BOARD GENDER AND FINANCIAL PERFORMANCE OF SELECTED LISTED COMPANIES IN NIGERIA

ABSTRACT
This research study was undertaken with the objective to establish the effect of board gender on financial performance of listed companies in Nigeria. The study covered the period 2013 to 2017. Board gender was measured by board size, gender diversity and board independence; while financial performance was measured by the return to assets ratio. The study used a descriptive research design. The population of the study comprised all the forty two listed companies in Nigeria over the period of study. The study was therefore a census study. The research study collected secondary data from the annual reports published by the said firms as well as their financial statements. The study achieved a response rate of 59.52% as only twenty five companies had complete data set sought. Data was obtained and organized and presented in form of tables. Data analysis was then undertaken using descriptive statistics, correlation and regression analyses, and conclusions drawn. The researcher finds that overall board gender has a positive effect on financial performance of listed companies in Nigeria. Board size and board independence have positive effect on return on assets (the proxy for financial performance), while gender diversity has a negative effect. The researcher concludes therefore that companies management and owners should properly constitute their boards, as this affects financial performance. The researcher recommends further research on the gender diversity variable. 

CHAPTER ONE: INTRODUCTION
1.1 Background to the Study
Corporate governance has in the past few months attracted more attention from academics and regulators around the world, especially with the recent corporate scandals; firms have had to redesign and implement effective corporate governance systems, including board genders (Al-Shammari & Al-Saidi, 2013). With appropriate board reorganizations in place, focus shifts to their effectiveness in positively driving firm performance (Samad & Zulkafli, 2009).

Agency theory (Jensen & Meckling, 1976) supposes that agents (managers) are engaged by principals to run firms on behalf of the owners, known as principals and in the owners’/principals’ best interests. In practice the interests of these two groups might diverge thus the need for apt corporate governance mechanisms. Board gender is one of the corporate governance mechanisms put in place to safeguard and to assist maximize shareholder wealth.  The companying sector is a vital sector built on stakeholder confidence and trust; corporate governance practices in the companying industry are of paramount importance (Al-Shammari & Al-Saidi, 2013).

1.1.1 Board Gender
Board gender is a subset of the corporate governance mechanisms put in place by a firm; it relates to the manner in which a company’s affairs are and or shall be directed and controlled (Bender & Ward, 2009). Board gender refers to the board size, the combination of executive and non-executive directors, and other characteristics, which includes gender diversity (Ongore, et al., 2017). Al-Shammari &Al-Saidi (2013) identify board gender as being characterized by presence of nonexecutive directors in the board, family directors, role duality and board size. 

According to prudential guidelines, companies in Nigeria should have at least five directors in their individual boards of directors. However, the exact number of directors varies with different companies according to size, scope and complexity of operations and ownership structure (CBN, 2016).  The onus lies with a company’s owners and management to determine the effective gender of its board of directors; this gender is reflected in terms of board size, diversity (age, professional and educational backgrounds, nationality and so on), and demographics. There should also be at least three fifths nonexecutive directors and at least one third independent directors represented in the boards.  However, a strict observance to the need for independence could result a board comprising persons with no interaction with a firm and who understand very little of it (Bender & Ward, 2009).

A properly constituted board is thus of importance as a company’s goals and objectives shall not only be achieved effectively and efficiently but also the company’s image shall be enhanced thus attracting stakeholder confidence and goodwill, a key operational factor in the companying industry (Al-Shammari & Al-Saidi, 2013). Besides, poor corporate governance structures (of which board gender is a part) affects a company’s reputational risk adversely.

1.1.2 Financial Performance
Financial performance makes reference to the extent of achievement of a firm’s goals, objectives and targets over a given time period expressed in monetary terms. Return on assets as well as return on equity ratios can assist gauge financial performance. Through the income statement, a firm’s financial performance over a given period of time can be ascertained through calculation and interpretation of the said ratios (Ross, Westerfield & Jordan, 2013). Financial performance of a company shows how well a company is doing with respect to various ratios (Mishkin, 2004).

Mishkin (2004) identifies that there are three good measures of company financial performance: (ROA) return on assets, (ROE) return on equity, and (NIM) net interest margin. Return on assets is a ratio of a company’s net income to total assets; this ratio adjusts for total assets. Return on equity is of key importance to funds owners and is a ratio of net income to total shareholders’ funds (capital). Net interest margin is a ratio between the difference between total interest income and interest expense, and assets. Enhanced and improving financial performance is important to firms, companies included, (Pandey, 2009). It assists a firm to compete in the market easily, maintain and even grow market share, as well as provide consistent returns in terms of regular dividends and capital gains to the investors.

