Corporate governance refers to a situation in which all the interests of stakeholders in a firm are taken care by the managers and other insiders by adopting mechanisms that guarantee and protect the interests of the stakeholders. Dabor, Isiavwe, Ajagbe and Oke [1], explains that corporate governance codes are developed with the primary goal of promoting a transparent and efficient system that will promotes the rule of law and facilitates division of responsibilities among the various managers of firms in a professional and objective manner. However, the increasing incidence of corporate fraud relating to exaggerated and fleeting reports have reinforced the renewed global emphasis on the need for effective corporate governance practices [2]. The framework of corporate governance encourages efficient use of resources and also requires accountability for the stewardship of those resources [3]. In the present era, the strengths, weakness and performances of firms are usually measured by the extent to which a firm upholds the codes of corporate governance [4]. Notable among the most important roles played by corporate governance is in ensuring and encouraging quality financial reporting process.               

Therefore, if a firm properly upholds the principles of corporate governance and obeys the provision of the codes to the letter, it is expected that its performance should be more impressive and acceptable to all stakeholders of the firms compared to other firms which fail in compliance with the tenets of corporate governance. Organizations like the international and multilateral organizations such as Organization for Economic Cooperation and Development (OECD), World Bank Banks, Funds, Stock Exchanges of countries, Commonwealth and several others concerned regulators have been focusing attention critically on the issue of corporate governance as reflected evidently in several releases of updated corporate governance code documents and conferences and this is more appropriate especially, following scandals witnessed in Adelphia, Enron and WorldCom [5].

Consequently, abuse of corporate governance is a global thing that has no territorial definition or coloration. thus, as they have been reported in the international scenes, many scandals have equally been reported in Nigeria; this is why Ndum and Oranefo [4], averred that the cases of abuse of corporate governance encompasses the recent gross financial misconduct in which the former managing directors of the Oceanic Bank of Nigeria Plc, Union Bank of Nigeria Plc and the Intercontinental Bank of Nigeria Plc and other banks in Nigeria were found wanting and which were widely reported in the press. In addition, they pointed out that another case of corporate governance breaches involved the Directors of the Nigeria Stock Exchange, especially the Director General, who in the conduct of the Board affairs committed fatal breaches of corporate governance codes in relation to the institution they managed.

Wondering why people breach corporate governance codes, Ozili [6], posits that there is a traceable consensus that failure of corporate governance in Nigeria is accounted for by several factors which include lack of political will by the government to enforce corporate governance laws, intentional refusal to obey with existing corporate governance laws by politically exposed firms, weak compliance by firms, weak enforcement by regulators and conflicting codes in the country’s corporate governance codes. According to Kyereboah-Coleman and Biekpe, [7], as cited in Adewuyi and Olowookere [5], it is expected that generally, a well-governed firms are expected to earn higher profits, face lesser risk of bankruptcy, have higher valuations and consequently reward their shareholders with more dividend payout; the reverse is however, expected to hold for a poorly-governed firms. To this end, Enofe and Isiavwe opine that poor corporate governance practices by firms eventually result into failure of the firms and such monumental failures have underscored the need for a deeper understanding of the impact of corporate governance on firm’s performance [1].

Statement of Problem

In his recommendation for future researchers, Ozili [6], states that many studies have investigated the impact of corporate governance in non-financial firms which includes manufacturing companies, textile companies, oil companies, etc. [1,7-9]. However, there have been only few studies which investigated the outcomes of corporate governance in financial firms in Nigeria, despite that different types of financial institutions abounds in Nigeria. The existing studies have excessively focused on corporate governance in the bank financial institutions. He therefore  suggested the need to examine the effect of corporate governance on the performance of these financial institutions while adding specifically that more research on corporate governance in financial firms is needed in insurance firms, mutual funds companies and pension companies. Such studies when conducted will be insightful in providing understanding whether the adoption of the same codes of corporate governance by banks financial institutions has the same or different effects on the performance of non-bank financial firms such as pension companies, mutual funds, insurance companies, etc. furthermore, existing studies have excessively focused on measuring the performance of firms by return on asset and return on equity, while little or no attempt has been made in the literature to measure the firm’s performance by absolute value of their profits before or after tax. Although Urhoghide and Korolo [7], made use of profit after tax in the measurement of firm’s performance in their study, the focus of the study was in oil and gas sector. In the light of the foregoing, this study strives to investigate the effect of corporate governance on the performance of AIICO insurance, Cornerstone Insurance Plc and Lasaco Insurance companies in Nigeria.

