CORPORATE
GOVERNANCE AND PERFORMANCE OF TELECOMMUNICATION COMPANIES IN NIGERIA
TABLE
OF CONTENTS
Title page – – – – – – – – – – – i
Declaration – – – – – – – – – – ii
Certification – – – – – – – – – – – iii
Dedication – – – – – – – – – – iv
Acknowledgements – – – – – – – – – – v
Abstracts – – – – – – – – – – viii
Table of contents – – – – – – – – – xi
List of Acronyms – – – – – – – – – xv
List of Tables – – – – – – – – – – xvi
CHAPTER
ONE
INTRODUCTION
1.1 Background
to the Study – – – – – – – 1
1.2 Statement
of the Problem – – – – – – – 5
1.3 Research
Questions – – – – – – – – – 8
1.4 Objectives
of the Study – – – – – – – 8
1.5 Research
Hypotheses – – – – – – – 10
1.6 Significance
of the Study – – – – – – – 10
1.7 Scope
of the Study – – – – – – – – 12
CHAPTER TWO
LITERATURE REVIEW
2.1Introduction – – – – – – – – – 14
2.2 Concept
of Corporate Governance – – – – – – – 15
2.2.1 Evolution
of Corporate Governance – – – – – – 22
2.2.2 Principles
of Corporate Governance – – – – – – 24
2.2.3 Characteristics
of Good Corporate Governance – – – – 27
2.2.4 Stakeholders
in Corporate Governance – – – – – 28
2.3 Ownership
Structures and Elements in Corporate Governance – – 30
2.4 Stakeholders in
Corporate Governance – – – – – – 31
2.5 Concept of Performance – – – – – – – – 33
2.6 Corporate Ownership and Performance – – – – – 38
2.7 Relationship
between Corporate Governance Mechanism and Corporate
Performance-
Linkage between Independent Variables and Dependent Variables- 40
2.7.1 Managerial shareholding and corporate financial performance – – 42
2.7.2 Composition of Board Members – – – – – – 46
2.7.3 Board size – – – – – – – – – 49
2.7.4 Composition of Audit Committee – – – – – – 51
2.7.5 Institutional
Shareholding and Company Financial Performance – – 52
2.8 Other
factors that Affect Firm Performance. – – – – – 53
2.8.1 Quality of Board Members – – – – – – – 56
2.8.2 Directors Remuneration – – – – – – – 58
2.8.3 Separation
of Chair and CEO – – – – – – – 60
2.9 Review
of Past Studies on Corporate Governance and Performance – – 61
2.10 Concept
of Telecommunication – – – – – – 68
2.11 Evolution
of Telecommunication in Nigeria – – – – – 70
2.12 Global
Experience – – – – – – – – 79
2.13 Telecommunication
Contribution to Nigeria GDP from 2004 – 2013 – 79
2.14 Regulation
of the Communication Industry – – – – – 81
2.15 The
Operating Environment of Telecommunication- – – – – 82
2.15.1 Regulated
Markets – – – – – – – – 82
2.15.2 Marketing/Competition – – – – – – – 85
2.15.3 Telecommunication
Infrastructure – – – – – – 85
2.16 Theoretical
Framework – – – – – – – 87
2.16.1 Agency
Theory – – – – – – – – 88
2.16.2 Stewardship
Theory – – – – – – – – 91
2.16.3 Stakeholder
Theory – – – – – – – – 94
2.16.4 Institutional
Theory – – – – – – – – 100
2.16.5 The
Theory Adopted for this Study – – – – – – 103
2.17 Summary of the Section – – – – – – – 104
CHAPTER THREE
RESEARCH
METHODOLOGY
3.1 Introduction – – – – – – – – – 106
3.2 Research
Design – – – – – – – – 106
3.3 The
Study Population – – – – – – – – 107
3.4 Sample
Size – – – – – – – – – 107
3.5 Source
of Data – – – – – – – – 107
3.6 Measurement
of Variables – — – – – – – 108
3.7 Data
Analysis Techniques and Model – – – – – – 108
3.7.1 Pooled Least Square Regression Model – – – – – 110
3.7.2 Fixed-Effect Least Squares Dummy Variable Regression Model – – 110
3.7.3 Random Effect Least Square Regression Model – – – – 111
3.8 Model
to be Used in Estimation – – – – – – 112
3.8.1 Choice of Model – – – – – – – – 113
