Impact of corporate governance on financial performance on banks

1. AHMADU BELLO UNIVERSITY, ZARIA
BUSINESS SCHOOL
DEPARTMENT OFACCOUNTANCY
COURSE TITLE: SEMINAR
COURSE CODE: ACCT 726
SEMINAR PRESENTATION
ON
The Impact of Corporate Governance on Financial Performance of Oil and Gas Firms in Nigeria
SUBMITTED BY
ABDULMUTALLIB BABALLE ABUBAKAR
P21BSAC7006
UNDER THE GUIDANCE OF
Dr. A. N. Mohammed
24th OCTOBER, 2023

2. CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The Oil and Gas sector worldwide constitutes a major component of the world’s
economic development as the performance of the Oil and Gas sector affect the
economy of the oil producing countries of the world. Many Oil and Gas producing
nations rely on the performance of the Oil and Gas sector as the main provider of
financial resources and despite the recent search and development of non-fossil
energy sources, the finances of non-oil producing countries of the world are also
impacted by the cost of meeting a major part of their energy needs through the Oil
and Gas sector.

3. 1.2 STATEMENT OF THE PROBLEM
Despite the existence of corporate governance regulations and guidelines, there is often a lack
of effective enforcement mechanisms in Nigeria Oil and Gas Sector. This can lead to non-
compliance and the neglect of good governance practices within oil and gas firms. Without
proper enforcement, the desired impact on financial performance may not be realized. Other
Key Issues Faced by most oil and Gas firms in Nigeria are;
i. Weak Institutional Framework: The institutional framework for corporate governance in
Nigeria is still evolving and has been considered weak in some areas. This includes the lack of
independent regulatory bodies and insufficient oversight mechanisms. The absence of strong
governance institutions can lead to a lack of confidence in the system and hinder the
improvement of financial performance in oil and gas firms

4. ii. Lack of Transparency and Disclosure: Transparency and disclosure are essential
elements of good corporate governance. However, in Nigeria's oil and gas industry,
there have been concerns about the lack of transparency in financial reporting and
disclosure practices. This can lead to a lack of trust from investors and stakeholders,
impacting financial performance.
iii. Political Interference: Nigeria's oil and gas industry is susceptible to political
interference due to its strategic importance and resource wealth. Political pressures or
interference can undermine the proper functioning of corporate governance
mechanisms, negatively impacting financial performance.

5. 1.3 AIM AND OBJECTIVES OF THE STUDY
The primary aim of this research is to explore the relationship between corporate
governance and the financial performance of Nigerian Oil and Gas Sector. This
objective was achieved by:
i. Assessing the relationship: The primary aim is to analyze and understand the
relationship between corporate governance practices and financial performance in
the oil and gas industry. This involves examining how factors such as transparency,
accountability, board composition, risk management, and shareholder protection
influence the financial outcomes of these firms.

6. ii. Identifying strengths and weaknesses: The objective is to identify the strengths
and weaknesses in the corporate governance practices of oil and gas firms in
Nigeria. This assessment helps in determining areas of improvement and potential
risks that may hamper financial performance.
iii. Evaluating regulatory compliance: The study aims to evaluate the level of
compliance with corporate governance regulations and guidelines in the Nigerian oil
and gas industry. This includes assessing the effectiveness of enforcement
mechanisms and identifying any gaps or issues that impede compliance.

7. iv. Proposing recommendations: Based on the findings of the study, the aim is to
propose recommendations and strategies to enhance corporate governance practices
in oil and gas firms. These recommendations can focus on improving transparency,
strengthening enforcement mechanisms, enhancing board independence and
diversity, and promoting sound risk management practices.
Through achieving these aims and objectives, the study can offer valuable insights
and guidance to oil and gas firms, regulators, and other stakeholders, facilitating the
implementation of effective corporate governance practices that positively impact
financial performance in Nigeria's oil and gas industry.

8. 1.4 SCOPE / LIMITATION OF THE STUDY
This research centers on the relationship between corporate governance and the
financial performance within the context of listed oil and gas companies in
Nigeria.
This research is focused on assessing the relationship between corporate
governance practices and financial outcomes within the specific context of the oil
and gas industry in Nigeria. This includes analyzing factors such as transparency,
accountability, risk management, board composition, shareholder protection, and
regulatory compliance.

