CORPORATE GOVERNANCE AND FINANCIAL SUSTAINABILITY OF LISTED INSURANCE COMPANIES IN NIGERIA
CHAPTER ONE
INTRODUCTION
Background of the Study: This chapter entails the overview of the topic under study, in it, it contains the studies background, the statement of the problem, research objective and at the same time, it looks at the value of the study .Corporate governance can be defined as that set of procedures followed, customs, policies, laws and institutions which affect the way in which the corporation is directed, administered and managed. It may be defined as the businesses’ pillars which guide businesses on how to be accountable to stakeholders, fairness, adopt transparency in business activities and exhibit independence in decision making by the board. Risk is a factor that is inherent in the quest for improvement, expansion and development in any economy. However, the fear of losses associated with risks can discourage economic activities. This makes the insurance (which is a promise of indemnity to insured economic agents in the event of losses) a very significant driver of economic growth and development. The insurance sub-sector of the financial sector aims at flattening various forms of financial tragedy in the economy hence, strengthening the financial and economic system of the country (Shawar and Siddiqui, 2019). Insurance is a vital tool through which the financial misfortunes of an individual and entity are shared by many to reduce the effects of problems. The development of insurance market has been seen to have mutual link to changes in terms of economic, social, political, technological, cultural, religious and demographic forces (Elegunde, Ajemugbohun and Azeez, 2020).
The percentage growth in the annual gross premium has not been progressively stable. However, according to Elegunde et al., (2020) the Nigerian insurance industry have performed poorly owing to poor product mix/pricing strategy; gross inefficient service delivery channels; low integrity of many insurance firms; low insurance awareness among Nigerians; poor labour practices; poor information technology infrastructure; poor regulatory mechanism, and poor enforcement mechanism. The recurring issues of exorbitant management expenses in excess of premium income, excess liabilities and inability to meet claims payments amongst others by insurance companies has given rise to doubts within the stakeholders and the insuring public as to the transparency, accountability and honesty of insurance companies with respect to financial propriety (Kuye, Sulaimon and Odiachi, 2020).
Having established the need for a stable and financially buoyant insurance industry in an economy, it is evidenced that the insurance companies play a pivotal role in the economic performance of a developing nation like Nigeria. The major concerns are the spate of corporate governance that derailed investors’ confidence and built more financial recklessness and the overwhelming incidence of corporate fraud relating to overstated accounts, have informed renewed global emphasis on the need for corporate governance (Okonkwo, Ibenta, and Nkemakolam, 2016; Balogun and Ajao, 2018). Arguably, there is great emphasis on the fact that good corporate governance has a positive link to national economic growth and development. This has made it imperative that the corporate governance code be applied in totality especially with respect to the board function so as to ensure that organizations and their finances are managed properly. To this end, adherence to good corporate governance is recognized as crucial to the success, growth and development of the corporate sector.
Research Problem
An identified problem here is that corporate governance activities seem to have its pros and cons, making it difficult to ascertain the impact of each corporate governance decision on the performance of the insurance company. For instance, insurance company with a large board size would be able to provide more influences on sensitive matters and decisions that affect performance (Zakaria, Purhanudin and Palanimally, 2014). However, it was further argued that small sized board members accelerate decision making processes (Adejare and Aliu, 2020; Okonkwo and Ezeabasili, 2016). Similarly, the impact of board independence has been debated for so long owing to the fact that the absence of board independence usually made the board to be less effective, however, independent board members are the major source of what is referred to as the “agency problem” (Adejare and Aliu, 2020). Contrasting results from empirical studies have not helped to settle this debate. Some scholars found that board size negatively impacts managerial efficiency while board compensation positively relates to earnings and profitability of listed insurance companies in Nigeria (Ibe, Ugwuanyi and Okanya, 2017; Adejare and Aliu, 2020; Elegunde et al., 2020; Okonwo, Azolibe, and Nwadibe 2019).
Corporate governance in such studies have often revolved around board of directors and audit committee dynamics. These issues have necessitated current research which would statistically pinpoint the impact of corporate governance on the financial performance of insurance companies in Nigeria using the most recent data available which would also include shareholders controlling interest ratio.
Research Objective
The objective of the study was to determine the effect of cooperate governance and financial sustainability of listed insurance companies in Nigeria.
Research Objective
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To determine the effect of Board size on the financial sustainability of listed insurance companies in Nigeria
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To determine the effect of Board diversity on the financial sustainability of listed insurance companies in Nigeria
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To determine the effect of Board independence on the financial sustainability of listed insurance companies in Nigeria
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To determine the effect of Board committee on the financial sustainability of listed insurance companies in Nigeria
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To determine the effect of Board meetings on the financial sustainability of listed insurance companies in Nigeria
Research Questions
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What is the effect of Board size on the financial sustainability of listed insurance companies in Nigeria?
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What is the effect of Board diversity on the financial sustainability of listed insurance companies in Nigeria?
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What is the effect of Board independence on the financial sustainability of listed insurance companies in Nigeria?
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What is the effect of Board committee on the financial sustainability of listed insurance companies in Nigeria?
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What is the effect of Board meetings on the financial sustainability of listed insurance companies in Nigeria?
1.6 Significance of the study
This study is important for the following reasons:-
The results of this research may be useful for regulators in Nigeria as they continue to deliberate the appropriate additional corporate governance requirements suitable for Insurance companies in Nigeria. This study will also be useful in providing direction to stakeholders in the insurance sector as it will form basis for critical thinking which eventually aids in decision making. This may necessitate the need for further training of insurance companies’ staff on the need to embrace, adopt and observe good corporate governance practices in their organizations.
This study will add more knowledge that exists about the relationship that exists between corporate governance and how these have an impact on the overall financial performance in the insurance industry and also fill the gap on the relationship between these variables for future reference by other researchers. Future researchers will also benefit from this research as it will enable them to have a look at what has been researched before and identify gaps that have not yet been researched on.