Corporate governance and performance of medium-sized firms in Nigeria: does sustainability initiative matter?

• Pages: 401-427
• DOI: https://doi.org/10.1108/CG-09-2019-0291
• Published date: 14 February 2020
• Date: 14 February 2020
• Author: Babatunji Samuel Adedeji,Tze San Ong,Md Uzir Hossain Uzir,Abu Bakar Abdul Hamid
• Subject Matter: Corporate governance,Strategy

Corporate governance and performance

of medium-sized f‌irms in Nigeria: does

sustainability initiative matter?

Babatunji Samuel Adedeji, Tze San Ong, Md Uzir Hossain Uzir and Abu Bakar Abdul Hamid

Abstract

Purpose –The non-existence of the corporategovernance (CG) concept for practices by non-financial

medium-sized firms (MSFs) in Nigeria informed. This study aims to determine whether CG practices

influence firms’ performance and whether sustainabilityinitiative (SI) mediates the relationship between

CG and MSFs’ performancein Nigeria.

Design/methodology/approach –A total of 300 firms were selected on convenience sampling basis

from South Western Nigeria using a structuredquestionnaire. The authors used Statistical Package for

Social Sciences for exploratory data analysis and hypotheses were tested using covariance-based

structuralequation modelling.

Findings –The results show that CG has a significant positive effect on performance [financial

performance(FNP) and non-financial performance(NFP)] and SI. SI has a mixed impact on performance,

e.g. a significant positive impact on NFP but insignificant negative impact on FNP. Similarly, SI has a

combined mediating effect in the relationship between CG and performance, e.g. fully mediates CG !

NFP and does not mediate CG !FNP. Firms are to invest in social and environmental initiatives

substantially.CG codes will complement the InternationalFinancial Reporting Standards for MSFs.

Research limitations/implications –This study supports the assumptions of theories (institutional,

stakeholder andagency) as the basis for the usage of multiple approachesto determine the outcome of

hypotheses,especially in developing climes.

Practical implications –The study contributes to CG and performance literature by examining the

mediating effects of SI. The paper also shows the necessity to emphasise NFP aspect. Policymakers

should evolve CG codes to encouragestakeholders to believe more in the corporate existenceof MSFs

for strengtheningcapital-base and quality personnelengagement.

Originality/value –To the best of the authors’ knowledge, this is one of the first empirical attempts

showingthe evidence on the relationship betweenCG and NFP in Nigeria.

Keywords Corporate governance, Sustainability initiative, Financial performance,

Non-f‌inancial performance, Medium-sized f‌irms, Structural equation model, Audit committees,

Sustainability, Financial restructuring

Paper type Research paper

1. Introduction

In the recent past, corporate finance and management scandals were in the news

concerning Megan Media Holdings Berhad in Malaysia and Enron and WorldCom in the

USA (Tan et al., 2016;Peters and Bagshaw, 2014). In the same manner, Cadbury Plc had

its share in Nigeria for overstating the value of the stock (Olaoye et al.,2016). Therefore, all

of the issues above have been responsible for the corporate governance (CG) attraction of

great attention globally in recent times. Consequently, Olaoye et al. (2016) and Peters and

Bagshaw (2014) opined that the securities and exchange commissions (SECs) in many

nations such as Nigeria, USA and Malaysia had developed CG codes to safeguard

Samuel Babatunji Adedeji

and Tze San Ong are both

based at the Department of

Accounting and Finance,

Faculty of Economics and

Management, Universiti

Putra Malaysia, Serdang,

Malaysia.

Md Uzir Hossain Uzir and

Abu Bakar Abdul Hamid

are both based at the Putra

Business School, Universiti

Putra Malaysia, Serdang,

Malaysia.

Received 14 September 2019

Revised 21 November 2019

Accepted 20 January 2020

The authors appreciate the

support and encouragement

given by Prof. Gabriel Eweje

and the reviewers who have

helped in improving our writing

skills through their objective

assessment of their paper.

DOI 10.1108/CG-09-2019-0291 VOL. 20 NO. 3 2020, pp. 401-427, ©Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 401

business concern owners, managers and third parties and propel them to function

correctly. In specific terms, the SEC in Nigeria evolved an initial code of CG in 2003 (SEC,

2003), that has since been modified in 2009, 2011 and currently in 2016. Despite the

development of CG arrangements based on both firm and country-levels, the differentials in

the business and countrywide configurations never created enough latitude required for

attaining the best practices desired with respect to reliability, limpidity and responsibility in

the many aspects of administration (Teh et al.,2016). In this regard, the examination of the

impact of tools of governance on the performance of firms are paramount to allow for a

design of good practices through institutions and their executives in the world-wide

corporate scene.

However, the study and practices of CG had commonly focused only on big and usually

quoted companies, thus excluding the medium-scale enterprises out of the discourse

(Adonu, 2016). Therefore, the need arises as to extending the searchlight of CG practices

on medium-scale firms’ performances because of their contributions to the GDP of nations,

provision of employment to a large number of unemployed and an increase in the

magnitude of exports as evidenced in other developing and emerging countries (FGN,

F.R.o.N, 2017). Furthermore, a significant benefit would accrue to all stakeholders (owners,

managers, employees, creditors, government agencies, fund providers, investors,

customers and the public) of medium-sizedfirms (MSFs) if the latter take to CG principles in

their management. The compliance and regulatory regime are extremely weak in Nigeria

which has created the need for a specialised regulatory agency to ensure compliance with

the governance codes and harmonise them to upgrade the standard of operations in all

spheres of business endeavours(Aina, 2013).

2. Conceptual framework based on theoretical foundations

Concerning this research, a considerate rationalisation for the interrelatedness of the

variables involved underscores the need for the theories that are engaged for the

formulation of the conceptual framework.

The firm performance (FP) based on previous discussions is divisible into the financial and

non-financial parts. Based on the perspectiveof the stakeholder theory, the responsibility of

a firm is not limited to the owners, but to othervarious groups of stakeholders, that comprise

any individual/group who can impactor be impacted by the decision-making process of the

firm. However, the stakeholder theory addresses those issues that are related to company

stability with a focus on their endeavours and performance concerning their competence in

maintaining the agreements entered into with several parties in their areas of business

endeavours (Jensen and Meckling, 1976).Nevertheless, the latter view does not agree with

the belief that a firm is responsible for the wealth enhancement of only the shareholders.

Nonetheless, Jizi et al. (2014) suggest that a firm is accountable to itself as well as other

groups it relates with to ensure effectiveness and efficiency required to legitimise its rights

of existence in the business world.

Furthermore, researchers have adopted this theory to evaluate the differentials between

previous performance circumstances and outcomes, despite the provision of the

background for determining performance in a comprehensive way as one group or the

other can have their satisfaction affirmed via one basis or the other.However, in the views of

Carneiro et al. (2007), the precedingis a basis for evaluating FP because of its peculiarity to

different groups of firms and ability to evolve a contextual circumstance for which many

stakeholders examine the companies. In a like manner, the resources and capabilities

owned by the firm alongside knowledge and information sharing are to boost FP to the

benefits of the various stakeholders. So, this theory is suggested to generate a meaningful

degree of its relevance in a study area of this nature, which involves required perception for

accountability as far as every partythat is connected to a firm or otherwise is concerned.

PAGE 402 jCORPORATE GOVERNANCE jVOL. 20 NO. 3 2020