CORPORATE GOVERNANCE AND NIGERIAN INSURANCE INDUSTRY

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1 CORPORATE GOVERNANCE AND NIGERIAN INSURANCE INDUSTRY Solomon David Pere and Obah Daddy Obah Department of Banking, Finance and Insurance, Niger Delta University, Bayelsa State, Nigeria Department of Banking, Finance and Insurance, Niger Delta University, Bayelsa State, Nigeria (corresponding author) ABSTRACT This paper examined corporate governance and Nigeria insurance industry. Agency theory suggests that better corporate governance reduces expropriation costs, which in turn enhances investors confidence in the firm s future cash flow and growth prospects, leading to higher firm valuation. Likewise, a decrease in private benefits is likely to cause an improved operating performance. The study employed secondary data from the Mutual Benefits, FBN Life, and Zentih Life Insurance Annual Financial Reports from 2005 to 2015, sourced from NAICOM Publication The hypotheses were tested using multiple regressions with the aid of E-view version 9 to establish the relationship between corporate governance (proxied by board size, leverage and Audit Committee) and Nigerian Insurance Industry (Proxied by Profit Before Tax). Findings established that Board Size and Audit Committee has significant impact on profit before tax of insurance companies in Nigeria, while leverage does not have significant impact on profit before tax of insurance companies in Nigeria. The study therefore recommends that Nigerian Insurance Industry through the respective authorities should properly define corporate governance and its mechanisms and implement them effectively to reach the firm s long-term goals, build stakeholders confidence and generate positive investment flows. Keywords: Corporate Governance, insurance, board size, Audit Committee, leverage 1.1 INTRODUCTION Effective governance is essential for long-term corporate success. Effective corporate governance promotes improved shareholder wealth and the wealth of other corporate stakeholders. In recent times, there has been a cry world over for globalization. This is more imminent as the world is gradually becoming a global market place for global corporations. In many countries, governments are capitulating and relaxing their regulations to allow complete freedom of economic activity. The genesis of Corporate Governance lies in business scams and failures. The Watergate scandal, the junk bond Fiasco in USA and the failure of Maxwell, BCCI and Polypeck in UK resulted into setting up of the Tread way committee in USA and the Cadbury committee in UK on Corporate Governance (Bansal & Bansal, 2014). The effect of these actions on some corporations is devastating. There is the collapse of the energy corporation Enron in 2001 in US, WorldCom, Global Crossing, and Rank Xerox, most of which filed for bankruptcy after adjusting their accounts (Momoh & Ukpong, 2013). The increasing incidence of corporate fraud relating to exaggerated and overstated accounts have informed renewed global emphasis on the need for corporate governance. Nwachukwu (2007), opined that there is a growing consensus that good corporate governance has a positive link to national economic growth and development. Checks and balances in an organization are strengthened through corporate governance. Directors without corporate enforcement mechanism may paint misleading pictures of financial performance of their company to lure unsuspecting investors. To this end, adherence to good corporate governance is recognized as crucial to the success, growth and development of the corporate sector. Countries are putting in place various measures to strengthen good corporate governance in order to tackle the problem connected with bad corporate governance practices such as poor accountability, monopoly of power, etc. 5

2 As Nigeria marches forward in her desire to become one of the Top 20 economies in the world by the year 2020, one dominant issue that remains on the front burner is how to build investors confidence in the domestic economy through good Corporate Governance and transparent financial reporting. Ofodio, Ibikunle, & Oba (2013) stated that the tragic collapses and scandals of giant firms such as the WorldCom, Xerox, and Enron Corporation highlights the critical need to focus on the anchors of sound Corporate Governance both in developed and developing countries. The bankruptcy of these giants inarguably stemmed from earnings manipulation due to fraudulent practices by the board of directors and weak governance mechanisms in place. Consequently, many shareholders lost their confidence in the affected firms and major players globally. Seemingly, Corporate Governance regulations turned out to be the most significant tool to regaining the lost confidence (Abdoli & Royaee, 2012). The role of Corporate Governance is to reduce the divergence of interests between shareholders and managers (Roodposhti and Chashmi (2009). Such divergence of interests could border along the management of earnings using accounting accruals. Sound governance mechanisms are expected to be relevant in improving investors confidence in the performance of the firm of which earnings is a key index. There are multiplicity of codes of corporate governance in Nigeria ranging from Central Bank of Nigeria (CBN) code 2006 for Banks established under the provision of the Bank and Other Financial Institution Act (BOFIA), National Insurance Commission (NAICOM) Code 2009, directed at all insurance, reinsurance, broking and loss adjusting companies in Nigeria, and Pension Commission (PENCOM) Code 2008, for all licensed pension operators (Idornigie, 2010). Despite the significance of good corporate governance to national economic development and growth, only 40% of publicly quoted companies including banks and insurance companies had recognized corporate governance in place (Momoh & Ukpong, 2013; CBN, 2006). Therefore, the study intends to examine the impact of corporate governance (Board size, leverage and audit committee) on the insurance industry in Nigeria from the period of 2005 to REVIEW OF RELATED LITERATUE The term corporate governance is uniquely complex and multi-faceted. It has been looked at and defined variedly by different scholars and practitioners. Jayashree (2006) defines it thus: as system of making directors accountable to shareholders for effective management of the companies in the best interest of the company and the shareholders along with concern for ethics and values. It is the management of companies through the board of directors that hinges on complete transparency, integrity and accountability of management. Hermalin and Weisbach (2003) argued the possibility that larger boards can be less effective than small boards. When boards consist of too many members agency problems may increase, as some directors may tag along as free-riders. They argued that when a board becomes too big, it often moves into a more symbolic role, rather than fulfilling its intended function as part of the management. On the other hand, very small boards lack the advantage of having the spread of expert advice and opinion around the table that is found in larger boards. Furthermore, larger boards are more likely to be associated with an increase in board diversity in terms of experience, skills, gender and nationality (Dalton and Dalton, 2005). Expropriation of wealth by the CEO or inside directors is relatively easier with smaller boards since small boards are also associated with a smaller number of outside directors. The few directors in a small board are preoccupied with the decisionmaking process, leaving less time for monitoring activities. Boards with many directors can be a disadvantage and expensive for the firms to maintain. Planning, work coordination, decision-making and holding regular meetings can be difficult with large number of board members. Generally, Empirical evidence on the relationship between board size and firm performance provide mixed results.while, Ahmadu et al. (2005), Chan and Li (2008), De Andres et al. (2005) and Mustafa (2006) found that larger boards are associated with poorer performance, Beiner et al. (2004), Bhagat and Black (2002) and Limpaphayom and Connelly (2006) found no significant association between board size and firm performance. Significant creditors, such as banks, have large investments in the firm, and want to see the returns on their investments materialize. Their power comes in part because of a variety of control rights they receive when firms default or violate debt covenants (Smith and Warner, 1979) and in part because they typically lend short term, so borrowers must come back at regular short intervals for more funds. As a result, banks and other large creditors are in many ways similar to the large shareholders. Diamond (1984) presents one of the first models of monitoring by the large creditors. Kaplan and Minton (1994) document the higher incidence of management turnover in response to poor performance in companies that have a principal banking relationship relative to companies that do not. DeLong (1991), points to a significant governance role played by J.P. Morgan partners in the companies J.P. Morgan invested in the early 20th century. Gilson (1990), report that U.S. banks play a major governance role in bankruptcies, when they change managers and directors. Weir, Laing and McKnight (2002), hypothesizes that debt financing is an internal governance mechanism whereby increased debt reduces free cash flow and so limits managerial discretion. Debt requires 6

3 managers to use any excess funds to service company s debts rather than engage in negative net present value projects. Debt owed to large creditors such as banks is believed to be a useful tool for reducing the agency problem. Large creditors, like large stakeholders, also have interest in seeing that managers take performance-improving measures. Leverage has been widely used as a control variable by several empirical studies (such as Kyereboah Coleman, Biekpe, 2006; Alsaeed, 2006) that have examined the relationship between Corporate Governance and financial performance of a Company. In their attempt to justify taking leverage as a control variable, these studies have revealed that the debt have effect on the financial performance of a Company. Alsaeed, 2006 suggests that firm leverage was measured by dividing total of liabilities by the total of assets. Boards mostly compose of executive and non-executive directors. Executive directors refer to dependent directors and non-executive directors to independent directors (Shah et al., 2011). At least one third of independent directors are preferred in board, for effective working of board and for unbiased monitoring. Dependent directors are also important because they have insider knowledge of the organization which is not available to outside directors, but they can misuse this knowledge by transferring wealth of other stockholders to themselves (Beasly, 1996).A board composed of members who are not executives of a company, nor shareholders, nor blood relatives or in law of the family (Gallo, 2005). An independent board is generally composed of members who have no ties to the firm in any way, therefore there is no or minimum chance of having a conflict of interest because independent directors have no material interests in a company. Dalton, Daily, Ellstrand, & Johnson (1998) saw Jacobs (1985) opined that independent directors are important because inside or dependent directors may have no access to external information and resources that are enjoyed by the firm's outside or independent directors (e.g., CEOs of other firms, former governmental officials, investment bankers, Social worker or public figures, major