1.1.3 Relationship between Board Gender and Financial Performance
Board gender is a subset of corporate governance in firms, companies included; where corporate governance in a particular firm improves then firm performance will also increase (Khan & Awan, 2012). One characteristic of board gender is the board size; theoretically, large boards are expected to depict an inverse relationship with financial performance. Problems of poor communication and hampered decision-making weaken the effectiveness and efficiency of larger boards relative to smaller ones (Guest, 2009).

According to agency theory (Jensen & Meckling, 1976), boards of directors should be structured to safeguard the principals (owners’) best interests by limiting agency problems (where firm managers might pursue self-advancing goals through board resolutions). Thus board gender influences financial performance positively; only positive net present value projects are vouched for in board decisions. However the stakeholder theory (Freeman, 1984) posits that boards are often composed of stakeholders; each stakeholder has some interest to safeguard through the board of directors, where these interests are not aligned the effect on financial performance could be negative.

1.2 Research Problem
According to the agency theory (Jensen & Meckling, 1976), there is present ownership dispersion especially in large organizations, listed companies included. The owners then have to appoint managers (agents) to run and manage organizations as per the owners’ outlined goals and expectations. However in practice, the agents may opt overtly or inadvertently not to pursue the owners’ best interests. The owners therefore constitute the boards accordingly and with a view to attain organizational goals effectively and efficiently. Attainment of these goals is reflected by financial performance. Stakeholder theory (Freeman, 1984) advances that the composed boards are representations of various stakes in the firm by different interested parties; boards should thus be composed to reflect and safeguard these parties interests.

In Nigeria, listed companies are closely regulated and supervised by the central company of Nigeria (CBN, 2016); corporate governance issues related to board gender are clearly spelt out under the companying Act and prudential guidelines but the onus of determining the appropriate board gender is on individual companies. Two companies (Imperial company and Chase company) have experienced financial difficulties in the recent past; their failures have been traced to weak corporate governance mechanisms (CBN, 2016).

The effect of board gender has been studied in the past by local and foreign scholars.
A study by Khan & Awan (2012) found that firms with independent board members show greater financial performance. The effect of size of the board on firm performance is negative but not significant; increase in board size in turn causes a decrease in firm performance which is measured by return on assets (Al-Matari, et al., 2012). Larger boards inversely affect economic performance of firms but have a positive effect on market reach and output, while female board members do not improve economic performance but positively affects market reach (Gohar & Batool, 2017).

Board members who are independent do not have any significant effect on financial performance. However, gender diversity has significant positive effect on financial performance (Ongore, et al., 2017). There’s a weak positive relationship between board diversity and financial performance (Aosa, Machuki, & Letting, 2012). Ngugi (2012) also concluded that there is very minimal relationship between board diversity and financial performance. Board size has an inverse relationship with financial performance, while presence of outside directors do not affect positively firm performance (Ongore, et al., 2017). There’s negative relationship between gender diversity and a firm’s financial performance (Muriuki, 2012). 

The empirical studies indicates lack of unanimity as to the effects of a board’s gender on a firm’s financial performance. Khan & Awan (2012) find that firms with independent board members show greater financial performance; while Ongore et al., (2017) find independent board members have insignificant effect. Gender diversity has positive effect on the financial performance (Ongore et al., 2017); there is a negative relationship between gender diversity and firm’s financial performance (Muriuki, 2012; Gohar & Batool, 2017).
Therefore, there is need for further research on the research study area. The research study attempted to answer the question: What’s the effect of gender of board of directors on the financial performance of listed companies in Nigeria? 

1.3 Research Objective
The research objective was to establish the effect of gender of board of directors on financial performance of listed companies in Nigeria. specifically the study examines:
1.                  the relationship between board gender diversity  and financial performance
2.                  the relationship between board size  and financial performance
3.                  the relationship between board independence  and financial performance
1.4 research questions
The research questions for the study are;
1.                  what is the relationship between board gender diversity  and financial performance
2.                  what is relationship between board size  and financial performance
3.                  what is relationship between board independence  and financial performance

1.5 significance of the Study
The researcher believes that the research study is of benefit to a number of persons in the Nigerian economy and similar emerging economies. Potential and existing directors in listed companies in Nigeria shall find the research study useful and informative; they might become better decision makers, especially those serving in board nominating committees. The research study would also be useful to existing and potential investors in the companying sector; they would be in a better position to appraise investment targets and or approving board gender resolutions appropriately.

The study shall also be of value to other researchers and scholars; they might find the research study an invaluable reference input and source of knowledge. Policy makers such as the market regulators and the legislature could obtain input to their policy drafts from the research study findings thus enacting and amending companying laws aptly. The research study adds to the existing knowledge on corporate governance in general and board gender specifically. 

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Item Type: Project Material  |  Attribute: 53 pages  |  Chapters: 1-5
Format: MS Word  |  Price: N3,000  |  Delivery: Within 30Mins.
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