An investigation of the post-privatization firms’ financial performance in Nigeria: the role of corporate governance practices

• Pages: 404-418
• DOI: https://doi.org/10.1108/CG-05-2018-0190
• Published date: 20 December 2018
• Date: 20 December 2018
• Author: Ojonugwa Usman,Umoru Adejo Yakubu
• Subject Matter: Corporate governance,Strategy

An investigation of the post-privatization

f‌irms’f‌inancial performance in Nigeria: the

role of corporate governance practices

Ojonugwa Usman and Umoru Adejo Yakubu

Abstract

Purpose –The purpose of this study is to investigatethe role of corporate governancepractices on the

post-privatizationfinancial performanceof the firms listed on the Nigerian Stock Exchange(NSE) over the

period 2005-2014.

Design/methodology/approach –The study uses a two-step dynamicsystem Generalized Method of

Moments (GMM) estimationtechnique for 27 privatized firms by considering a wide range of controlled

variables such as managerial shareholdings, board composition, debt financing and stock market

development.

Findings –The empirical result suggests that the improvement in the firms’ financial performance is

attributed to good corporategovernance practices through effective board composition, debt financing

(leverage) and stock market development. The result further shows no substantial evidence to support

that managerialshareholding improves firms’ financialperformance.

Research limitations/implications –Therefore, based on the empirical findings of this study, the

authors recommendthat the firms need to maintain the optimum board compositionand the ratio of debt

to share capitalas well as developing the stock market to functioneffectively.

Originality/value –This study contributesto the existing literature in several ways: (1) the first time that

the role of corporategovernance is considered in explaining the post-privatization financial performance

of firms listed on the Nigerian Stock Exchange;(2) the paper applies a two-step dynamic system GMM

estimationtechnique, proposed by Arellanoand Bover (1995) and Blundell and Bond (1998)to control for

the serial correlationand heterogeneity, which remain the major weaknesses of the panel data modeling

in the literature.

Keywords Nigeria, Firm f‌inancial performance, Corporate governance, Post-privatization,

Two-step dynamic system GMM

Paper type Research paper

1. Introduction

The policy of privatization and commercialization was introduced in Nigeria by the then

military government headed by General Ibrahim Babangida in 1988. This policy was an

integral part of the World Bank-supported Structural Adjustment Program (SAP) that started

in the mid-eighties. According to the government and policy-makers, the program would

reduce the dominance of unproductive investments in the public sector, whichled to undue

budget deficits (Udeaja, 2000;Jerome, 2008;Usman et al.,2015). It was envisaged that

restructuring the ownership of publicenterprises would improve the operational efficiency of

these enterprises and, thus, increasing domestic savings and investment decisions as well

as economic growth (Megginsonet al.,1994;Udeaja,2000, 2006).

A vast empirical literature on the post-privatization performance of firms has come to

limelight since the early 1990s, and a great deal of it aligns with the proposition that

Ojonugwa Usman is based

at the Eastern

Mediterranean University,

Gazimagusa, North

Cyprus, Turkey.

Umoru Adejo Yakubu is

based at the Department of

Liberal Studies, Federal

Polytechnic Kaura

Namoda, Kaura Namoda,

Nigeria.

Received 26 May 2018

Revised 27 August 2018

7 November 2018

Accepted 21 November 2018

JEL classif‌ication –G32, G34,

C58

The authors would like to thank

the anonymous referee for

many helpful comments. They

would also like to thank

Professor Dr Sevin Ugural of

Eastern Mediterranean

University, for exposing the first

author to the theoretical

framework of this study during

his PhD coursework. Any

remaining errors are solely that

of authors’.

PAGE 404 jCORPORATE GOVERNANCE jVOL. 19 NO. 3 2019, pp. 404-418, ©Emerald Publishing Limited, ISSN 1472-0701 DOI 10.1108/CG-05-2018-0190