ABSTRACT
This study aimed to investigate the impact of corporate governance and ethics on the performance of insurance companies in Nigeria, with specific objectives focused on the effect of audit committee meetings, board size, and gender diversity on Return on Asset (ROA). A survey design was used to collect primary and secondary data from 100 respondents. The study findings revealed that audit committee meetings, board size, and gender diversity have a positive impact on the financial performance of insurance companies in Nigeria. The results suggest that companies should prioritize establishing effective audit committees, increasing board size, and promoting gender diversity to improve their financial performance. Overall, this study provides insights into the importance of corporate governance and ethics in enhancing the performance of insurance companies in Nigeria.
CHAPTER ONE
INTRODUCTION
1.1 Background of the study
Corporate governance is the framework for managing and directing businesses. In today’s global economy, the success of the national economy depends on the crucial role of organisations’ competitiveness, transparency and governance structure which operate within her territory, since organisations are the entities that create economic value (Adebayo et al., 2014). This could not be separated from prior submission where Nwachukwu (2007) emphasize the growing consensus that co rporate governance has positive link to national economic growth and development. The degree of trust accorded to the managers of companies by its owners is strengthened through corporate governance. It constitutes a set of rules, which governs the relationships between management, shareholders and stakeholders.The governance of companies is the responsibility of the board of directors(Sankhat, 2022).The term “governance” especially refers to the system of regulations, checks, policies, and resolutions established to direct company action. Corporate organization are major drivers of every economy and regarded as engines of growth anddevelopment. In developed and developing countries, corporate governance has become a majorconcern not only to business enterprise but also to the regulatory bodies and governments.
Insurance is a contractual obligation between two parties, insured (buyer) and insurer (seller), whereby the insurer undertakes to indemnify the insured in the event of insured loss(es) in exchange for payment of premium, subject to the contract terms and conditions (Thoyts, 2010). Insurance plays a vital role and enhances growth of insurance activity, giving the process of financial integration and liberation (Kugler&Ofoghi, 2005). If theNigeria insurance industry is not adequately regulated, it will result into persistent illiquidity,insolvency, undercapitalization, and weak corporate governance (Momoh&Ukpong, 2013). Shareholders and proxy advisers are significant stakeholders that indirectly influence governance, but they are not instances of governance in and of themselves. The board of directors is crucial to governance, and its decisions may have a signtis worth(Sankhat, 2022). Investors value corporate governance because it demonstrates a company's direction and commercial integrity (Sifuna, 2012).
Corporate governance includes almost every aspect of management, from action plans and internal controls to performance measurement and corporate transparency, since it also offers the foundation for achieving a company's goals.
Corporate governance is the framework of guidelines, procedures, and management techniques used to guide and oversee an organization.
The main factor affecting corporate governance is the board of directors of a corporation. A company's operations and ultimate profitability may be called into question by poor corporate governance (Clarke, 2004).The everyday operational management actions taken by a company's leaders are completely unrelated to corporate governance. How a board of directors manages and supervises a firm is determined by a system of direction and control. The term “governance” comes from the Latin word “hibernate,” which means “to steer.” To lead a corporation in the desired direction would be considered corporate governance. The board of directors is responsible for steering. Government body. The word “corporation” or “corporate” comes from the Latin word “corpus,” which signifies a “body”. Governance is the management of the systems and procedures put in place for meeting expetitions of stakeholders. The concept of corporate governance had probably existed from antiquity. Lai and Bello (2012) asserted that corporate governance has a long history which dates back to the ancient times where tribal communes supervised the activities of the tribe as well as individual members of the tribe to ensure conformity with tribal norms.
In Nigeria, the issue of corporate governance is given the front burner status by all sectors of the economy. This is in recognition of the failure of the critical role of corporate governance in the success or failure of companies (Ogbechie, 2012). The corporate governance mechanisms are to bridge the gap that can occur between managers and owners of the company as a result of the negative practices that could harm the company (Abu Atta, 2015). Therefore, the concept of corporate governance emerged to regulate relations among the board of directors, the audit committees as well as the shareholders and stakeholders in the companies (Swamy, 2011).
The corporate governance landscape in Nigeria has been dynamic and has generated interest from within and outside the country. In 2003, the Nigerian Securities and Exchange Commission (SEC) adopted a Code of Best Practices on Corporate Governance for publicly quoted companies in Nigeria and this code is currently being reviewed. At the end of the consolidation exercise in the banking industry, the CBN, in March 2006, released the Code of Corporate Governance for Banks in Nigeria, to complement and enhance the effectiveness of the SEC code, which was implemented at the end of 2006. The three major governance issues that attracted the attention of the regulators are directors’ dealings, conflict of interest and creative accounting.
Therefore, there is a need for ensuring the sustainability of this sector through good corporate governance (Cheng, S., 2008). Increasing interest in investigating the influence of corporate boards’ characteristics on firms’ performance has been largely out of necessity arising from increasing number of high profile corporate failures around the world. In view of the effects of corporate failures on companies and national economies, countries all over the world have taken one step or the other to ensure good corporate governance. One of these steps include, diversifying the corporate board (Brunk, 2010). Therefore, a response has been made by SEC in collaboration with the Corporate Affairs Commission (CAC) in launching a Code of Corporate Governance for Nigerian public companies in 2003. 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 participants in the corporation, and spells out the rules and procedures for making decisions on corporate affairs (Duchinet al., 2010).