9. The scope might also include examining the challenges and barriers faced in
implementing effective corporate governance practices in the Nigerian oil and gas
industry. This can involve investigating issues like political interference, weak
institutional frameworks, lack of transparency, and related party transactions.
However, it is important to recognize that there are limitations in studying this topic
which include:
i. Limited data availability: The study may face limitations due to data availability
and quality. Access to relevant financial and governance data, especially in the
context of privately held firms, can be a challenge.

10. ii. Causality versus correlation: Establishing a direct causal link between corporate
governance practices and financial performance can be complex. Various factors,
both internal and external, can influence financial outcomes, making it difficult to
attribute all changes solely to corporate governance.
iii. Subjectivity: Assessments of corporate governance practices and financial
performance may involve subjective judgments and interpretations. Different
researchers or analysts may reach different conclusions despite examining the same
data.

11. iv. Timeframe: The study may be limited by the timeframe under consideration.
Corporate governance practices and their impact on financial performance may
evolve and change over time, limiting the generalizability of historical findings.
Despite these limitations, studying the impact of corporate governance on the
financial performance of oil and gas firms in Nigeria can provide valuable insights
into the relationship between governance practices and financial outcomes in this
specific industry context. The findings can guide policy-making, governance
reforms, and promote better practices in the Nigerian oil and gas sector.

12. CHAPTER TWO
LITERATURE REVIEW
2.1. General Review
Corporate Governance has no single generally accepted definition as definitions are
often a result of the cultural situations and framework of each of the countries under
consideration resulting in noticeable differences in the codes of Corporate
Governance of various countries. It is also because Corporate Governance is much
broader than just corporate management. Corporate Governance is a system of
structuring, operating and controlling a company with a view to achieving long-term
strategic goals for all stakeholders through compliance with the legal and regulatory
requirements and meeting environmental and community needs.
It is about how an organization deals with its various stakeholders through
established policies, structures and culture to achieve accountability and
performance outcomes.

13. Corporate Governance provides the structure through which the company’s
objectives are set and performance monitored. It also ensures that rules and
procedures for making decisions in the organization are clear.
As a way of going beyond legality and focus on ethics as well as achieving the
desires of the stakeholders, Corporate Governance definitions has moved from the
focus on only creating value for shareholders into the realm of responsibility In a
similar manner, Corporate Governance has been defined as a combination of
policies, laws and instructions influencing the way a firm is managed and controlled,
consisting of a framework of rules to grant transparency and fairness in the
relationship between the firms and its shareholders and to distribute rewards and
responsibilities among internal and external stakeholders in a way that avoid conflict
of interests.

14. Embracing principles of good Corporate Governance confers on companies, certain
advantages. Such advantages include improved reputation as adherence to good
Corporate Governance practices can boost the company's reputation since more
stakeholders will be willing to identify with such corporation. Corporate
Governance upholds moral uprightness among organization workforce by making
them to safeguard the resources and entitlements of all stakeholders. Another
advantage of Corporate Governance is that it enhances compliance with established
regulatory codes while it decreases conflicts and fraud and reduces the incidence of
misleading financial statements.

15. Financial Performance
The concept of financial performance has been an issue of significant interest to
management researchers. Generally, performance is understood to include best
management practices in order to generate economic profits. It is viewed as the
accomplishment of a specific task or duty measured against established bench marks
as an indicator of a firm’s degree of success. Firm’s financial performance facilitates
the adequate measurement of an organization’s financial health over a certain period
of time (Kariuki & Jagongo, 2013). It is the financial conditions of a company over a
certain period of time and it shows the company's ability to manage and control its
resources.

16. Financial performance is measured from financial statements using performance
metrics such as the cash flows, balance sheets, profit and loss statement and other
information disclosures that can enable an analysis of the financial state of the firm.
Therefore, it allows the various agencies in charge of monitoring and regulation as
well as the stakeholders and users of a firm’s financials assess how well Corporate
Governance mechanism has impacted on the efficient management of the firm.

17. 2.2. Empirical Review Of Literature
The Nigerian oil and gas industry plays a crucial role in the country's economic
growth and development. With the increasing awareness of the significance of good
corporate governance, several empirical studies have examined its impact on the
financial performance of oil and gas firms in Nigeria.
This research found a positive correlation between strong corporate governance
practices and financial performance. It revealed that firms with independent board
members, effective internal control mechanisms, and transparent financial reporting
exhibited better financial performance in terms of profitability, return on assets, and
market value.