suppliers). Moreover, for advice/counsel inside or dependent directors are available to the CEO as a function of their employment with the firm; their appointment to the board is not necessary for fulfillment of this function. Staikouras et al. (2007) find that board composition does not affect firm performance although its relationship with performance was found to be positive. These findings were like those of Adusei (2010) who found no relationship between board composition and bank performance in Ghana although board composition was found to have positive effect on bank efficiency. At the same time, Alonso and Gonzalez (2006) studied 66 banks in OECD countries from 1996 to They established an inverted U-shaped relation between the measures of bank performance (Tobin s Q, ROA, the annual market return of a bank shareholder) and board size which they posit justifies a large board but imposing an efficient limit on size. According to Jensen and Meckling (1976), boards dominated by outsiders or NEDs may help to mitigate the agency problem by monitoring and controlling the opportunistic behavior of management. The results of previous studies that investigated the relationship between board composition and firm performance are inconsistent. Dehaena et al. (2001), Omar (2003) and Rhoades et al. (2000) found that NED has a positive relationship with financial performance. Hasnah (2009) showed that Non-Executive Directors is significantly related to firm performance that is measured by ROA. On the other hand, Coles et al. (2001) demonstrated that there is a negative impact of outside directors on firm performance. Erickson et al. (2005) also found a negative relationship between greater board independence and firm value. However, Bhagat and Black (2002) and De Andres et al. (2005) found no significant relationship between the composition of the board and the value of the firm. The Chief Executive Officer (CEO) of an organization can play an important role in creating the value for shareholders. The CEO can follow and in Corporate Governance provisions in a firm to improve its value (Defond and Hung, 2004). In addition, the shareholders invest heavily in the firms having higher Corporate Governance provisions as these firms create value for them (Morin and Jarrell, 2001). The decisions of the board about hiring and firing a CEO and their proper remuneration have an important bearing on the value of a firm. The board usually terminates the services of an underperforming CEO who fails to create value for shareholders. The turnover of CEO is negatively associated with firm performance especially in developed markets because the shareholders lost confidence in these firms and stop making more investments. It is the responsibility of the board to determine the salary of the CEO and give him proper remuneration for his efforts (Monks and Minow, 2001). The board can also align the interests of the CEO and the firm by linking the salary of a CEO with the performance of a firm. This action was motivating the CEO to perform well because his own financial interest is attached to the performance of the firm. The tenure of a CEO is also an important determinant of the firm s performance. CEOs are hired on short-term contracts and are more concerned about the performance of the firm during their own tenure causing them to lay emphasis on short and medium-term goals. This tendency of the CEO limits the usefulness of stock price as a proxy for corporate performance (Bhagat and Jefferis, 2002). The management of a firm can overcome this problem by linking some incentives for the CEO with the long-term performance of the firm (Heinrich, 2002). CEO duality plays an important role in affecting the value of a firm. A single person holding both the Chairman and CEO role 7

4 improves the value of a firm as the agency cost between the two is eliminated (Alexander, Fennell and Halpern, 1993). On the negative side, CEO duality lead to worse performance as the board cannot remove an underperforming CEO and can create an agency cost if the CEO pursues his own interest at the cost of the shareholders. Jensen and Meckling (1976) argued that when an individual is holding two top positions there is a tendency on the path of such individual to adopt personal interests strategies that could be detrimental to the firm as a whole. Sharing the same thought, Mallette (1992) argued that in the combined roles, the chairman of the board has to make decisions potentially leading to the conflict of interest. Moreover, in the combined roles, the CEO can set the board s agenda and can influence (if not control) the selection of directors of the board. They concluded in their paper that CEO duality can challenge a board s ability to monitor executives. However, empirical analyses of the impact of duality on various corporate performance measures have yielded conflicting results. Ahmadu, Aminu and Taker (2005), Bhagat and Bolton (2008), found negative significant relationship between CEO duality and firm performance. In contrast, Carapeto, Lasfer and Machera (2005), Schmid and Zimmermann (2007) and Wan and Ong (2005) found no significant difference in the performance of companies with or without role duality. Giving the importance of corporate governance in the development of insurance industry business, scholars have keen into the causality relationship between these variables. Ofodio et al, (2013) investigated the effect of corporate governance mechanisms on reported earnings quality of listed Insurance companies in Nigeria. The study finds that board size, board independence and audit committee size are negatively and significantly associated with earnings management while audit committee independence and independent external audit have positive relationship with discretionary accruals. Momoh and Ukpong (2013) investigated corporate governance and its effect on the Nigerian