Project Abstract

Project Overview

<p> </p><p><b>INTRODUCTION</b></p><p><b>1.1 &nbsp; &nbsp; &nbsp; Background<br>to the Study</b></p><p>&nbsp; &nbsp; &nbsp; Corporate governance has received<br>greater attention from regulators, professionals and academics following a<br>series of corporate scandals that had happened in large companies around the<br>world. The issue of corporate governance has attracted the attention of both<br>business market leaders and regulatory authority around the globe, aiming to<br>minimize the scandals rate in companies.</p><p>&nbsp; &nbsp; &nbsp; Shareholders are often considered to be<br>the corporate proprietors, though company directors are representatives of shareholders<br>that are expected to assign business resources in a way to improve<br>shareholders’ fortune. The commitment of several shareholders for investment in<br>organizations is profit not control (Kadivar, 2006).</p><p>&nbsp; &nbsp; &nbsp; The concepts of corporate governance encompass<br>problems such as measure of management, degree of control as well as way of<br>relationship between the great and small shareholders. Corporate governance<br>spells out the delivery of rights and duties among diverse players in the<br>establishment; the board, managers, shareholders as well as other stakeholders.<br>It also stipulates the techniques for making decisions on corporate affairs. In<br>this fashion, it offers the framework whereby the organisation’s goals are<br>established and strategy for reaching those goals and monitoring performance<br>(Kaola, 2008).</p><p>&nbsp; &nbsp; &nbsp; According to Aganga (2011), the issue of<br>corporate governance is comparatively fresh in Nigeria, on account of several<br>cases of corporate misconduct. The shift in Nigeria system of government from<br>military era to the democratic dispensations with a policy to catch the<br>attention of new and environmentally friendly foreign investments entailed the<br>requirement for corporate governance reform. This results in a recognized<br>commission to evaluate the presence, adequacy and corporate governance<br>relevance in Nigeria relative to global best practices as a reaction to the New<br>International Economic Order. Considering the importance linked to the<br>organization for efficient corporate governance, the Nigerian government, via<br>its numerous agencies, has constituted several institutional arrangements to<br>safeguard the investors’ valuable investment from disingenuous<br>management/directors of company in Nigeria (Aganga, 2011). Despite all the<br>efforts and mechanism put in place by government, there are cases of crises,<br>collapses, inefficiencies, and eventual distress among the firms in Nigeria.<br>This may be the consequence of management-shareholder conflict or agency<br>conflict especially while shareholders want long term maximization of their<br>compensation and power.</p><p>&nbsp; &nbsp; &nbsp; Ownership structure has been identified<br>as one of corporate governance mechanisms that influence organizational<br>performance. According to Ebrahim, Abdullah and Faudziah (2013), ownership<br>structure is among the central mechanisms of corporate governance. Ownership<br>structure has been a consideration seeker to both scholars and analysts alike.<br>The innovative study in the theory of the organization, on modern firm was<br>performed by Berle and Means (1932). They focus on the disputes of great<br>interest between controllers and managers, claimed that with growing ownership<br>diffusion, the authority of the shareholders to handle management is been<br>curtailed.</p><p>&nbsp; &nbsp; &nbsp; &nbsp; Karaca and EkÅŸi (2012) asserted that<br>the ownership structure – corporate performance relationship continues to be<br>getting important interest in economic literature. In a similar vein, Fama and<br>Jensen (2003) and Jensen and Meckling (1986) showed that the ownership<br>diffusion has a substantial impact on the genuineness of the<br>profit-maximizing aim of companies, as<br>the separation of control allows corporate managers to put in effort to pursue<br>their own interests. Furthermore, Demsetz (1983) asserted that ownership<br>structure is an endogenous facet of governance that raises the earnings and<br>worth of an establishment. In addition, Fazlzadeh, Hendi and Mahboubi (2011)<br>also acknowledged that ownership structure performs major function on firms’<br>overall performance and offers policy makers with experience for improving the<br>system of corporate governance. In most developed nations, ownership structure<br>is substantially distributed. On the other hand, the emerging nations<br>identified by less strong legal system protecting the interest of investors,<br>the ownership structure are concentrated (Ehikioya, 2009).