Research Questions

Arising from the above statement of the problem, the following questions are raised:

• What is the effect of board size on firm performance in Nigeria

• What is the effect of board composition on firm performance in Nigeria

• What is the effect of audit committee on firm performance in Nigeria

Objectives of the Study

Generally, the objective of this study is to examine the effect of corporate governance on firm’s performance in Nigeria; however, the study specifically strives to:

• Examine the effect the board size on firm performance in Nigeria

• Investigate the effect of board composition on firm performance in Nigeria

• Find out the effect of audit committee on firm performance in Nigeria

Research Hypotheses

This study is guided by the following statement of testable hypotheses:

• H01: Board size has no significant effect on firm performance in Nigeria

• H02: Board composition has no significant effect on firm performance in Nigeria

• H03: Audit committee has no significant effect on firm performance in Nigeria

Literature Review

Conceptual Review: According to Ogunsanwo [8], accountability, boards, disclosure, investor involvement and other concerns are all addressed by corporate governance, implying that the makeup of a board of directors has a significant impact on an entity's success. Through the creation of rules and procedures, corporate governance guarantees that management and the board of directors follow best and sound practices in carrying out their obligations. Regulatory agencies in Nigeria have created policy frameworks to guarantee that commercial banks follow corporate governance best practices [9].

Ndum and Oranefo [4], explain that corporate governance is concerned with accountability, boards, disclosure, investor involvement and other related concerns, implying that the composition of a board determines the performance of a business to a great extent. As a result, corporate governance is concerned with finding a balance between economic and social aims, as well as between individual and communal interests. The concept of corporate governance is considered by Rwegasira [10], as merely concerned with the institutions through which a business entity or enterprise derives its basic orientation and direction. Consequently, the structure and mechanisms for business direction and management are the subject of corporate governance as it entails the interactions between the company's controlling structure, board directors' functions, shareholders and stakeholders.

Corporate governance is a strategy for reducing the agency cost associated with the conflict of interest that exists between managers and shareholders. The tension arises fairly organically as a result of the modern-day business's separation of ownership and control [5].  They added that managers are in a privileged position which allows them to make decisions that could either converge with or reinforce the firm's value maximization goal and because of this, managers can exploit their power over the company to pursue personal goals at the expense of stakeholders. To Aguilera and Jackson, the arrangement of rights and obligations among the stakeholders with an interest in a company is referred to as corporate governance.

Form Performance

Akintonde opines that depending on whether the measuring goal is to analyze performance results or behavior, performance is a multi-dimensional construct. Also, Nnabuife felt that performance encompasses not only teamwork but also individual efforts that result in a specified end result that will be rewarded by managers. Armstrong as cited in Akintonde says because they have the strongest linkage to the organization's strategic goals, customer happiness and economic contributions, performance is described as work outcomes. 

The quantity of utility or benefits gained by shareholders from the firm's shares can be viewed as the firm's performance or worth. Firms that generate a substantial amount of value from the selling of their shares are said to be financially successful. Such high-value companies attract a lot of investors, which increases the company's chances of continued expansion. A company can be valued in a variety of ways. Discounted cash flow, present value, equity cash flow and weighted average cost of capital methods are some of the most commonly used measures. Profit After Tax (PAT) was used to measure firm performance for this study. This ratio measures a company's ability to generate earnings or returns from its assets. After deducting all expenses and taxes related to the returns, profit is computed. According to Drucker [11], a company must make money in order to stay in business.

