Vignana Jyothi Institute of Management CORPORATE FINANCIAL MANAGEMENT

TERM-III ARTICLE SUMMARY

Article:

Corporate governance in a developing economy: barriers, issues, and implications for firms

Source: 11;No 2 Author:

Emerald insight Corporate governance; vol John. O. Okpara Submitted byM.V.K. 11134 Section-

Keerthi

Corporate governance in a developing economy: barriers, issues, and implications for firms
The article deals with the various barriers, issues and challenges that are being faced in executing out an effective corporate governance model with specific reference to Nigeria. However, the findings have been thought to have implications to developing economies as well as much of the issues studied are relevant and come about in these economies as well. Corporate scandals have exposed several flaws in the corporate governance measures. These shook the economies of developed countries and have drawn attention to the weak corporate governance in developing economies. With increased growth of private ownership and financial institutions, there is a greater need to look into the corporate governance procedures. Several theoretical perspectives are studied by researchers in exploring the issues of corporate governance. Managerial hegemony theory states that boards play only a passive role in strategy or directing the corporation. Agency theory is built on the premise that there is an agency relationship wherein the principal delegates the work to the agent and involves risk sharing and conflict of interest between the two. Stewardship theory postulates that managers are motivated by a desire to achieve and gain intrinsic satisfaction by performing challenging tasks. Resource dependence theory derives its insight from the fact that board members are also members of the boards of other firms, and this creates a web of linkages to competitors and other stakeholders. Corporate governance has been defined in different ways by different authors. Ranging from as a complex set of constraints to the manner in which organizations are managed and the nature of accountability of the managers to the owners. The constraints impeding effective corporate governance are thought to arise from shareholders rights, a weak

regulatory framework, lack of enforcement, weak monitoring, a lack of transparency and disclosure, and ineffective boards of directors, among others. Shareholder rights rights are crucial for the protection of investors against poor management. and is an important aspect of controlling the behavior and actions of the Board of Directors .Another major issue is the lack of protection of minority shareholders rights. Although there are laws that were intended to protect minority shareholders rights, these laws are not strictly enforced and are frequently violated. The problem of supervision and enforcement of such laws and processes still remains a major issue hindering effective implementation of corporate governance. Judicial and administrative means of supervision have not been successful in bringing the type of changes necessary to implement effective corporate governance auditing is another major area of weakness in corporate governance enforcement. Corporate structure has stressed the agency problem where ownership is dispersed and shareholders have a passive role Research was conducted on the aspects of the extent of protection of shareholder rights, how the companies are regulated, how the established laws enforced, the composition of ownership, extent of access to information etc. The Research design included using a questionnaire survey and in-depth interview methods. The sample for this study consisted of managers of listed corporations and the instrument used is OECD corporate governance assessment instrument. Survey participants were selected from three business areas of banking, manufacturing and insurance. Of the usable questionnaires received, 37 percent were received from banks, 30 percent were from insurance companies, and 33 percent were from manufacturing firms. Survey participants were selected from auditors, board of directors, employees, majority shareholders, minority shareholders, company presidents, and senior managers wherein there was a more or less equal proportion. A confirmatory factor analysis of the items was performed to ascertain whether a resolute set of problems or factors existed. Six factors explaining shareholders rights, regulatory framework, enforcement, ownership concentration, transparency and disclosure, and board of directors were measured. To test the reliability of the factors, alpha coefficients were computed for each of them. The results showed that 87 percent indicated that the basic shareholders rights are protected, 89 percent of the respondents indicated that minority shareholders are often not allowed to express their views at general meetings. More than 85 percent of all those surveyed indicated that special treatment is often given to large shareholders, and that aggrieved shareholders seldom have recourse. 90 percent reported that board members are not fulfilling their responsibilities to the companies and shareholders. The reason for this could be that most board members do not have the necessary qualifications to be on the board. Lack of commitment on the part of board members was also reported as a key challenge for corporate governance development. More than 88 percent indicated that lack of disclosure and enforcement are impediments to the development and effective implementation of corporate governance Based on the findings, and after evaluation of the corporate governance scenario in developing economy conditions ,the barriers identified consist of protection of shareholders rights, lack of commitment and responsibilities of boards of directors, regulator y framework, enforcement and monitoring, ownership concentration, transparency and disclosure The suggestions and measures to ensure effective corporate governance can be to ensure strict compliance with codes of conduct, ensure the commitment and vigilance of directors, see to the need for a high level of disclosure and transparence, improve the regulatory framework by

making the laws available to all shareholders and to the public; devise active mechanisms for law enforcement; strengthen enforcement mechanisms (by providing logistics, training, and equipment); adopt alternative dispute resolution mechanisms, create an enabling environment by maintaining the political will to implement policies; and create an independent and courageous judiciary. The purpose of this study is to bridge the research gap and uncover the barriers and issues hindering the development and implementation of corporate governance in Nigeria and in the process relate them with corporate governance structures from any developing economy perspective and provide an understanding of these issues so that they can be easy to overcome and ensure effective corporate governance.