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PROJECT TOPIC: CORPORATE GOVERNANCE INDICATORS AND FIRM VALUE

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CHAPTER ONE

INTRODUCTION

1.1  BACKGROUND TO THE STUDY

In today’s business world, most organizations maintain a corporate code of conduct. It’s a statement of an organizations value, and includes standards for employee behaviours that align with these values. Developing a code of conduct helps an organization define how it operates, how it integrates it core value into everyday business operations and how it relates to key stakeholders (George B. Breen and Amg F. Lerman, 2011).

There is no gain-saying the fact that, the idea of corporate governance has taken a primal place in the modern day business world. This is truly captured by the president of bank when he said that, “The proper governance of companies will become as crucial to the world economy is the proper governing of countries” (Wolfenson, 1999). Nigeria as an emerging economy looks to the private sector for the required quantuin leap, towards rapid development. There is a reviewed emphasis of effective governance, practically for public limited liability companies. This is in recognition of the fact that, effective and efficient governance will improve with which the boards of such companies discharge their corporate and statutory responsibilities will substantially affect the overall performance of the economy. Recently corporate scandal has put company hands in the spotlight, legislation, soles of conduct and guidelines have been developed to improve corporate governance Richard Leblanc (2007).

Mc Gee (2009) states that good corporate governance helps to increase share capital or price and makes its easier to obtain capital and that international investors tend to be reluctant to lend money or buy shares in a corporation that does not subscribe to good corporate governance principles.

It is note-worthy to mention here that, the issue of corporate governance arose due to the separation of management and ownership in the modern corporation. In practice, the interest of the management could differ from the interest of the shareholders. The so called “management – shareholders “problem is reflected in management pursuing activities, which may be detrimental to the interest of the shareholders of the firm and society at large, (Mersah, 2000). Given this states of affairs, it become pertinent for management to render stewardship account to shareholders on how the resources put at their disposal were utilized, and the net effect of their effort of their firm.

A company whose performance increases over the years is expected to survive. The major causes of business collapse in Nigeria can be attributed to governance failures, (Wood, 2003). Tentatively, we can say that, corporate governance is related to performance of firms. Well–functioning corporate governance mechanism in emerging economics are crucial for both local firms and foreign investors interested in the tremendous opportunities that such economies provides. As such improvements in corporate governance can enhance investors confidence and increase these firms access to capital (Rajagopalam and Zhang 2008).

A number of studies investigate the efficacy of firm governance structures in promoting performance. As pointed out by Core, Holthnusen and Larcker (1999), collective evidence from these studies is mixed, failing to provide a coherent pictures of what constitutions an optimal governance arrangement, nevertheless, this study investigates the effects and extend of corporate governance practice in some selected Nigerian quoted companies on overall firm values and performance also intends to uncover new results while confirming the keys finding and prediction of prior research. 


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