insurance industry, the result reveals that there is significant relationship between corporate governance and insurance industry financial performance. Also, recapitalization of insurance industry does not have a significant effect on corporate governance. Garba and Abubakar (2014) investigated the relationship between board diversity and financial performance of insurance companies in Nigeria, with specific reference to how gender diversity, ethnic diversity, board size, board composition and foreign directorship affect financial performance of insurance companies listed on the Nigerian Stock Exchange. The findings of the study reveal that gender diversity and foreign directors have a positive influence on insurance companies performance. But the findings indicate a negative and significant relationship between board composition and performance of insurance companies in Nigeria. These findings have the implications that an increase in the number of female directors and foreign directors on the boards of insurance companies in Nigeria will enhance their performance but an increase in the ratio of outside directors on the board will reduce the performance. Beiner, Drobetz, Schmid and Zimmerman (2004) studied the Corporate Governance and firm valuation by using a broad Corporate Governance index and additional variables related to ownership structure, board characteristics, and leverage to provide a comprehensive description of firm-level Corporate Governance for a broad sample of Swiss firms. The study used Tobin s Q for growth and found a positive relationship between Corporate Governance and growth. An increase in Corporate Governance index by one point caused an increase of the market capitalization by roughly 8.6%, on average, of a company s book asset value. Zheka (2007) studied the effect Corporate Governance on performance by constructing an overall index of Corporate Governance and shows that it predicts firm level productivity in Ukraine. The results imply that a one-pointincrease in the index results in around 0.4%-1.9% increase in performance; and a worst to best change predicts a 40% increase in company s performance. Using companies data in some African countries, including Ghana, South Africa, Nigeria and Kenya, Kyereboah-Coleman (2007) result shows that better governance practices are associated with higher valuations and better operating performance. Baker, Godridge, Gottesman and Morey (2007) using a unique dataset from Alliance Bernstein, an international asset management company, with monthly firm-level and country-level governance ratings for 22 emerging markets countries over a five-year period, report a significantly positive relation between firm-level (and countrylevel) Corporate Governance ratings and market valuation, suggesting lower cost of equity for better governed firms. Nijjar (2012) investigated the impact of corporate governance on insurance performance in Bahrain, the result that there is no statistically significant impact of corporate governance expressed by CEO status, ownership concentration, the number of employees, industry performance, and number of shares traded on firm s performance in the insurance industry expressed by the dependent variable - return on equity (ROE). On the other hand, board size, firm size, number of blockholders found to have statistically significant impact on firm s performance in the insurance industry expressed by the dependent variable - return on equity (ROE). This result, confirms the importance of good governance structure on the firm and the whole economy in the long run. Tornyeva and Woriko (2012) investigated the relationship between corporate governance and the financial performance of insurance companies in Ghana. The findings show that large board size, board skill, management skill, longer serving CEOs, size of 8

5 audit committee, audit committee independence, foreign ownership, institutional ownership, dividend policy and annual general meeting are positively associated with the financial performance of insurance companies in Ghana. Yamane and Raju (2015) studied the same relationship with reference to Ethiopia, result shows that board meeting and board compensation had statistically significant positive impact on return on equity (ROE) of the Ethiopian insurance Industry. But the results failed to show any significant impact of board size, audit committee, and gender diversity on the proxy of companies performance. Moreover, the Size of the companies had a significant positive impact on ROE, but the Age of the firms did not reveal any significant impact on ROE. Corporate Governance and Insurance Industry in Nigeria The Nigerian Insurance Industry has been controlled by regulations prior to this time. Of this, the recapitalization programme seems to have had the most effect. Recapitalizations of the sector have been carried out in 2003 and 2005 and that of 2005 was concluded in They were directed at flushing out operators with weak dubious financial bases from the financial sector and to galvanize these institutions into assuming the challenge of transforming the nation into one of the top ten world economies within the turn of a decade. After the 2007 recapitalization, the industry was left with 49 insurance companies, and 3 reinsurance companies (NAICOM, 2007). Najjar (2012) is of the view that any governance principle adopted by the insurance industry should be flexible enough to consider the variety of insurers within its purview because each insurance company tailors its corporate governance procedures according to its own circumstances. An effective corporate governance framework will impose appropriate standards to recognize and protect the rights, relationships and interests of all interested parties in the insurance firm such as the stakeholders. It would prevent the abuse of self-serving conduct along with imprudent and