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Modern day business has always suffered from the dilemma of the sole goal of
profit maximization or the satisfaction of other goals like personal interests of managers and
other stakeholders. This phenomenon has attracted attention, especially under the
principal-agency problem of firms (Ross, 1973; and Jensen and Meckling, 1976) and the
stakeholders' theory (Freeman, 1984; Jones, 1992; Donaldson and Preston, 1995; Frooman, 1999; and Hill
and Phillips, 2004). Contemporarily, these issues are swathed in the tenets of
corporate governance. Corporate governance, according to John and Senbet (1998),
involves stakeholders' attempts to ensure that managers and other insiders adopt mechanisms
that safeguard their interests. Theoretically, corporate governance practices are expected to
focus the board's attention on optimizing the company's operating performance and returns
to shareholders.
In Nigeria, studies have shown that, largely, the institutions and the legal framework
for effective corporate governance appear to be in existence (Oyejide and Soyibo, 2001;
and Adelegan, 2007a). However, the corporate governance structure in the country
is characterized by weak or non-existent compliance, and/or enforcement (Oyejide and
Soyibo, 2001; and Wilson, 2006), and a weak market for corporate control (Adelegan,
2007a). This is aggravated by the fact that most businesses in the formal sector are not
publicly listed and nearly 87% of the formal sector businesses are not operated outside the
legislation governing the capital market (Oyejide and Soyibo, 2001). Other factors like
underdevelopment and the emerging nature of the Nigerian capital market, as characterized by the
thinness of trading, low market capitalization, low percentage of turnover level, and low
liquidity of the market (Adelegan, 2004), can also be said to impair the effectiveness of
corporate governance mechanisms. |