Board Size

The total number of directors on a board is defined as board size [12] and [13]. The number of executive and non-executive directors on a board should be as few as possible [14]. Kajola [15], believes that when a board size is restricted to a particular level, it is consequently believed to improve the performance of a firm; this is because the benefits of maintaining a larger board with increased monitoring are counteracted by the poorer communication and slow decision making. The effectiveness of the board's structure is critical to the company's governance. However, Zabri, Ahmad and Wah, [16], submits that because each country has its own culture, board size has been found to vary from one country to the next. This means that no optimal or standard board size exists among organizations around the world. In their study of corporate governance among European organizations, Heidrick and Struggles [17], discovered that firms in the United Kingdom, Switzerland and Holland have small boards, whereas firms in Belgium, France, Spain and Germany had large boards (Thirteen to Nineteen members). 

Florackis and Ozkan [17], hold the opposite viewpoint, arguing that boards with more than seven or eight members are unlikely to be productive. Mak and Yuanto [18], found that companies' performance was at its peak in Malaysia and Singapore when their boards had five members. According to Uwuigbe and Fakile [19], banks with a board size of less than thirteen are more viable than those with a board size of more than thirteen. They also discovered that banks with larger boards of directors had lower earnings than banks with smaller boards. They concluded that board size had a strong negative association with bank financial performance. According to Adams and Mehran's research, there is a non-negative relationship between board size and the success of banking organizations. In Indian banks, Manas [20], found that there is no association between board size and corporate governance. Therefore, from the foregoing, it is obvious that there is no generally acceptable consensus about the effect of board size on the form’s performance. This study therefore seeks to measure the effect of board size on the performance of non-bank firms so as to contribute to the discourse in the literature.

Audit Committee

The Audit Committee (AC) serves as a central "watch dog" to ensure that processes are followed. The AC is a board of directors subcommittee that was established over fifty years ago in response to suggestions made by the Securities and Exchange Commission (SEC) in the United States in the 1940s [21,22]. As time went on, the formation of an AC as a sub-committee of the board of directors became a legal obligation and the AC would play a critical role as the ultimate overseeing mechanism in the assurance process for corporate financial reporting [23]. 

The audit committee aids the board of directors in reviewing and implementing proper internal control systems, as well as overseeing and focusing on financial risk and risk management [24]. Hence, audit committee assists to ascertain signals of problem and handle these problems, diminish feasible damage and improve shareholder value. In his study, Klein [25], found a negative relationship between earnings management and independence of audit committee; similarly, Anderson, Mansi and Reeb submits that absolute independence of audit committees is associated with lower debt financing costs.

Board Composition

The board of directors is often an organization's governing body. Its main task is to ensure that the company meets the shareholders' objectives. As a result, the board of directors is answerable to these stockholders [26]. The board of directors has the authority to appoint, fire and compensate top executives [27]. As a result, the organization's assets and invested capital are protected. The board of directors' senior management influence how banks operate their daily operations, meet their requirement of accountability to shareholders and consider the interests of other recognized stakeholders, in addition to determining the bank's objectives (including earning returns to shareholders) [28].

The presence of independent directors on boards is widely regarded as critical since they are regarded as true monitors who can discipline management and improve corporate performance [29]. Outside directors are more adept at maximizing shareholder wealth than inside directors. Inside directors, on the other hand, can offer more to a company than outside directors because they have firm-specific knowledge and expertise. The board's composition is one of the elements that can help to reduce agency conflicts inside the company.

Theoretical Framework

Jensen and Meckling's agency theory perspective which was propounded in 1976 is used in this research. Agency theory, according to the authors, is a circumstance in which a person, referred to as the principal, contracts the services of another person, referred to as the agent, to perform certain tasks on his behalf for a fee [30]. In a given business transaction, the agent represents the principal and is supposed to operate in the principal's best interests without regard for self-interest. The disparities in interests between principals and agents may cause friction, as certain agents may not always work in the principal's best interests. When the agent's and principal's incentives are not entirely matched, conflicts of interest develop. It's possible that the agent will get away with not operating in the principal's best interests. One probable explanation is that the expense of removing or disciplining the agent to the principal is excessively high in comparison to the benefit.