</p><p>&nbsp; &nbsp; &nbsp; Performance of an organisation is often<br>determined by how effectively and efficiently the firm is able to achieve the<br>set goals which may be financial or operational. The operational performance<br>concerns firm’s growth and expansion in relations to sales and market value<br>(Hofer &amp; Sandberg, 1987). The financial performance of the firm relates to<br>its motive to maximise profit both to the owners and on assets. Long, Mahanra,<br>and Ajagbe (2013) argued that the nature of ownership of a firm influences the<br>firm’s performance, in emerging economies such as Nigeria where it is contended<br>that ownership is less disperse and control is not fully separated from<br>ownership.</p><p>&nbsp; &nbsp; &nbsp; &nbsp; The<br>interest in ownership studies, led to institutional shareholders or large block<br>holders investing in firms. It was discovered in recent times that the<br>percentage of institutional investment is increasing on corporate equity with<br>control and monitors performance. Zuobawei and Zhang (2004) considered<br>different kinds of ownership structures including state ownership,<br>organization’s investing and foreign ownership as independent variables. The<br>result of his survey showed that there is a negative relationship between the<br>structure of state ownership and firm performance. The relationship between the<br>structure of organization ownership and firm performance is also reported<br>negatively significant. Family ownership often needs a long-term perspective<br>within the firm, which gives many benefits: owners with longer investment<br>period experience less managerial short sightness of company’s performance.</p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>Literature examined the significance of ownership structure on firm<br>performance, Cheng (2008) stated there is no significant relationship between<br>firm performance and ownership concentration in some European countries.<br>Aljifri and Moustafa (2007) in their study revealed that governmental ownership<br>has significant relationship with firm performance, while institutional<br>ownership has no significant relationship with firm performance. Therefore, the<br>current research targets the assessment of the ownership structure – firm<br>financial performance relationship.</p><p><b>1.2 &nbsp; &nbsp; &nbsp; Statement of the Problem</b></p><p>In Nigeria, most organizations’ crises,<br>inefficiencies, and eventual distress are linked to the ownership structure of<br>such organizations, the separation of control and sub optimal performance of<br>management results in conflict with owners. This is mainly the consequence of<br>management-shareholder conflict or agency conflict. Specifically, while<br>shareholders want long term maximization of their compensation and power<br>(larger enterprises), management often pursue other interests’ different from<br>the shareholders’ interest. Furthermore, the agency problem in business<br>organization governance arises because of considerable information asymmetry<br>between shareholders and managers and uncertainty about strategic decisions.<br>Managers have a lot more information than shareholders have about the<br>organization, which makes it difficult for the shareholders to determine if the<br>organization is being governed in their interests (Ebrahim <i>et al</i>, 2013).</p><p>&nbsp;Studies on<br>agency problem revealed that managers use the information and available<br>organisation resources to pursue their interest rather than owners’ interest<br>resulting in conflict of interest and sub optimal performance. Sadiq, Muthar,<br>Oyebola, and Rasheed (2011) viewed the main problem as the owners’ inability to<br>monitor the managers/agents performance.