CORPORATE GOVERNANCE AND FIRM PERFORMANCE OF TELECOMMUNICATION FIRMS IN RIVERS STATE

CORPORATE GOVERNANCE AND FIRM PERFORMANCE OF TELECOMMUNICATION FIRMS IN RIVERS STATE

The aim of the study is to examine the relationship between corporate governance and firm performance of telecommunication firms in Rivers State

OTHER RELATED TOPIC

CHAPTER ONE

INTRODUCTION

Background of the Study

The telecommunication industry in Nigeria is increasingly growing; however, they still have to deal with various setbacks such as the collapse of various telecommunication companies or placement under statutory management. Most of the telecommunication companies that collapsed may have been as a result of mismanagement and misappropriation of company assets (Demaki, 2011). While some of these firms were bought off from their existing board and owners because of a lack of good governance which affected their performance to meet customers demand. The telecommunication companies have to deal with issues of fraud and paying huge claims that severely weaken their financial position making customers lose their money in the process making the public lose trust in the companies. Incompetency is found where the wrong message is relayed to the public. All this issue may be attributed to poor corporate governance hence this study sought to find out if good corporate governance is related to the overall organization performance in this companies (Business daily, 2012).

Firm performance is the ability of the organization to achieve its mission through strong governance, sound management, and a persistent rededication in order to achieve its goals (Cascio, 2006). Well managed nonprofits are adaptable, mission-driven, entrepreneurial, customer-focused, sustainable and outcome-oriented. The initiative of firm performance helps organizations to mitigate the factors hindering the attainment of their mission such as increased uncertainty. This initiative seeks to help organizations in all economic sectors, charitable organizations, business and government (Carton & Hofer, 2006).

Performance has been perceived differently by various researchers, but most of the scholars relate performance with measurement of transactional efficiency and effectiveness towards organizational goals (Stannack,1996; Barne, 1991). According to Joseph and Dai, (2009) the ultimate goal of a business organization is higher financial performance or maximization of wealth for stakeholders. Nonetheless, attaining the organization’s goals depends upon the extent to which its organizational performance is reached (Katou and Budhwar, 2007). Firm performance is generally indicated by effectiveness, efficiency, satisfaction of employees and customers, innovation, quality of products or services, and ability to maintain a unique human pool. The firm performance variables of the present study included features such as product quality, customer satisfaction, new product development, ability to attract employees, ability to retain employees, and the relationship between management and employees.

Corporate governance is about promoting corporate fairness, transparency, and accountability. It is a uniquely complex and multi-faceted subject. Devoid of a unified or systematic theory, its paradigm, diagnosis, and solutions lie in multidisciplinary fields i.e. economics, accountancy, finance among others (Cadbury, 2002). As such it is essential that a comprehensive framework is codified in the accounting framework of any organization. In any organization, corporate governance is one of the key factors that determine the health of the system and its ability to survive economic shocks. The health of the organization depends on the underlying soundness of its individual components and the connections between them.

Corporate governance has been looked at and defined variedly by different scholars and practitioners. However, they all have pointed to the same end, hence giving more of a consensus in the definition. Coleman and Nicholas-Biekpe (2006) defined corporate governance as the relationship of the enterprise to shareholders or in the wider sense as the relationship of the enterprise to society as a whole. Corporate governance involves a system by which governing institutions and all other organizations relate to their communities and stakeholders to improve their quality of life. (Ato, 2002). It is therefore important that good corporate governance ensures transparency, accountability, and fairness in reporting. In this regard, corporate governance is not only concerned with corporate efficiency, it relates to a much wider range of company strategies and life cycle development. (Mayer, 2007). It is also with the way parties (stakeholders) interested in the wellbeing of firms ensure that managers and other insiders adopt a mechanism to safeguard the interest of the shareholders. (Ahmadu and Tukur, 2005). Corporate governance is based on the level of corporate responsibility a company exhibits with regard to accountability, transparency, and ethical values.

However, so many works have been carried out on corporate governance and firm performance in Nigeria but it appears that only a few studies were carried out on the relationship between corporate governance and firms performance. However, literature is scant as it applies to Port Harcourt and in the telecommunication industry in particular.

Statement of Problem

Corporate governance is of paramount importance and if executed effectively, it can prevent corporate scandals, fraud and enhance a company’s image in the public eye as a self-policing company that is responsible and worthy of shareholder and debt holder capital. The importance of responsibility, accountability, transparency, and fairness are raising the issues of their effect on the performance of the firm and the managers as well (Shastri & Braga, 2011). Financial scandals and the collapse of institutions has forced firms to concentrate more on good corporate governance and to develop and implement several effective mechanisms in order to have the investors’ confidence and faith back again (Najjar, 2012). Good corporate governance has become essential for improving firm performance, ensuring investor rights, enhancing the investment atmosphere and encouraging economic development (Braga-Alves & Shastri, 2011). Arguably, the growth of the telecommunication industry in Nigeria is increasing because of better awareness of the importance of communication among the people. However, it is notable that some telecommunication companies have either collapsed or have been placed under statutory management. This however engendered this investigation.

This study, therefore, is directed to show the relationship that exists between corporate governance and firm’s performance, with the view of closing the existing knowledge gap which seemed to be obvious in the management literature and proffering Lasting solution to the adverse effect of firms’ performance with respect to the telecommunication firms under view.