According to Jensen and Meckling [30], the presence of information asymmetry is a second and more universally applicable reason. When one party (the agent) has more information than the other, information asymmetry occurs (the principal). Because of the information asymmetry, it is difficult, if not impossible, for principals to determine if the agent is acting in their best interests. For example, if a company publishes non-impressive financial reports, shareholders may find it difficult to determine if the poor results are due to poor picks or reasons outside the management' control. A moral hazard, on the other hand, can occur in a principal-agent conflict. This means that the agent usually knows more information about his or her actions than the principal, because the principal cannot always supervise the agent to determine if he or she is competent of performing the tasks for which he or she was employed. If the agent's and principal's interests are not aligned, the agent may have an incentive to act inappropriately (from the principal's perspective) [30].

Therefore, the agency theory proposes a framework for investigating the adverse selection and moral hazard issues that plague modern businesses. This theory demonstrates and attempts to resolve the primary conflicts that arise as a result of the ‘‘firm" arrangement. Consequently, the agency theory's treatment of debt and equity financing makes it a good fit for evaluating the governance and financial performance of publicly traded corporations which is the focus of this study.

Empirical Review

Adewuyi and Olowookere [5], the impact of corporate governance on firm financial performance of Nigerian listed firms. The study made use of a sample of 64 listed non-financial firms for covering a period from 2002 to 2006. Panel data were collected from these sampled firms and analyzed by panel regression technique. Finding from the study showed that board size, audit committee independence and ownership concentration promotes performance while higher independent directors and directors’ portion of shares impaired performance against expectation. Also, firm vesting both the roles of CEOs and Chairman in the same individual makes such person perform better. Consequently, it was recommended that Boards should require that the CEOs become major owners of company stocks while Salaries, bonuses and stock options should be schemed to provide substantial rewards for impressive performance and serious penalties for poor performance.

Urhoghide and Korolo [7], examined the effect of corporate governance on financial performance of quoted oil and gas companies in Nigeria for the period 2008 to 2015. The independent variables were board size, board diversity, board diligence, board political affiliation and corporate governance disclosures while the dependent variable was the firm financial performance which was measured by profit after tax. Data were collected from the published financial statements of the 12 sampled in the oil and gas sector. Data were analyzed by the Generalized Least Square (GLS) regression while findings revealed that Board size, board gender diversity and corporate governance practices have significant positive impact on profit after tax of the sampled firms. Furthermore, Board diligence and corporate governance reforms had positive but insignificant effect on profit after tax while board political affiliation has significant negative relationship with profit after tax of quoted oil and gas companies in Nigeria. based on the foregoing findings, it was recommended that companies should put measures in place to ensure that boards are effective in performing their duties of monitoring the activities of management and that attention should not be on frequency of board meetings which have been found to have negative impact on financial performance. 

Dabor, Isiavwe, Ajagbe and Oke [1], investigated the impact of corporate governance on firm’s performance of selected listed companies in Nigeria from 2004 to 2013. Return on equity and return on assets were the dependent variables as the proxies for firm performance, while board size, board independence, board gender diversity and ownership structure were the independent variables used for measuring corporate governance. The collected data were analyzed with the aid of panel regression estimator and the result reveals that board size and firm significant negative relationship with financial performance, while Board independence, ownership structure and board gender diversity had insignificant impact on firm performance. Consequently, the study recommended that statutory bodies should come up with laws to adopt smaller board size due to its accompanying benefits.

Ogunsanwo [8], examined the effect of corporate governance on firm performance in Nigeria from 2013 to 2017. The independent variables were board independence, ownership structure and board gender diversity to measure corporate governance, while the dependent variable was the financial performance as measured by Return On Asset (ROA) and Return On Equity (ROE). Data were sourced from annual report and financial statement of the sampled companies from banking and non-financial sector. Analysis of the data was carried out by Panel regression technique. The Study Found that Board Independence (BIND) has positive effect on return on asset while Ownership Structure (OWNSTR), Board Size (BSIZE) and Board Gender Diversity (BGD) on return on asset. The study further revealed that all the explanatory variables have significant positive effect on return on equity. Thus, the study concluded that there was a significant relationship between corporate governance and return on equity and recommended that board size should be increased but not exceeding the maximum number specified by the code of banks’ corporate governance.