18. The reviewed empirical studies collectively suggest a strong relationship between
corporate governance practices and financial performance of oil and gas firms in
Nigeria. They consistently highlight the positive impact of board independence,
transparency, ethics and compliance frameworks, and strategic board involvement on
profitability, market value, and shareholder returns. Overall, these findings underline
the importance of robust corporate governance practices in fostering a conducive
business environment for the Nigerian oil and gas sector.

19. 2.4. Theoretical Framework
Corporate governance is the relationship among shareholders, board of directors and the top
management in determining the direction and performance of the corporation. It includes the
relationship among the many players involved (the stakeholders) and the goals for which the
corporation is governed. According to, the Corporate Governance theoretical framework is
the widest control mechanism of corporate factors to support the efficient use of corporate
resources. The challenge of Corporate Governance could help to align the interests of
individuals, corporations and society through a fundamental ethical basis and it fulfils the
long-term strategic goal of the owners. It will certainly not be the same for all organizations,
but will take into account the expectations of all the key stakeholders.

20. So, maintaining proper compliance with all the applicable legal and regulatory
requirements under which the company is carrying out its activities is also achieved
by good practice of Corporate Governance mechanisms. There are a number of
theoretical perspectives which are used in explaining the impact of Corporate
Governance mechanisms on firms’ financial performance, but this study is anchored
on stakeholder theory which proposes that companies have a social responsibility
that requires them to consider the interest of all parties affected by their actions. The
original proponent of the stakeholder theory suggested a re-structuring of the
theoretical perspectives that extends beyond the owner-manager-employee position
and recognizes the numerous interest groups.

21. CHAPTER THREE
METHODOLOGY
3.1. Research Design
This study aims to investigate the impact of corporate governance on the financial
performance of oil and gas firms in Nigeria. The research design selected for this study
is a quantitative research design. This design allows for the collection and analysis of
numerical data, enabling the establishment of relationships and patterns between
variables.
i. Target Population:
The target population for this study consists of oil and gas firms operating in Nigeria.
The population will include both multinational and domestic firms involved in various
activities within the oil and gas sector.

22. ii. Sampling Technique
A purposive sampling technique will be utilized to select a representative sample
from the target population. Companies with a strong reputation, financial track
record, and active participation in corporate governance practices will be included
in the sample.
iii. Data Collection:
Data will be collected through secondary sources. Secondary data will be sourced
from annual reports, financial statements, and literature on corporate governance
and financial performance of oil and gas firms in Nigeria.

23. iv. Variables:
The independent variable in this study is corporate governance, which will be measured
using variables such as board composition, board independence, CEO duality, ownership
structure, and executive compensation. The dependent variable is financial performance,
which will be measured using financial indicators such as return on assets (ROA), return on
equity (ROE), and earnings per share (EPS).
v. Limitations:
a. The limitations of this research include the sample size and representativeness of the
selected oil and gas firms. Additionally, the study focuses only on the Nigerian oil and gas
sector.

24. b. By adopting a quantitative research design, this study aims to contribute to the
existing literature on the impact of corporate governance on the financial
performance of oil and gas firms in Nigeria. The research findings will provide
insights into the relationship between corporate governance practices and financial
performance, and it may inform policymakers, regulatory bodies, and industry
practitioners on the importance of effective corporate governance in the oil and gas
sector.

25. CHAPTER FOUR
RESULTS AND DISCUSSION
A. Results
Research suggests that stronger corporate governance practices positively influence
the profitability of oil and gas firms in Nigeria. This is mainly driven by improved
transparency, accountability, and risk management, which enhance operational
efficiency and attract investors. Corporate governance contribute to the following in
most oil and gas firms in Nigeria.
1. Improved access to capital: Effective corporate governance practices have been
found to increase the ability of oil and gas firms to access capital from various
sources. This enables them to fund their operations, undertake investment projects,
and expand their operations, ultimately improving their financial performance.

26. 2. Enhanced investor confidence: Sound corporate governance practices instill
confidence in investors, resulting in increased investments and a positive impact
on the financial performance of oil and gas firms. Investors are more likely to
invest in companies that have transparent and accountable governance structures.
3. Reduced financial risks: Strong corporate governance helps in identifying and
managing risks effectively. By implementing robust risk management practices,
oil and gas firms can avoid potential financial losses, safeguard their assets, and
maintain a stable financial performance.

