THE EFFECT OF CORPORATE GOVERNANCE ON BUSINESS FAILURE IN NIGERIA: A CASE STUDY OF SKY BANK
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This study investigate attribute of financial characteristics with the survival likelihood of distress firm (Sky Bank) to address the manner in which firm evolve over time, we employ surveyor analysis technique by incorporating core proportional hazard regression. We longitudinally track an ex-ante sample of 176 financially distress firms. The result suggests that firms that replace their CEO with an outsider were more than twice as likely experience bankruptcy. Further more, larger level of block-holder and insider ownership over the sample period are positively associated with the likelihood of firm survival
Nigeria Sky Bank Development Scheme.
In the 1960s and 1970s, the focus was on state-led development, as such dialogue was sectors were not even fully matured. The government was the major actor in the economy up to the 1980s when new reforms were introduced to deal with the dwindling oil revenue. In 1989 government established the national committee on industrial development (NCID) as the main forum for dialogue with the private sector. The committee was jointly funded by the government and United Nations Industrial Development Organization (UNIDO). The committee suffered from others. Specifically, Nigeria had advanced efforts to provide universal primary education protect the environment, and develop a global development partnership. However, the country lagged behind on the goals of eliminating extreme poverty and hunger, reducing child and maternal mortality and combating diseases such as human immunodeficiency virus acquired immune deficiency syndrome (HIV/AIDS) and malaria a prerequisite for achieving many of these worthwhile objectives is curtailing endemic corruption, which stymies many development and taints Nigeria’s business environment. President Olusegun Obasanjo Campaign against corruption, which includes the arrest of officials accused of misdeeds and recovering stolen funds, has won praise fro the world Bank (citation). In September, 2005, Nigeria, with the assistance of the World Bank began to recover US $458 million of illicit funds that had been deposited in Swiss Bank by the late military dictator Sani Abacha, who ruled Nigeria from 1993 to 1998. However, while broad based progress has been slow these efforts have began to become evident in international surveys of corruption in fact, Nigeria’s banking has consistently improved since 2001 ranking 147 out of 180 countries in transparently international 2007 corruption perceptions indies and placed 108 out of 175 countries in the world Banks 2006 ease of doing business index. It will be recalled that after the re-amalgamation of Banks in Nigeria most Banks merged to re-strengthen the financial statue of Bank management. Before now many banks involves in managing their own affair without the proper involvement of government agency with the pronouncement of recapitalization of banks with 25 billion naira, most of the financial institute were unable to pay theirs which then resulted in emergency of banks. The management of Banker in Nigeria is been controlled by the Central Bank and it is owned by the Federal Government of Nigeria, for a management to be more effective the financial status have to be more organized.sky bank statistics shows that number of people have loss confidence on bankers and many Nigerians believe that banks can easily bankrupt and their by betraying the trust and confidence they have in the banking industries. These are a case study which shows the corrupt encyclopedia of the ravening economy of Nigeria, not only the banking industry, but it includes and refers to all ramification of financial institution in the economy. With the recapitalization policy management have been able to resuscitate the lost trust which the masses have on the financial institute of management (FIM) these shows that Nigeria banking industry can only be controlled by a solid financial background. Most financial institute that has not been able to attain the recapitalization exercise has the opportunity to merge and reconstitute the management. It should be noted that corporate governance on business failure in Nigeria, does not only affect the banking industries but in all ramification of business in the economy most agency have been able to introduce different techniques in the managerial aspect of cooperate management. Government have for long play little or no proper interest on the public and private industries. There by allowing foreign investors to control and effect their product or efficient management to the economy with out the government investigation on the company. Today the Nigeria government has been able to realize their mistakes and then ensuring proper laws and regulations in controlling the business organization of Nigeria.