</p><p>&nbsp; &nbsp; &nbsp; The<br>performance of the manufacturing sector in the country compared to the other<br>sectors is low; Adenikinju (2005) confirmed that manufacturing contribution to<br>foreign exchange earnings was found to be less than one percent (1%) while<br>about eighty-one percent (81%) of the nation’s total foreign exchange earnings<br>was utilized by the sector. In terms of employment generation, about ten<br>percent (10%) of the population was employed compared to seventy percent (70%)<br>in agriculture and twenty percent (20%) in services. The dismal performance of<br>Nigeria’s manufacturing sector is manifested in the high level of graduate<br>unemployment, poverty, corruption and other types of social vices which<br>constitutes a threat to the nascent democracy and further investments in<br>Nigeria, thereby perpetuating underdevelopment.</p><p>&nbsp; &nbsp; &nbsp; There have<br>been no consensuses on how to resolve the conflict of interest and suboptimal<br>performance among scholars, regulators and professionals. The lack of consensus<br>have led to a variety of mechanisms on how to deal with the problem of agency<br>(owners-management).These include promoting managerial share ownership,<br>encouraging ownership concentration and discouraging government ownership.</p><p>&nbsp; &nbsp; &nbsp; The<br>government and regulatory bodies have continuously encouraged the restructuring<br>of ownership structure of organizations to enhance efficiency and profitability<br>as one way of dealing with the problem. The uncertainty surrounding the outcome<br>of these options may have further made organizations vulnerable to decline in<br>profits, due to existing uncompetitive ownership structure (Ezygwu &amp; Itodo,<br>2014). The possible impact of initial public offers, conversion to public<br>limited company (Plc), and mergers on ownership structure and the subsequent<br>impact on the operating performance of companies is an issue which has not<br>received sufficient conclusive empirical attention in Nigeria.</p><p>&nbsp; &nbsp; &nbsp; Most<br>researches and similar studies on ownership structure, focused on firms’<br>capital structure, value of shares, corporate performance and the case studies<br>were often on the banking, and insurance institutions of developed and<br>developing economies, some works are, Eric,(2011), Ezugwu &amp; Itodo, (2014),<br>Chari, Chen &amp; Domingues, (2012) examined foreign ownership and performance<br>in emerging market acquisition, and Adenikinju &amp; Ayorinde, (2012), worked<br>on ownership structure, corporate governance and corporate performance of<br>Nigeria quoted companies. Few researchers examined the non financial sector,<br>though taking a global view at the trading and services sector, Zakaria,<br>Purhanudin &amp; Palanimally, (2014). &nbsp; </p><p>&nbsp; &nbsp; &nbsp; Based on<br>this, the study tried to fill the existing gap of having limited work done on<br>other industry of the economy. Hence, the focus of this study was on examining<br>the correlation between ownership structure (dimensions) and financial<br>performance of Nigeria food and beverage industry listed on the Nigerian Stock<br>Exchange.</p><p><b>1.3 &nbsp; &nbsp;<br>Objective of the Study</b></p><p>The general<br>objective of this study is to examine the relationship between ownership<br>structure and financial performance with particular reference to the listed<br>food and beverage manufacturing companies in Nigeria. The specific objectives<br>are to:</p><p>1. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>determine<br>the relationship between managerial ownership and performance of Nigeria food<br>and beverage industry;</p><p>2. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>&nbsp;examine the influence of institutional<br>ownership on performance of Nigeria food and beverage industry;</p><p>3. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>investigate<br>the influence of foreign ownership<br>on performance of Nigeria food and &nbsp; beverage industry;</p><p>4. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>determine<br>the relationship between government ownership and performance of Nigeria food<br>and beverage industry;</p><p>5. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>&nbsp;examine the influence of family ownership on<br>performance of Nigeria food and beverage industry.