27. 4. Market reputation and brand value: Effective governance practices contribute
to building a positive market reputation and brand value for oil and gas firms.
This, in turn, can attract more customers, partners, and investors, leading to
improved financial performance.
B. Discussions
Corporate governance plays a crucial role in the financial performance and position
of oil and gas firms in Nigeria. Effective governance practices can have both
positive and negative impacts on a company's financial position.

28. Positive impacts:
1. Enhanced transparency and accountability: Corporate governance promotes
transparency in financial reporting and ensures accurate presentation of a
company's financial position. This helps to build investor confidence and
attract more capital investments.
2. Mitigation of risks: Good corporate governance practices provide a
framework for identifying and managing risks effectively. This helps to protect
the financial position of the company and ensures sustainable growth.

29. 3. Access to capital: Strong corporate governance practices increase the
credibility of a company, making it easier to access capital from both domestic
and international sources. This improves the financial position by providing
necessary funds for investments and expansion.
4. Investor confidence: Sound corporate governance practices inspire trust and
confidence among investors, leading to higher levels of investment, better
stock prices, and improved financial position in the long run.

30. Negative impacts:
1. Fraud and corruption: Weak corporate governance can create an environment
conducive to fraudulent activities and corruption. These malpractices can have a
severe negative impact on the financial position of oil and gas firms, leading to
loss of shareholder value and market reputation.
2. Inadequate risk management: Insufficient corporate governance practices may
result in poor risk management, leading to significant financial losses for the
company. This can weaken the financial position and hinder growth
opportunities.

31. 3. Poor capital allocation: Ineffective governance structures can lead to
suboptimal capital allocation decisions. This can negatively impact the financial
position by misallocating resources and hindering the company's ability to seize
new opportunities or manage market challenges effectively.
In conclusion, the impact of corporate governance on the financial position of oil and
gas firms in Nigeria is significant. It can contribute to financial stability, access to
capital, transparency, and accountability. On the other hand, weak governance
practices can lead to financial mismanagement, risks, and loss of investor confidence.
Therefore, fostering effective corporate governance is crucial for oil and gas firms to
maintain a strong financial position and achieve sustainable growth.

32. CHAPTER FIVE
CONCLUSION, RECOMMENDATION
5.1. Conclusions
In conclusion, effective corporate governance positively impacts the financial
performance of oil and gas firms in Nigeria. It leads to improved financial results,
risk mitigation, increased investor confidence, enhanced operational efficiency, and
compliance with regulations. Implementing strong corporate governance structures
should be a priority for oil and gas companies to ensure sustainable and profitable
operations in the Nigerian market.

33. 5.2. Recommendations
We find that corporate governance and corporate financial performance are
correlated and governance rating of company has significant positive impact on its
financial performance. This research finding may support decision of company to
improve its governance structure. Companies should strive to improve on the
Following:
1. Strengthen board independence and effectiveness: Ensure that the board of
directors consists of independent members who can provide objective oversight
and challenge management decisions. Implement regular board evaluations to
assess the board's effectiveness and identify any areas for improvement.

34. 2. Enhance transparency and disclosure: Increase transparency in financial
reporting and provide meaningful disclosures to investors and stakeholders. This
includes timely and accurate financial statements, as well as clear explanations of
key risks and uncertainties faced by the company.
3. Implement effective risk management systems: Develop robust risk
management frameworks to identify, assess, and manage risks effectively. This
includes conducting regular risk assessments, establishing appropriate control
mechanisms, and monitoring risk mitigation strategies. Implementing Enterprise
Risk Management (ERM) practices can help mitigate risks across the
organization.

35. 4. Enhance shareholder engagement: Actively engage with shareholders and
encourage their participation in decision-making processes. This can involve
regular communication through annual meetings, newsletters, and other means of
engagement. Additionally, consider initiatives such as shareholder voting rights and
proxy access to further empower shareholders.
5. Prioritize environmental and social sustainability: Incorporate environmental and
social considerations into corporate governance practices. This includes
implementing sustainable practices, adhering to environmental regulations, and
contributing to the well-being of local communities. Consider establishing a
sustainability committee to oversee these efforts.

36. 6. Regularly review and update governance practices: Continuously assess and
update corporate governance practices to align with evolving regulatory
requirements and best practices. Seek external advice when necessary to ensure
adherence to international governance standards and benchmark performance
against industry peers.
By implementing these recommendations, oil and gas firms in Nigeria can enhance
their corporate governance practices, leading to improved financial positions,
increased investor confidence, and sustainable growth.

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