TABLE OF CONTENT
Background of the study
Statement of the problems
Objectives of the study
Significance of the study
Scope of the study
Limitations of the study
Definition of terms
Population of the study
Sample size/sampling techniques
Sources of data collection
Method of data collection
Method of data analysis
Data Presentation and Analysis
Summary of findings
BACKGROUND OF THE STUDY
Corporate governance has become a global concern because of the rising frequency and widespread pattern of deliberate accounting deceits and frauds, as well as growing number of consequent corporate failures. Companies break the most basic rules of accounting, the worst being rebooking income that was earn and had earlier been taken to profit. The corporate failures that followed the discoveries were unprecedented magnitude of such unimaginable, unethical and outright unprofessional conduct that warranted public outcry and disbelief. The essence of good corporate governance is to bring companies to respect the rule of law, play by the rules guiding their business and hold ethics and professionalism in the highest esteem. Emanating from these would be a high sense of social responsibility. These boil down to the quality and reliability of accounting and other information that companies make available to their shareholders. Following good corporate governance closely in the growth and corporate performance matrix is transparency and accountability. They are at times treated as components of corporate governance. Accountability arises from the agency theory that recognizes the management of business organization on one hand and the shareholders on the other hand. A perfect system of corporate governance would give the right incentives to make value maximizing investment and financial decisions and would assure that cash is paid out to investors when the company runs out of viable projects, that is, investment with positive NPVs. Statutory control of corporate governance has been with us for a long time and has increased overtime. While it is impossible to have a crime free society, the need to spell out the “rules of the game” cannot be overemphasized. Irrespective of the nature of the entity we are dealing with, the key issues of governance revolve around:
- how things get done (or not done)
- the decision making process
STATEMENT OF RESEARCH PROBLEM
In Nigeria like most countries, the failures of companies can be due to internal or external factors or in rare cases, the combination of both. However in most cases, usually, it has to do with internal cases such as poor corporate governance. In such cases, such development can be likened to a Giant Iroko tree felled by termites that did a lot of damages within the trunk of the tree. The issues of good corporate have attracted a global consensus by which countries now use in the measurement of their own economic indices. Corporate governance is therefore taking a gradual but central attraction after highly rated international companies like Enron, Pamalat, Barynx Bank and WorldCom failed, an indication that failure of corporate governance can bring down any institution no matter how long or old it is. What then is the link between corporate governance and business failure?
OBJECTIVES OF THE STUDY
- To find out the extent to which governance has contributed to business failure in Nigeria.
- To ascertain how effective board membership can translate to good corporate governance.
- To proffer solution to corporate collapse through good and effective corporate governance.
SCOPE OF THE STUDY
This study is not directed at explaining or providing solutions to all corporate failures in Nigeria because some failures are actually outside the organizations frontiers. It is narrowed down to these failures that could be averted if organization would embrace corporate codes and play by the rules. The companies examined are basically those quoted on the Nigeria Stock Exchange.
RELEVANCE OF THE STUDY
- This study will provide empirical evidence that business failure is caused by bad governance.
- It will help policy makers to design both legal and administrative framework for corporate institutions.
- It will alert the shareholders that all may not be well with their investments.
- The study will provide measures for dealing with failures.
- It will provide ways for dealing with board wrangling.
STATEMENT OF THE RESEARCH HYPOTHESES
Ho: there is no significant relationship between corporate governance and business failure.
Hi: there is a significant relationship between corporate governance and business failure.
Ho: the integrity of board members does not have effect on corporate governance.
Hi: the integrity of board members has effect on corporate governance.
DEFINITION OF TERMS
BUSINESS: The various activities of commerce- the winning and using of the product of the earth, or multiplying the products of the earth and selling them or manufacturing them and purchase and sales of commodities or the offering of services for reward. Fry V. Burma Corporation Ltd (1930).
CONTROL: Any process in which a person or group of persons or organization of persons determines i.e. intentionally affects, what another person or group or organization will do. Tenmenbaum (1982)
CORPORATE GOVERNANCE: Corporate governance is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different stakeholders and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provide the structure through which the company objectives are set and the means of attaining those objectives and monitory performance OECD April 1999.
FAILURE: It is a situation in which a company finds itself unable to generate enough funds both internally and from outside sources to finance its operations. Osazee and Anao (1997).
STAKEHOLDERS: Those groups without whose support the organization will cease to exist. Freeman (1984).