</p><p><b>1.4 &nbsp; Research Questions</b></p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; The<br>following research questions were the focus of this study:</p><p>1. &nbsp; &nbsp; &nbsp; &nbsp;<br>&nbsp;what relationship exist between managerial<br>ownership influence on performance of <br>Nigeria food and beverage &nbsp;<br>industry?</p><p>2. &nbsp; &nbsp; &nbsp; &nbsp;<br>what<br>influence does institutional ownership have on performance of Nigeria <br>food and beverage industry?</p><p>3. &nbsp; &nbsp; <br>how<br>does foreign ownership affects performance of Nigeria food and beverage<br>industry?</p><p>4. &nbsp; &nbsp; <br>what<br>relationship exist between government ownership and performance of Nigeria food<br>and beverage industry?</p><p>5. &nbsp; &nbsp; <br>to<br>what extent does family ownership influences <br>performance of Nigeria food and beverage industry?</p><p><b>1.5 &nbsp; &nbsp; &nbsp; Hypotheses</b></p><p>The following null hypotheses were postulated for the<br>study:</p><p>Ho1: &nbsp; &nbsp; Managerial<br>ownership has no significant relationship with performance of Nigeria food and<br>beverage industry.</p><p>Ho2 &nbsp; &nbsp; Institutional<br>ownership has no significant influence on performance of Nigeria food and<br>beverage industry. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; </p><p>Ho3: &nbsp; &nbsp; Foreign<br>ownership has no significant effect on performance of Nigeria food and beverage<br>industry.</p><p>Ho4: &nbsp; &nbsp; Government<br>ownership has no significant relationship with performance of Nigeria food and<br>beverage industry.</p><p>Ho5 &nbsp; &nbsp; Family<br>ownership has no significant influence on performance of Nigeria food and<br>beverage industry.</p><p><b>1.5.1 &nbsp; Rationale for Hypotheses</b></p><p><b>&nbsp; &nbsp; Hypothesis One</b></p><p>The opinion of separating control from owners may<br>results in divergence of purpose amongst the managers and owners. This had led<br>to many studies on the relationship between firm’s financial performance and<br>managerial ownership. Literature examined that with management owing part the<br>shares diversity of interest would be reduced, investigation on the<br>relationship between managerial ownership and firms’ performance had shown<br>mixed findings, Gugory, Arugu &amp; Dangogo (2014) attested that they are associated,<br>thus Ho1 was formulated.</p><p><b>Hypothesis<br>Two</b></p><p>&nbsp; &nbsp; &nbsp; <br>Institutional ownership involvement in firms is contentious. Some<br>studies viewed the institutional shareholding as improving the performance of<br>the firm, because the huge investment would motive keeping trail of the records<br>to ensure earnings. Ioraver &amp; Wilson, (2013), in their study established<br>that institutional ownership has influence on firm’s performance, based on this<br>Ho2 was stated.</p><p><b>Hypothesis<br>Three</b></p><p>&nbsp; &nbsp; &nbsp; The third<br>null hypothesis is on foreign ownership and firm performance. Previous studies<br>explored ownership structure, corporate governance and performance reveals no<br>significant between diverse shareholding and performance. However, Eric, (2011)<br>and Ioraver &amp; Wilson, (2013) found that foreign ownership have impact on<br>firms’ performance, hence Ho3 was postulated.</p><p><b>Hypothesis<br>Four</b></p><p>&nbsp; &nbsp; &nbsp; &nbsp; The<br>relationship between government ownership and firm performance as other<br>ownership dimensions had been widely examined and showed mixed results. Mei,<br>(2013) established relationship between government ownership and performance.</p><p><b>Hypothesis<br>Five</b></p><p>&nbsp; &nbsp; &nbsp; &nbsp; The<br>hypothesis postulated that family ownership does not have influence on firms’<br>performance, among literature on ownership structure, Mei, (2013), showed that<br>family ownership has impact on performance.</p><p><b>1.6 &nbsp; &nbsp; &nbsp; Scope<br>of the Study</b></p><p>&nbsp; &nbsp; &nbsp; There are<br>many factors that affect the governance and performance of companies. However, this study focuses on the impact of<br>the ownership structure, (managerial ownership, institutional ownership and<br>foreign ownership, government ownership and family ownership) while<br>organizational performance as dependent variable was based on the financial<br>performance. Performance was measured using return on assets and return on<br>equity in term of content. The geographical scope of this study covers all the<br>sixteen (16) listed food and beverage firms, listed on the Nigerian Stock<br>Exchange for the period of five years, 2010 to 2014.