CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Corporate governance has been of
concern since the foundation of the joint-stock company. Much of this concern
focused on the separation of ownership from control. Adam Smith (1776)
expresses unease over separation of ownership and control; and subsequently
explored by Ross (1973) and Davis et al. (1997). However, recent
discussion and interest in corporate governance stems from issues relating to
financial crises and high profile corporate scandals. The most recent of such
scandals are the Enron and the WorldCom saga in the United States, the Vivendi
and the Parmalat scandals in Europe. Globalization and technological advancement
also provide challenges for corporate governance structure. Good corporate
governance is necessary to facilitate effective firms‟ management in the
current global and dynamic environment. Moreover, good corporate governance is
necessitated by the need for accountability due to deregulation and lesser
governmental control. Good corporate governance promotes economic growth and
development. The benefits of good corporate governance practices to a firm,
among others, include: facilitating greater access to finance, lower cost of
capital, better performance and favourable treatment of stakeholders (Claessens
et al., 2002); promoting better disclosure in business reporting,
thereby facilitating greater market liquidity and capital formation (Frost et
al., 2002); and increasing firm valuations and boast profitability (Gompers
et al., 2003). Nigeria had its share of inelegant business practices
that have resulted in failed corporate firms. Hence, several insurance
companies in Nigeria have gone out of business; while some have been acquired
or merged due to poor performance, following poor corporate governance
practices. For a developing country, like Nigeria, corporate governance is of
critical importance.
Recently, Nigeria has initiated
pillars of corporate governance by sponsoring a series of legislative, economic
and financial reforms which seek to promote transparency, accountability and
the rule of law in the nation‟s economy. Consequently, corporate governance is
relevant in insurance companies, as it promotes accountability, enhances
transparency of operations, improves firm‟s profitability, protects
stakeholders‟ interest by aligning their interest with that of the managers,
and facilitates growth of the insurance industry. Corporate governance could be
defined as “ways of bringing the interests of investors and managers into line
and ensuring that firms are run for the benefit of investors (Mayer, 1997).
Corporate governance is concerned with the relationship between the internal
governance mechanisms of corporations and society‟s conception of the scope of
corporate accountability (Deakin and Hughes, 1997). It has also been defined by
Keasey et al. (1997) to include „the structures, processes, cultures and
systems that engender the successful operation of organizations‟. From the
foregoing analysis, we argue that corporate governance is represented by the
structures and processes laid down by a corporate entity to minimize the extent
of agency problems as a result of separation between ownership and control. It
must also be indicated that different systems of corporate governance will
embody what are considered to be legitimate lines of accountability by defining
the nature of the relationship between the company and key corporate
constituencies. The cost inherent in the agency problem can be reduced by
investments in monitoring and the structuring of relationships such that agents
are induced to act in the interest of the principals without a need for further
monitoring such as offering bonuses and inducing them to monitor each other.
Another way is the payment of stock options as this aligns more closely with
the interest of the agents (Jensen & Meckling, 1976).
The Nigerian financial sector has
experienced many changes over the last two decades which included bank distress
and reforms of major financial institutions. The radical changes in financial
developments in 1987 brought about by the structural adjustment programme of
1986 did not prevent bank crisis. The said innovations of the CBN in 1986 has
not been able to provide enough backbone for the financial industry as
reflected by the down turn in the events of late 1980s which were characterized
by the unprecedented level of distress as depicted by large volume of
non-performing loans, insolvency, liquidity problem and default in meeting
depositors and inter-bank obligations. This poor state of the banking sector
was exposed in 1989 with the government directive to withdraw the deposits of
governments and other public sector institutions from banks to CBN. Thus, bank
distress became obvious and increased from 7 in 1989 to a peak of 60 in 1995
while the amount required for recapitalization of distressed banks increased
from N1.1 billion in 1989 to N30.5 billion in 1995, N43.9 billion in 1996 while
peaking at N98.1 billion in 2004. Non-performing loans for the distress banks
increased from N2.9 billion to N29.5 billion in 1994 and 1995, and increased
further to N40.7 billion in 1997 while peaking at N149.6 billion in 2004
(Okpara, 2012)
1.2 STATEMENT OF THE PROBLEM
The issue of corporate governance in
Nigeria was as a result of the financial crisis that happen and the collapse of
firms across the globe including Nigeria. As a result the federal government
issues a code of corporate governance in 2006, 2007, 2008 since that time banks
are still collapsing. Against this background this study wants to review the
challenges and issues surrounding practicing of effective corporate governance
by banks in Nigeria. The study will find out the reasons for these challenges
facing the banks which are resulting to lack of corporate governance in
Nigeria. Thus, there are multiple code of corporate governance in Nigeria such
as 2006, 2007, 2008 issued by CBN and SEC, still most of our banks are still
collapsing so what are the challenges facing corporate governance in order to
practice effective corporate governance.
1.3 OBJECTIVE OF THE STUDY
The primary aim of this research work
is to ascertain the issues and challenges of corporate governance of banks in Nigera.
Thus, the study aims at the following objectives:
i. To encourage the issues of
corporate governance in Nigeria.
ii. To ascertain the challenges of
corporate governance of banks in Nigeria.
iii. To encourage the adoption of
corporate governance in Nigeria.
TOPIC:THE ISSUES AND CHALLENGES OF CORPORATE GOVERNANCE OF BANKS IN NIGERIA
Format: MS Word
Chapters: 1 - 5
Delivery: Email
Delivery: Email
Number of Pages: 50
Price: 3000 NGN
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