Olabisi and Omoyele [31] investigated the effect of corporate governance on the performance of Nigerian banking sector by using five samples from the banks that met the 25bn capitalization threshold. Data were collected from the sampled banks by means of questionnaires. Analysis of the data was done by both descriptive and inferential statistics using simple percentages and Pearson Product Moment Correlation. Corporate governance was the independent variable and was measured by roles of external auditor and the composition of the board of directors. The study showed that lack of good corporate governance is the bane of so many banks in Nigeria. which accounted for the collapse and failure of many banks while both poor audit control and directors’ negligence to observe due diligence and acceptable standard practices have impaired the performance of the Nigerian banks. Based on the followings, it was recommended therefore, that transparency, honesty and objectivity have to be incorporated into the running of banking operations so as facilitate the on the continuity of the banks.

Oluwole [9], examined the effect of corporate governance on commercial banks profitability in Nigeria for a period covering 2009 to 2018. Secondary data were collected from the audited financial statement of the selected banks. Audit Committee Size (ACS), Board Size (BS), Audit Committee Number of Meeting (ACNM) and Board Number of Meeting (BNM) were the independent variables measuring the corporate governance why Earnings Per Share (EPS) of the selected banks were proxied as the dependent variable to measure financial performance. Data were analyzed by employing panel regression. The results showed that audit committee size, board size and number of board meetings had a positive and significant relationship with Earnings per share of the banks. However, audit committee number of meeting had negative and significant relationship with earnings per share. It was conclude that corporate goevrnamce promotes the performances of commercial banks in Nigeria and recommended that attention should be focused on the audit committee size, board size and board number of meetings which facilitates banks performance while the number of audit committee meetings should be reduced since it negatively affects the performance of the banks.

Sagin and Suleiman [32], studied the effect of corporate governance on the firms listed on the Nigerian stock exchange for the period of three years from 2015 to 2017. Data were collected from the secondary source and analyzed by using Ordinary Least Square (OLS). The study revealed that the CEO's duality and board size had correlations with the performance of firms while number of committees, directors' shareholdings and audit committee had positive influence on the performance of the sampled firm. It was consequently recommended that the issues of corporate governance and code of best practice should be made compulsory for firms listed in order to reduce their board size to eleven to bring about efficiency and effectiveness since larger board negatively affects the performance of the listed firms as revealed by this study.

Gbadebo [32], examined the influence of corporate governance mechanisms on corporate performance of some non-financial firms in Nigeria from 1990 to 2017. Independent variables which measured corporate governance were board size, directors’ shareholding, block holding and leverage while return on assets and return on equity were used to measure the performance of the firms. Data were collected from the secondary sources and analyzed by using panel regression estimation technique. Result revealed that leverage has positive and significant correlation with return on assets and return on equity unlike directors’ shareholding, block holding which had negative relationship with dependent variables. Furthermore, board size showed mixed result with a negative and significant influence on return on equity while its relationship with return on assets is negative and insignificant. Thus, the study concluded that corporate governance had more influence on return on equity than return on assets. 

Ndum and Oranefo [4], assessed the relationship between corporate governance and firm performance in Nigeria using time series data from 2012 to 2019. Return on assets was the dependent variable which measured firm’s performance while board size, audit committee and firm’s size were the independent variables which captured corporate governance. Data were collected from the annual report and account of the sampled firms and analyzed using descriptive and ordinary least square regression technique. Findings showed that audit committee and board composition had positive insignificant effect on return on assets of the sampled conglomerates firms in Nigeria. Based on the foregoing the study recommended that listed firms should consider and reasonable and competitive compensation level of board’s members as a matter of necessity so as to provide a better link between shareholders and firm’s management and enhance firm’s performance in the maximization of shareholders’ value.

