Content Analysis of Effect of Board Size, Composition, Frequency of Meetings and Regulrity in Attendance at Meetings on Financial Performance of Quoted Companies on the Nigerian Stock Exchange 2006-2012

Abstract

The rampant corporate failures in recent times both within and outside Nigeria make safety of investors’ wealth an interesting and important area of research in Accounting.  The safety investment and its growth can be deciphered from the trend in the earnings per share of a company. Once the earnings per share falls below acceptable levels the company is bound to wound up. The cases of Enron, Xerox, Adelphia et cetera internationally and Cadbury, NITEL, NEPA, NRC and many banks in Nigeria are very well known. Interestingly the Board of Directors as the top management of these corporate entities is where the bulk stops. The quality of the board, its efficiency and by extension the corporate performance of the entity could be affected by the size and composition of the Board, and frequency of meetings and regularity in attendance at meetings, as critical elements of corporate governance. Therefore, the question normally asked is to what extent do Board size, Board composition/structure, frequency of board meetings and regularity of attendance at meetings by board members impact the corporate performance of companies? The earlier study had used opinion survey of company administrators and managers to assess their perception on the impact of Board size and composition and the related variables on the financial performance of Non-Financial Companies quoted on the Nigerian stock exchange through a structured questionnaire administered to three top ranking managers/accountants in each company and used the Micro soft Special Package for Social Sciences (SPSS) to analyze the responses presented in a 5-point liker scale where the regression showed that there is a significant positive relationship between the Board size, composition, frequency of meetings, regularity of members’ attendance   and performance of quoted non financial companies. That study had been documented with a recommendation among others that the Board should not be unnecessarily weighty in size but more importantly, the Board should be composed more of outsiders with proven integrity, acumen, experience and skill in corporate management. The current  study uses secondary data on corporate financial performance, with a single index of Earnings Per Share (EPS) as dependent variable and  Board size, Board composition, Frequency of Meetings and Regularity of Members’ Attendance, as independent variables, all collected from Annual Financial Reports of the companies quoted on the stock exchange within the study period to test the hypothesis that : Board size, composition, frequency of meetings and regularity of members’ attendance have significant positive effect on corporate financial performance of quoted non – financial companies on the Nigerian Stock Exchange. The Micro soft Special Package for Social Sciences (SPSS) version 16.0 is used to do the regression analysis. It was shown that that there is a significant positive relationship between the Board size, composition, frequency of meetings, regularity of members’ attendance and performance of quoted non financial companies as in the earlier study on perception. With R, the correlation coefficient which has a value of 0.535, though much lower than in the previous study, indicates that there is a significant positive relationship between the Board size, composition, frequency of meetings, regularity of members’ attendance   and performance of quoted companies..  R square, the coefficient of determination, shows that F= 9.645 far above 2, Significance = 0.000 and Durbin-Watson = 1.93 indicating that the variation in the performance of quoted companies is explained by the model. This study thus not only corroborates the earlier one but also shows more specifically that a higher percentage outside board membership leads to a higher earnings per share and the fewer the overall size of the Board, the higher the EPS. It is therefore recommended among others that the Board should not be unnecessarily weighty in size but more importantly, the Board should be composed more of outsiders with proven integrity, acumen, experience and skill in corporate management. Moreover members of the BOD should endeavourer to attend meetings more regularly. All these would help improve the EPS of quoted companies and reduce drastically the spate of corporate failures as good corporate governance stand to be engendered.

Key words: Board of Directors, Corporate performance, corporate governance,