Corporate Governance Attributes, Sustainable Innovations, and Financial Performance of Selected Manufacturing Firms: A Case Study of a Developing Country

Corporate Governance Attributes, Sustainable Innovations, and Financial Performance of Selected Manufacturing Firms: A Case Study of a Developing Country

Emmanuel Uniamikogbo, Ikedinachi Ayodele Power Wogu, Peter Ifeanyichukwu Ali, Sanjay Misra, Manju Khari
DOI: 10.4018/978-1-6684-5871-6.ch003
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This study considered how several aspects of corporate governance impact the financial performance of a few manufacturing companies in a developing country leading to sustainable innovations. Nigeria was considered for the study since it is a fast-growing economy and the most populous country in Africa. Tobin's Q methods of analysis and purposive sampling techniques were utilized for analyzing the data gathered from annual reports of companies selected between 2011-2020. Both descriptive statistics and econometric analysis employing panel data techniques were used in the study. Results indicate that board independence and board size had substantial negative impact on Tobin's Q of manufacturing firms in Nigeria. The chapter reveales that audit committees should comprise people with the necessary accounting or finance knowledge and experience to embrace corporate governance procedures since they help interpret business performance in terms of Tobin's Q ratio.
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1. Introduction

The global financial market has been significantly disrupted, and economic growth has been constrained due to the ongoing scandals, crises, and destruction of organizations. Arthur Anderson, Enron, Kmart, Adelphia Communications, and WorldCom were just a few of the several world wide organizations in the United States, South East Asia, and Europe that failed due to problems. Nigeria was not immune from the scandals that shook the global economy because many Nigerian businesses, including Intercontinental Bank, Oceanic Bank, Diamond Bank, Skye Bank, Cadbury Plc., etc., were negatively impacted. As a result, they played a significant role in the economic recession in Nigeria. Any organization's main goal is to increase shareholder value. The firm must be managed effectively, efficiently, ethically, and lawfully by the policies and practices of management, which must align with the interests of shareholders and other stakeholders if such an organization desire to be profitable and achieve long-term growth and continuation. In order to protect business interests and preserve conditions that are critical to the management and prevention of corporate failure and long-term economic depression, good corporate governance (CG) is required. All economic operations are critically dependent on effective corporate governance, particularly in developing and transitional economies like Nigeria.

According to the Organization for Economic Cooperation and Development (OECD) (2010), corporate governances are structure and system for managing and directing organizations. The Water Integrity Network (WIN, 2015) states that corporate governance structures outline the division of duties and authority among the board of directors, managers, shareholders, and other interested parties, as well as the policies and procedures for reaching agreements on business-related issues. Corporate governance offers the framework through which the company's goals, methods for accomplishing them, and measures of success are determined. According to Andrei and Robert (1997), good corporate governance lessens shareholders' and creditors' “control rights” over managers, which increases the possibility that managers will invest in initiatives with a positive net present value. Therefore, transparency with shareholders and fairness to other interested parties should be hallmarks of the board's and management's operations, as Jensen and Meckling (1976) predicted. Doing so would lower agency costs and enhance the organization's financial performance.

Corporate financial performance is a crucial idea that pertains to the extent to which the capital resources available to an organization are wisely employed to meet the overall business goals of an organization, which in itself, is the maximization of shareholders' wealth. A successful corporate performance keeps the company in business and increases the likelihood of future innovative and sustainable possibilities and outcomes. Corporate organizations must prepare for the challenges of globalization in light of the current dynamic economic environment, where businesses that can't adapt to modern business culture risk not surviving. Therefore, to improve their financial performance, businesses must identify and adopt the finest sustainable and innovative corporate practices used elsewhere in the globe. Based on the claim above, this study aims to determine whether a firm's corporate governance characteristics really affect its financial performance. As a result, this study investigates how corporate governance traits affect the financial success of selected manufacturing companies in Nigeria.

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