Corporate Governance and Leverage Implications on Firms’ Profitability, Cash Flows and Value in Nigeria

Abstract

The paper examines the implications of Corporate Governance and leverage on firm profitability (ROA), value (MPS) and cash flows (FCF). The study utilized the agency, stewardship and free cash flow theories. The correlation research design was employed and data collected from ten (10) listed manufacturing firms in Nigeria between the period 2009-2018. The data was analysed for descriptive and correlation properties, with the research hypotheses tested through regression analysis. The results of the study indicates that independent boards have significant negative influence on debt usage, board size does not have a significant effect on debt capital, CEO duality positively impacts the usage of debt financing. The results also indicate that independent boards (BIND) have significant impact on ROA, FCF and MPS, BSIZE is found to exert no statistically significant impact on the financial performance variables, CEO duality negatively impacts both FCF and MPS of the sampled manufacturing firms in Nigeria. Furthermore, the impact of DEBT on ROA and FCF are found to be negative, with the negative effect on ROA being statistically insignificant at the 0.05 level (-0.015, (0.6846)), and the negative effect on FCF being statistically significant at the 0.05 alpha level. The research concludes that the research therefore upholds that capital structure, corporate governance board characteristics and financial performance of manufacturing firms listed on the NSE are significantly related at the 0.05 level. The study recommended that the role of the CEO and board chairman be separated and current debt levels in the manufacturing industry be maintained.

Keywords: Corporate Governance, Leverage, Firm Profitability, Firm Cash Flows, Firm Value

DOI: 10.7176/RJFA/10-24-04

Publication date: December 31^st 2019