3.8.2 Second-Order Tests – – – – – – – – 115
3.9 Method
of Testing Hypotheses – – – – – – – 116
3.10 Summary
of the Chapter. – – – – – – – 117
CHAPTER FOUR
PRESENTATION
AND ANALYSIS OF RESULTS
4.1Introduction – – – – – – – – – 118
4.2 Descriptive
Statistics – – – – – – – – 118
4.3 Inferential
Statistical Analysis of Result – – – – – 122
4.3.1 Pooled Effect Model Result – – – – – – – 123
4.3.2. Fixed effect model (FEM) result – – – – – – 126
4.3.3. Random effect model (REM) result – – – – – – 128
4.4 Diagnostic
Test – – – – – – – – 131
4.5 Test
of Hypotheses – – – – – – – – 135
4.5.1 Test of Hypothesis One – – – – – – – 135
4.5.2 Test of Hypothesis Two – – – – – – – 137
4.5.3 Test of Hypothesis Three – – – – – – – 138
4.5.4 Test of Hypothesis Four – – – – – – – 139
4.5.5 Test of Hypothesis Five – – – – – – – 140
4.6 Interpretation
of Results – – – – – – – 141
4.6.1 Results of Ho1 – – – – – – – – – 141
4.6.2 Results of Ho2 – – – – – – – – – 143
4.6.3 Results of Ho3 – – – – – – – – – 144
4.6.4 Results of Ho4 – – – – – – – – – 145
4.6.5 Results of Ho5- – – – – – – – – 147
CHAPTER FIVE
SUMMARY
OF FINDING, CONCLUSION AND RECOMMENDATIONS
5.1 Introduction – – – – – – – – – 149
5.2 Summary
of Findings – – – – – – – – 149
5.3 Conclusion – – – – – – – – – 150
5.4 Recommendations – – – – – – – – 151
5.5 Contribution to Knowledge and Suggestion
for Further Studies – – 152 References – – – – – – – – – 156
Appendices
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
The telecommunications
industry is undergoing a critical transformation, creating exciting new
opportunities and new challenges for infrastructure and service providers. The
established value chain is increasingly being reconstructed, with the entry of
powerful new players and radical restructuring of the industry. Rapid
technological developments and increasing market competitions have added new
dimension to an already complex scenario. Countries and sectors equipped
with the requisite telecommunication systems are rapidly moving into
post-industrial, information-based economic growth. Telecommunication sector
across the globe has been identified as one with generic effect on almost all
other sectors of the economy. Its function, in any economy, is described as a
strategic one aimed at promoting economic growth and as one that has the
linkages with other sectors. For the developing world, a modern
telecommunications infrastructure is not only essential for domestic economic
growth, but a prerequisite for participation in increasingly competitive world
markets and for attracting new investments.
Recently, the role of telecommunication infrastructure in enhancing
economic growth has been a subject for discourse in the economic literature.
Arguments are that the development of a modern nation to its full potential in
contemporary world can never be attained without adequate telecommunications
infrastructure. This implies that the development of telecommunication
infrastructure will significantly boost economic growth and development. Report
in the Fact sheet of U.S Embassy showed that most of the
developed economies such as U.S, Japan and China, having realized this, had
deregulated their telecommunication sectors to allow more investment and the
results they got were not just improved telecommunication capabilities but also
increased foreign investment, boom in private sector development, more
employment opportunities and better education and training facilities.