1.2 Statement of the problem
There are many challenges to the effectiveness of corporate governance and ethics in Nigeria. They range from corrupt practices, ownership structure, slow and inefficient judicial process to lack of enforcement mechanisms by regulatory bodies. The outcry of investors and other stakeholders due to mismanagement and inadequate financial disclosures given by the management has deemed it necessary for the institution to have sound corporate governance procedures.That is, the absence of good corporate governance is a major cause for failure of many well performing firms. When there is poor corporate governance, Directors or managers may give misleading pictures of performance of a company to lure unsuspecting investors. The increasing incidence of corporate fraud relating to exaggerated and fleeting reports have reinforced the renewed global emphasis on the need for effective corporate governance. This was the reason for renewed interest in the corporate governance practices of corporation entities like the banks are part of the issue to govern.Some of the principles of good / effective corporate governance include rights and equitable treatment of stakeholders.
1.3 Objective of the study
The main objective of this study is to evaluate the effect of corporate governance and ethics on performance of insurance companies in Nigeria
Specific objective include:
- Determine effect of audit committee meeting on Return on Asset (ROA) of insurance companies in Nigeria.
- Ascertain effect of board size on Return on Asset (ROA) of insurance companies in Nigeria.
- Evaluate board gender diversity on Return on Asset(ROA) of insurance companies in Nigeria
1.4 Research questions
In order to achieve the desired purpose for this study, the following questions were raised to guide the study.
- To what extent does Audit committee meetings affect Return on Asset of Insurance companies in Nigeria?
- To what extent does Board Size affect Return on Asset of insurance companies in Nigeria?
- What extend does Board gender diversity affect Return on Asset of insurance companies in Nigeria companies in Nigeria?
1.5 Research hypothesis
For the purpose of this study, the researcher will test the following hypothesis.
In line with the objective of the study, the following hypothesis have been formulated in analternate form:
Ho: Audit committee meetings does not have significant effect on Return on Asset (ROA) of insurance companies in Nigeria.
Ho: Board Size does not have significant effect on Return on Asset of insurance companies in Nigeria.
Ho: Board gender diversity does not have significant effect on Return on Asset of Insurance companies in Nigeria.
1.6 Scope of the study
This study is carried out to examine effect of corporate governance and ethics on the financial performance of insurance companies in Nigeria. The study is limited to the Nigerian insurance space and data will be collected from insurance companies annual report from Nigeria stock exchange,corporate performance will be proxy by return on asset , while corporate governance is measured by corporate governance mechanism, Board size, Audit Committee size and Board gender diversity.
1.7 Organization of the study
This research study will be organized into five chapters as follows:
Chapter one, this is the introduction and background of the study, statement of the problem, objectives of the study, research questions, research hypothesis and scope of the study. Chapter two, this is the literature review and the theoretical framework. Chapter three, this chapter deals with the research methodology which contains research designs, population of the study, and method of data collection, sampling technique and instrument. Chapter four is made up of result presentation, analysis of data, test of hypothesis and discussion of result. Chapter five, this chapter tells about summary of the major findings, conclusions, recommendations and suggestion for further study.
1.8 Significant of study
The study titled “Effect of Corporate Governance and Ethics on the Financial Performance of Insurance Companies in Nigeria” has significant implications for various stakeholders, including academics, policymakers, investors, and insurance companies.
- Academic contribution: The study can contribute to the existing literature on corporate governance, ethics, and financial performance of insurance companies in Nigeria. The study can help researchers to identify the gaps in previous studies and explore the relationship between corporate governance, ethics, and financial performance.
- Policy implication: The study can provide valuable insights to policymakers in Nigeria and other countries on the importance of corporate governance and ethical practices in the insurance sector. The policymakers can use the study's findings to design effective regulations and guidelines that can promote corporate governance and ethical practices in the insurance sector.
- Investor perspective: The study can help investors to make informed decisions while investing in insurance companies in Nigeria. The investors can use the study's findings to evaluate the corporate governance and ethical practices of the insurance companies and assess their financial performance.
- Insurance company perspective: The study can help insurance companies in Nigeria to understand the importance of corporate governance and ethical practices in enhancing their financial performance. The insurance companies can use the study's findings to improve their corporate governance structures and ethical practices, which can lead to increased profitability and sustainability
Overall, the study's significance lies in its potential to contribute to the knowledge of the relationship between corporate governance, ethics, and financial performance of insurance companies in Nigeria and its implications for various stakeholders.
1.9 Operational definition of terms
Corporate Governance: For the purpose of this study, corporate governance refers to the system of rules, policies, and procedures that govern the way a company is managed and controlled. It includes the relationships between the company's management, board of directors, shareholders, and other stakeholders.
Ethics: Ethics, for the purpose of this study, refers to the principles and values that guide the behavior of individuals and organizations in the insurance sector. It includes the ethical standards of conduct, such as honesty, integrity, and transparency.
Financial Performance: Financial performance, for the purpose of this study, refers to the measurement of a company's financial health and profitability. It includes financial ratios, such as return on investment (ROI), return on assets (ROA), and return on equity (ROE).
Insurance Companies: Insurance companies, for the purpose of this study, refer to the organizations that offer insurance products and services to individuals and businesses in Nigeria. This includes life insurance, health insurance, property insurance, and liability insurance.