Kajola [15], examined the relationship between four corporate governance mechanisms of twenty Nigerian listed firms from 2000 to 2006. Return On Equity (ROE) and Profit Margin (PM) were the dependent variables used to capture firm’s performance while board size, board composition, chief executive status and audit committee were the explanatory variables to capture corporate governance mechanism. Data were obtained from the financial reports of the sampled firms while data analysis was done by using ordinary least square regression. Upon analysis, the results showed a positive significant relationship between return equity and board size as well as chief executive status while insignificant positive relationship was found between board composition and firm performance. Furthermore, the results revealed a positive significant relationship between profit margin and chief executive status. It was therefore recommended that attention should be focused on the study of small and medium scale firms in the African continent as these firms are made up of least 90% of the total number of firms in Nigeria.

Research Design

This study employed quantitative research design which is ex-post facto research design using panel data for the periods from 2009 to 2019.

Model Specification

In order to express the linear relationship between corporate governance firm’s performance, this study adopted and adapted the models specified and used by Dabor, Isiavwe, Ajagbe and Oke [1], Ogunsanwo [8] and Oluwole [9]. Hence, the adapted model is specified thus:

FP = f (CG)

1

By introducing proxies of corporate governance and firm’s performance, equation 1 becomes:

PAT = f (BS, BC, AC)

2

In econometric form, equation (3) can be transformed as:

PAT = β0 + β1BOS + β2BOC + β3AUC + ut

3

Where,

PAT : Profit after tax of the selected firms

BOS : Board size of the selected firms

BOC : Board composition of the selected firm measured as the ratio of independent non-executive directors and board size

AUC : Audit committee size of the Selected firm 

β0 : Constant of the regression 

β1- β3 : Estimated regression slope

A priori Expectation

The relationship between the various proxies of corporate governance and the firm performance are expected to take the following directions: β1>1, β2>1 and β3>1.

Source of Data

Data for the study were collected from secondary source through annual reports of listed insurance companies. Specifically, the data were sourced from the audited annual financial statements of the two selected firms listed on the Nigerian Stock Exchange and Securities and Exchange Commission’s Statistical Bulletin covering the period of 11 years from 2009 to 2019.

Method of Data Analysis

This study uses panel ordinary least square regression as a data analysis technique. The study thus selected the best choice between fixed effect and random effect techniques based on the outcome of Hauseman’s test and Wald test. Furthermore, the nature and normality of the data series were examined by descriptive Statistics.

The result interpretation and discussion of the findings are presented in this section.

Descriptive Statistics

Time series data are generally prone to high rate of skewness due to the presence of many outliers along the trend line. Hence, Jarque-Bera test of normality was used to see whether the data is normally distributed. The null hypothesis in this test is that the series are normally distributed. Similarly the mean based coefficients of skewness and kurtosis values were applied to check the symmetric nature of the variables.

Table 1: Summary of Descriptive Statistics

Source: Author’s Computation 2021

Table1 contains the statistics describing the nature of the cross-sectional sample series. From the Table 1, the LPAT has the highest mean value of 14.12, which is followed by BOS (10), AUC (5.50) while BOC has the lowest mean value of 0.47. The deviation of the series from their mean values reveals the standard deviation values for each of the series, such that BOC has the lowest standard deviation of 0.077 which means that all its observations for the period covered by this study cluster around its mean value. BOS and AUC has the standard deviation values of 1.02 and 0.51 respectively while LPAT has 0.8 as its standard deviation value. By the foregoing result, the standard deviation values for all the sample series are very low and this implies that the observations in the sample series not far from their mean values.

With respect to skewness, normal skewness should have 0 value. Thus, all the variables are positively skewed and mirror the normal distribution. Kurtosis measures the peakness or flatness of the distribution of the series. For a distribution to be normal and hence, mesokurtic, its kurtosis value must be 3. However, from Table 1, it is obvious that all the variables are all clearly platykurtic because they all have kurtosis values that are less than 3, suggesting that that all the series will have values lower than the sample mean values. The null hypothesis for Jarque-Bera test is that the distribution is normal. Thus, from the Table 1, all the variables have Jarque-Bera probability values that are above 0.05 significance level; hence, there is no enough reason to reject the null hypothesis of normality. It is concluded therefore, that all the variable series are normally distributed.

