Impact of the Board Structure on the Performance of Firms in Nigeria

Abstract

The board of directors has long been recognized as an important corporate governance mechanism for aligning the interests of managers and all stakeholders to affirm. The need to adopt the right corporate governance mechanisms (board structure)for the purpose of such alignment is driven by the agency problem and the associated free rider problem that makes it difficult for any single investor or stakeholder to breathe cost of monitoring managers. The central role of board of directors in this process has therefore been recognized and in recent years has gained significant attraction for at least a couple of reasons. Firstly, both transition countries and other developing countries are struggling to attract resources for investment in an increasingly competitive global environment. Secondly, events at Enron and several other large corporations suggest the need for policies to promote board structure and other aspects of corporate governance.

Accordingly, Oman et al., (2003) and Morck and Yeung, (2004) argue that different forms of ownership structures are associated with different sets of agency problems. In developed countries such as US and the UK where share ownership is widely diffused, agency problem is more common between managers and shareholders. In contrast, in developing countries such as Nigeria, Ghana and South-Africa, etc. have been characterized with concentrated equity ownership, agency problem is most predominant between controlling shareholders and minority shareholders.