</p><p><b>1.7 &nbsp; &nbsp; &nbsp; Significance of the Study</b></p><p>&nbsp; &nbsp; &nbsp;<br>The study is expected to advance knowledge on the impact of ownership<br>structure variables on performance of Nigeria food and beverage industry. This<br>area has attracted little attention of empirical researchers in Nigeria for the<br>obvious reason of non-availability of ownership structure data in an organized<br>form and also in terms of proper econometric modelling.</p><p>&nbsp; &nbsp; <br>The study would contribute to the past literature on association between<br>ownership structure and firm performance, by adopting a more recent data set to<br>test the impact of institutional setting on the relationship between ownership<br>structure and firm performance.</p><p>&nbsp; &nbsp; <br>The findings of the study are expected to equip policy makers with the<br>relevant information on the right ownership structure that would ensure higher<br>and sustainable &nbsp; performance in the<br>industry.</p><p>The research on the ownership structure of Nigeria<br>food and beverage industry would enrich the growing concern of ownership<br>structures around the world.</p><p><b>1.8 &nbsp; &nbsp; &nbsp; Operationalization of<br>Variables</b></p><p>&nbsp; &nbsp; <br>This research examined the relationship between ownership structures and<br>financial performance of firms. The independent variable is ownership structure<br>(managerial ownership, institutional ownership, foreign ownership, government<br>ownership and family ownership) and the dependent variable is performance, thus<br>is functionally expressed;</p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; Y = f (X)</p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<br>Y = performance</p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<br>X = [x1, x2, x3, x4, x5]</p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; x1 &nbsp; &nbsp; &nbsp; &nbsp; – &nbsp;<br>Managerial &nbsp; ownership (MGO)</p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; x2 &nbsp; &nbsp; &nbsp; &nbsp; – &nbsp;<br>Institutional &nbsp; ownership (INO)</p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; x3 &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;– &nbsp; <br>Foreign &nbsp; ownership &nbsp; &nbsp; (FRO)</p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; x4 &nbsp; &nbsp; &nbsp; &nbsp;<br>– &nbsp; Government &nbsp; ownership (GVO)</p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; x5 &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; – &nbsp; Family &nbsp;<br>ownership &nbsp; (FMO)</p><p>This is stated and structured based on the research<br>hypotheses;</p><p>&nbsp; Hypothesis one: P = f(MGO)</p><p>&nbsp; P = β0 + β1 (MGO)</p><p>&nbsp; Hypothesis two: P = f(INO)</p><p>&nbsp; P = α0 + α1 (INO)</p><p>&nbsp; Hypothesis three: P = f(FRO)</p><p>&nbsp; P = a0 + a1 (FRO)</p><p>&nbsp; Hypothesis four: P = f(GVO)</p><p>&nbsp; P = b0 + b1 (GVO)</p><p>&nbsp; Hypothesis five: P = f(FMO)</p><p>&nbsp; P = c0 + c1 (FMO)</p><p>Where:<br>&nbsp; β1 &nbsp; <br>are regression coefficient of (MGO</p><p>&nbsp; &nbsp;α1 &nbsp;<br>are regression coefficient of (INO)</p><p>&nbsp; a1 &nbsp; are regression coefficient of (FRO)</p><p>&nbsp; b1 &nbsp; &nbsp; are regression coefficient of<br>(GVO)</p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>c1 &nbsp; &nbsp; are<br>regression coefficient of (FMO) </p><p>&nbsp; &nbsp; and &nbsp; <br>βo, αo, ao, bo, and co<br>are constant terms</p><p>Managerial<br>ownership &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; = &nbsp; &nbsp; &nbsp; &nbsp; Number of shares held by<br>management</p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<br>Total owners’ equity</p><p>Institutional<br>ownership [INO] &nbsp; &nbsp; &nbsp; = &nbsp; &nbsp; &nbsp;<br>&nbsp;Number of shares held by<br>indigene institutions</p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>Total owners’ equity</p><p>Foreign ownership<br>[FRO] &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; = &nbsp; &nbsp; &nbsp; &nbsp;Number of shares held by non-nationals</p> <br><p></p>