Hausman Test

A statistical test known as Hausman test was conducted to compare the random effects estimator to fixed effect estimator, so as to determine which model is the more appropriate to estimate. The test is essentially meant to discriminate between a model where the omitted heterogeneity is treated as fixed and correlated with explanatory variables and a model where the omitted heterogeneity is treated as random and independent of explanatory variables. The following hypotheses were stated for this test:

• H0: Random effects are independent of explanatory variables

• H1: H0 is not true

The decision criteria are that if the test statistic p-value is less than the critical value at 0.05 significance level, null hypothesis is rejected; hence, random effects model is rejected in favour of fixed effects model and vice versa. 

From Table 2, the p-value of chi-square statistic is 0.035 which is obviously less than the critical value at 0.05 significant level, therefore, alternative hypothesis (H1) was accepted and null hypothesis (H0) rejected. Hence, this result suggests that fixed effect model should be estimated and the result is displayed on Table 3 thus:

From Table 3, displays the result of model stated in equation (4) which expresses the linear relationship between corporate governance and performance of three selected insurance companies in Nigeria. Thus, from the result, it can be deduced that all the explanatory variables, that is, board size (BOS), board composition (BOC) and Audit committee size (AUC) have positive relationship with profit after tax but the level of statistical significance differs among the explanatory variables. Specifically, while size of the board and the audit committee size of the sampled firms maintain positive and significant relationship with their profits after tax, the composition of the board, although positive in relationship, but statistically insignificant to the PAT of these firms. Consequently, 1% positive change in board size is associated with about 15% positive changes in firm performance and vice versa. In case of board composition, a priori expectation is confirmed as 1% increase in BOC is associated with about 8% increase in the firm profit after tax (PAT) and vice versa. Moreover, the audit committee size (AUC) equally maintain direct relationship with the profit after tax of the firms such that should there be 1% increase or decrease in the size of the audit committees of the firms, there will be resultant effect of 35% increase or decrease in PAT in line with apriori expectation. 

Looking at the R2 value of the estimated fixed effect model, it shows that the explanatory variables are jointly responsible for about 54% change in the endogenous variable (PAT) i.e the independent variables can predict profit after tax by 54% while the remaining 46% are accounted for by other extraneous variables or factors not included in the estimated model but represented with stochastic terms. The adjusted R2 value is 44% which translates that the removal or addition of variables while calculating the degree of freedom does not impair the model performance. The standard deviation values of the individual coefficients are low for both BOS and AUC but slightly high for BOC. Also, the t-ratios are higher than 2 for BOS and approximately equal to 2 for AUC; this further attests to the significance of these two variables with respect to the dependent variables. The F-statistics of 4.15 is high and significant with 0.00 p-value. This implies that the performance of the overall model is robust and good.

Test of Hypotheses and Discussion of Findings

Thus, the more information is disclosed among the listed firms of NSE, the wider the information asymmetry during the period covered by this study and this contradicts theoretical expectation disclosure of more information to the public about a firm’s operations was expected to close the information gap among the participants in the market.

Table 2: Hausman Test Result

** WARNING: estimated cross-section random effects variance is zero.

Source: Author’s Computation (2021)

Table 3: Fixed Effect Model Result

Source: Author’s Computation (2021)

Dependent Variable: LPAT, Method: Panel Least Squares, Date: 08/04/21 Time: 10:09, Sample: 2009 2019, Periods included: 11, Cross-Sections Included: 3, Total Panel (Unbalanced) Observations: 32

Hypothesis One

The hypotheses of this study were tested at 0.05 level of significance as follows:

• H01: Board size has no significant effect on firm’s performance in Nigeria

• H11: Board size has significant effect on firm’s performance in Nigeria

From Table 3, the p-values BOS is 0.002 which is statistically significant at 0.05 level, hence, there was no enough evidence to reject null hypothesis. This thus implies that board size has significant positive effect on firm’s performance in Nigeria.

Hypothesis Two

• H02: Board composition has no significant effect on firm performance in Nigeria

• H12: Board composition has no significant effect on firm performance in Nigeria

From the result on Table 3, the p-value of BOC is 0.4283 which is statistically insignificant at 0.05 critical value. Therefore, there was no enough reason to reject null hypothesis. Consequently, null hypothesis (H02) which states that board composition has no significant positive effect on firm performance in Nigeria was accepted.