In the global setting, the telecommunications
industry has experienced some drastic changes during the last few years; from the
fixed telephone lines, to GSM and then the interconnections. The result of these changes has
led to a fall in service charges coupled with increased flexibility,
functionality and the overall attractiveness of the services. Introduction of
new technologies has changed the role of mobile services, leading to a
significant increase in mobile penetration, which now exceed fixed line
communications. The
annual report of telecommunication Fact sheet shows that the telecommunications market has reached the
point of saturation, companies have introduced differentiation strategies by
services, which in turn have led to a broadening of the range of new products
in the market. Another key characteristic of the industry is the requirement
for substantial investment in equipment (exchanges), transmission facilities
(wire, optical fibre lines or wireless facilities), and terminals (subscriber
equipment).
This high capital investment provides an
effective barrier of entry to new players in the market. Furthermore, the high
level of required investment has led to a limited number of players within the
market with sharp competition among them. Another specific characteristic of
the telecommunications industry is also its perceived role within society. For
many years it has been viewed as providing essential public services. The
increased penetration of telecommunication lines has to benefit society as a
whole. Telecommunications have changed from being a discretionary or even
luxury service to an essential service that should meet the demands of the
majority of consumers. Due to these factors, the telecommunications industry is
strongly regulated by governmental authorities in order to ensure that
telecommunication services are supplied in accordance with public interest.
Today in Nigeria, there have been large infrastructure investments
resulting from liberalization between 1992 and 2011, which have enabled million
of people to communicate and transact businesses better. Deregulation attracted
new operators from within and outside the country. The new operators have
injected competition and provided new employment opportunities and emergence of
indigeneous telecommunication companies. This growth has equally profound
impact on the job and employment market, enhance efficiency in other productive
sectors and increase national output.
In terms
of growth, according to Lawyers Chronicle (2014) Nigeria is ranked the largest
and fastest growing ICT market in Africa and among the ten fastest
telecommunications growth markets in the world. This is as a result of the
robustness of its returns on investments. The impact of this on the economic
growth has become impressive. The telecommunications sector now contributes
significantly to the Gross Domestic Product (GDP), which was hitherto dominated
by the oil sector. Also the Nigeria Telecommunications Fact Sheet released by
the United States Embassy in Nigeria in October 2011, noted that “the ICT
sector is the fastest and most robust sector of the Nigerian economy,
contributing more than the manufacturing, banking and solid minerals sectors
combined”.
Despite the
important place telecommunication industry is playing in nation’s economy both
in developed and developing countries corporate governance of the sector as it
relates to their financial performance has been ignored by researchers. Even in
the developed economies such research has been very scarce in literature. This
study therefore aims at opening up such research in this fast growing industry.
The critical role of corporate governance in the success or failure of
companies is not in doubt.
In recognition of
this the issues of corporate governance has been given the front burner status
by all sectors of the economy in Nigeria. To do this, regulating bodies had
been set up for all public and private sectors to regulate and monitor their
corporate governances. In Nigeria, Telecommunication Commission (NCC) was set
up to regulate the activities of the telecommunication sector.
In Nigeria we have
few studies on corporate governance mechanisms and their impact on firm’s
financial performance specifically in banking, manufacturing, stock market and
other sectors; among them are the studies of Mukaila and Garba (2005), Ogechie
(2006) and Ranti (2013). Even at that
most of the studies have focused on a single or two aspects of governance like
the role of directors on stock value, omitting other factors of interactions
that may be important within the governance framework.
This study plans to
use both external and internal determinant factors in corporate governance
mechanism as the proxies. The external factors are the outside directors called
independent members, institutional shareholders and external auditors. The internal
factors are the board size and the percentage shareholding of the directors.
This is by working at the cross-relationship of internal and external aspects
of corporate governance structures. It also aims at using all the active firms
in the sector to enable it get all the aspects of the firms. Further, in order
to address the deficiencies in the various prior studies, the study will use the
mean of the summation of Return on Asset and Return on Investment. This is
unified measurement tool for operational efficiency as narrated by Lyndsat,
(2014). It also aims at using long period of annual report data (10 years) for
higher efficacy in research rather than the usual three years in prior studies.
Through the study the level of the code compliance by the industry could also
be revealed.