BOD OWN EXC SHA

97.69 67.27 67.53 63.38 67.42

CGI COMPLIANCE

DSFT

BOD

OWN

EXC

SHA

Fig iii: Histogram Component of Corporate Governance

Appendix xv

Table: viii: CGI Compliance Level by Firm

% Range 80 70 < 80 50 < 70Firms (year) Number Number Number Total2003 5 68 24 972004 5 68 24 972005 6 72 22 1002006 8 79 13 1002007 15 77 8 1002008 23 72 8 1002009 25 70 5 1002010 26 60 6 100




Appendix xvi

Table: ix: Pattern of Firms Value (2003-2010)

Year 2003 2004 2005 2006 2007 2008 2009 2010

Tobin’s Q % % % % % % % %

Qa 10.62 12.36 10.85 13.34 15.68 17.11 11.35 8.69

Qb 5.48 8.33 6.74 12.75 19.89 22.09 17.15 7.58

Qc 10.71 12.34 10.85 13.35 15.67 17.07 17.33 8.67

Market 8.96 11.73 9.75 13.86 16.48 19.23 11.51 8.48


Appendix xvi

01020304050607080

2003 2004 2005 2006 2007 2008 2009 2010

PATTERNS OF FIRMS VALUE

mkt value

qc

qb

qa

Fig. iv Graphical representation of firms value



Appendix xvii

Fig v:


05

1015202530354045

2003 2004 2005 2006 2007 2008 2009 2010

CGI/MKT VALUE

mkt value

CGI

corporate governance mechanisms: compliance and … ebenezer yemi… · web viewit is a burring...

Documents