Hypothesis Three

• H03: Audit committee has no significant effect on firm performance in Nigeria 

• H03: Audit committee has significant effect on firm performance in Nigeria

Looking at Table 3, the p-value of AUC is 0.05 which is equal to the critical value at 0.05 significant level. Hence, H03 was rejected and H13 accepted. This implies that Audit committee has significant positive effect on firm’s performance in Nigeria

The empirical analysis of the cross sectional data collected in this study revealed a significant positive relationship between board size and firm profit after tax; this relationship thus conforms to a priori expectation of this study that if the size of a board as specified by the code of corporate governance is complied with, should bring about the improved performance of the firms. This result thus corroborates the work of Adewuyi and Olowookere [5], who revealed in their study that board size promotes firm performance; and aligns with the submission of Urhoghide and Korolo [7], that board size has significant positive relationship with firm performance. This result however, disagrees with Dabor, Isiavwe, Ajagbe and Oke [1], whose work showed a negative association between board size and firm performance. The implication of board size promoting firm performance as revealed by this study has further underscored the need for firm to comply with the codes of corporate governance in Nigeria.

Furthermore, a positive but insignificant effect of board composition on firm performance of the three selected firms in Nigeria was discovered by this study. This is a confirmation of the result obtained by Kajola [15], that board composition promotes firm performance in an insignificant manner and hence should be less emphasized, it further affirms the finding of Urhoghide and Korolo [7], that there is positive relationship between board composition and firm performance. However, this result does not align with the position of Olabisi and Omoyele [31], who revealed that there was significant direct relationship between board composition and firm performance. By this study, board composition of corporate bodies in Nigeria is an insignificant determinant of the their performances and therefore, less emphasis should be placed on it. With respect to audit committee, this study reported a significant positive relationship with firm performance. This corroborates the theoretical underpinning that compliance with corporate governance code in respect of having the right number of audit committee in place should promote the transparency, integrity and soundness of financial reporting process of firms. This result supports the view of Kyereboah-Coleman and Biekpe, [7], as cited in Adewuyi and Olowookere [5], that a well-governed firms are expected to earn higher profits and face lesser risk of bankruptcy which in turn brings about bountiful reward to shareholders. The result however, contradicts the finding of Ndum and Oranefo [4], whose finding revealed a negative and statistically insignificant effect of audit committee on firm performance.

This study has investigated the effect of corporate governance on firm performance in Nigeria. Three firms were randomly sampled in the Nigerian insurance sector as the focus of this study. Three research questions were posed and transformed into specific objectives and from which three statements of testable hypotheses were conjectured. Data were sourced from the published annual reports and accounts of these firms and the outcome of the analysis revealed that in line with theoretical expectation, positive and significant effect subsisted between performances of the selected firms and their board size and audit committee size. Similarly, the board compositions of these firms were also positively related with their performances as measured by profit after tax. Consequently, the null hypotheses of no significant effect were rejected in the cases of board size and audit committee unlike the case of board composition. By implication, this study revealed that board size and audit committee size were significant promoters of firm performances in the selected insurance companies. Based on these results, it is concluded that corporate governance measured by board size and size of the audit committee are strong determinants of firm performance in Nigeria and should be emphasized more in the subsequent review of corporate governance code in Nigeria while boar composition should be deemphasized.

Recommendations

In line with the findings and the conclusion made in this study, the following recommendations are made:

• Since board size has been found to be significant determinant of firm performance in Nigeria, it should be emphasized in the subsequent review of the corporate governance code in Nigeria and its implementation enforced across the board of Nigerian corporate landscape

• This study also found positive and significant relationship between audit committee and firm performance; hence, corporate regulators should as a matter of urgency take step to enforce composition of audit committee according to corporate governance prescription and it should be emphasized more in the subsequent review with stiffer penalty

• Board composition according to this study is an insignificant determinant of firm performance; therefore, it should be accorded lesser attention with respect to other corporate governance practices in Nigeria

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