1.3 Operational Framework 

Figure 1: Operational Framework

Source: Conceptualized by the Researcher (2019)

The figure above is an operational framework of corporate governance and firm’s performance of telecommunication firms in Port Harcourt. Corporate governance here is the independent variable while firm performance is the dependent variable. The dimensions of corporate governance in this study are transparency and accountability while the measures of firm performance are: growth and profitability. This was Adopted with modifications from the literature of Abor and Biekpe (2007); Awio and Northcote, (2007); Leblanc and Gillies, (2005); Heidi and Marleen, (2003); Agrawal and Chadha (2005).

Aim and Objectives of the Study

The aim of the study is to examine the relationship between corporate governance and firm performance of telecommunication firms in Rivers State. The specific objectives of the study include:

1. To ascertain the relationship between transparency and growth of telecommunication firms in Rivers State.
2. To ascertain the relationship between accountability and growth in telecommunication firms in Rivers State.
3. To identify the relationship between transparency and profitability of telecommunication firms in Rivers State.
4. To identify the relationship between accountability and profitability of telecommunication firms in Rivers State.

Research Questions

The following research questions are raised to help shape the direction of this study:

1. What is the relationship between the transparency and growth of telecommunication firms in Rivers State?
2. What is the relationship between accountability and growth in telecommunication firms in Rivers State
3. What is the relationship between the transparency and profitability of telecommunication firms in Rivers State?
4. What is the relationship between accountability and profitability of telecommunication firms in Rivers State?

Research Hypotheses

The following null hypotheses have been formulated to help guide the study:

H₀₁: There is no significant relationship between transparency and growth of telecommunication firms in Rivers State.

H₀₂: There is no significant relationship between accountability and growth of telecommunication firms in Rivers State.

H₀₃: There is no significant relationship between transparency and profitability of telecommunication firms in Rivers State.

H₀₄: There is no significant relationship between accountability and profitability of telecommunication firms in Rivers State.

Significance of the Study

The study is designed to examine the relationship between corporate governance and firm performance of telecommunication firms in Rivers State. Thus, the study will be significant to the following groups and personnel:

Organizations: First, it will provide a deeper understanding of how important corporate governance is to a firm operation and if adopted by organizations it can influence firm performance. The study will reveal to organizations how the use of corporate governance can place them in a better position in a competitive environment, promotes the effective functioning of the organization and in improving their overall performance.

Management Practitioners: To the management practitioners, the findings of this study are expected to provide answers to the fundamental question of why some firms collapse or are bought by other firms and to help the organization to structure better corporate governance to increase the performance of there firms.

Management: Management of telecommunication firms will learn how best to assess and apply corporate governance , that is, the study becomes necessary because it is going to point out ways of how management will maintain and communicate with their workers so as to increase the performance of the organization.

Human Resource Teams: Human resource teams will use the findings of this study to formulate viable policy documents that will effectively boost employee, customers, stakeholder’s confidence and organizational performance as well as operational effectiveness.

PolicyMaker: The study will of great benefit to policymakers as it will re-emphasize the importance of corporate governance and the need to make appropriate policies that will help improve the performance of the telecommunication sector in general.

Researchers and Students: Researchers and students who may wish to carry out similar studies will benefit using this study as it offers a reference for future research that might examine the relationship between corporate governance and firms performance or related topics.

Scope of the Study

The scope considered in this study includes content scope, geographical scope, and unit of analysis.

Content Scope: The elements covered in the independent variable corporate governance having its dimension as transparency and accountability, while that of the dependent variable firm’s performance has its measures as growth and profitability.

Geographical Scope: The study is centered on telecommunication firms in Rivers State.

Study Unit Scope: The unit of analysis for this study is at the micro-level. Due to the type of primary data needed for this research, respondents will comprise of employees and managers of the telecommunication firms in Rivers State.

Limitations of the Study

Every research work comes with a number of limitations. For the purpose of achieving the stated objectives of the study, the following limitations are inevitable:

This study is limited to selected telecommunication firms in Rivers State. This is because not all telecommunication in Rivers State can be covered given the short duration of the study.

The study is also limited to primary data which involves the design and administration of the questionnaire.

The time required to carry out this work is inadequate. Since this study is one of the many courses being offered by the researcher, the researcher is constrained by time to carry out in-depth research on the topic.

Lastly, this study is limited to telecommunication firms. This excludes other sectors such as hospitality, banking sector, health sector, the insurance industry, and the service sector.

However, these limitations will not in any way invalidate the results of the study.

Definition of Terms

Accountability is the obligation of an individual or organization to account for his/her/its activities, accept responsibility for them, and disclose the results in a transparent manner.

Corporate governance: refers to the system by which companies are directed and controlled.

Firm Performance: refers to an analysis of a company’s performance as compared to goals and objectives.

Growth: the process of improving some measure of an enterprise’s success.

Profitability: the degree to which a business or activity yields profit or financial gain.

Transparency: is the minimum degree of disclosure to which agreements, dealings, practices, and transactions are open to all for verification.

Organization of the study

The study is structured into five chapters as follows Chapter one covers the overview of the corporate governance and firm performance, the statement of the problems, Research questions, and hypothesis, significance of the study, limitations of the work and operational definition of terms. Chapter two gives reviews of related literature of some of the work of scholars, practitioners, and others who have contributed to the study, it, therefore, creates a link to this current study. Chapter three describes the research methodology used in the description of the population, research design, methods of data collection and sampling techniques. Chapter four shows the presentation and analysis of data. Chapter five provides the discussion, conclusion, and recommendation of research findings.