high-risk behavior, thereby resolving the conflict of interests between managers, board of directors, employees, shareholders and the policyholders. that the board of directors is the focal point of the corporate governance system. It should ultimately be held accountable and responsible for the actions of the insurer which would promote prudent behavior in the insurer. On an additional note, the International Association of Insurance Supervisors (IAIS) (2004) emphasizes that directors, independent or not, in any insurance company should: i. Establish a charter to specify the code of business conduct and ethics and the means to attain them. ii. Set out their responsibilities in accepting and following the regulations and principles of corporate governance and conduct an annual self-assessment aimed at evaluating and addressing their strengths and weaknesses. iii. Supervise prudently the managers and executive officers to make sure that they adhere to the policies and strategies mentioned in the firm s charter. iv. Conduct regular meetings with the managers and executives. v. Establish committees with specific responsibilities such as compensation, audit and risk management committee; and vi. Ensure fair treatment to all policy holders and employees, guaranteeing the sharing of information and disclosure between them in a transparent manner. However, these responsibilities are not fixed, but may be changed from one insurance company to another. Other dimensions of corporate governance in insurance firms concern employee and manager relations and internal control and auditing. In the words of Najjar (2012), all insurers should conduct themselves in a fair and ethical manner in accordance to the code of business conduct and ethics established by the board of directors. Mustaphaet. et.al., (2009) maintain that every insurance company should maintain accurate and verifiable records of all the transactions made, such as premium register, premium ledger, premium report, claim register, claim report, general ledger, income statement and statement of financial position. They should audit their accounts and financial reports annually by their internal audit committee and an external legal audit firm. The audit firm should report directly to the Central Bank of Nigeria (CBN) if any fraudulent actions are committed by the insurer. The actions of all bodies involved in the insurance process will be subject to the code of corporate governance for the Nigerian insurance industry. 2.1 Theoretical Review Various theories have been put forward to help us understand the concept of Corporate Governance. This study will anchor on the following theories. Stewardship Theory A steward is defined by Davis, Schoorman & Donaldson (1997) as one who protects and maximizes shareholders wealth through firm performance, because by so doing, the steward s utility functions are maximized. In this perspective, stewards are company executives and managers working for the shareholders, protects and make profits for the shareholders. Stewardship theory stresses not on the perspective of individualism, but rather on the role of top management being as stewards, integrating their goals as part of the organization. The stewardship perspective suggests that stewards are satisfied and motivated when organizational success is attained. It stresses on the position of employees or executives to act more autonomously so that the shareholders returns are maximized. Indeed, this can minimize the costs aimed at monitoring and 9

6 controlling behaviors. On the other hand, to protect their reputations as decision makers in organizations, executives and directors are inclined to operate the firm to maximize financial performance as well as shareholders profits. In this sense, it is believed that the firm s performance can directly impact perceptions of their individual performance. Moreover, stewardship theory suggests unifying the role of the CEO and the chairman to reduce agency costs and to have greater role as stewards in the organization. It was evident that there would be better safeguarding of the interest of the shareholders. Agency Theory Agency theory is defined as the relationship between the principals, such as shareholders and agents such as the company executives and managers. In this theory, shareholders who are the owners or principals of the company, hires the agents to perform work. Principals delegate the running of business to the directors or managers, who are the shareholder s agents (Clarke, 2004). Agency theory suggests that employees or managers in organizations can be self-interested. The agency theory shareholders expect the agents to act and make decisions in the principal s interest. On the contrary, the agent may not necessarily make decisions in the best interests of the principals (Padilla, 2000). The agent may be succumbed to self-interest, opportunistic behavior and falling short of congruence between the aspirations of the principal and the agent s pursuits. Even the understanding of risk defers in its approach. Although with such setbacks, agency theory was introduced basically as a separation of ownership and control (Bhimani, 2008). The agents are controlled by principal-made rules, with the aim of maximizing shareholders value. Hence, a more individualistic view is applied in this theory (Clarke, 2004). Indeed, agency theory can be employed to explore the relationship between the ownership and management structure. However, where there is a separation, the agency model can be applied to align the goals of the management with that of the owners. The model of an employee portrayed in the agency theory is more of a self-interest, individualistic and are bounded rationality where rewards and punishments seem to take priority (Jensen & Meckling, 1976). Stakeholder Theory Wheeler et al, (2002) argued that stakeholder theory was derived from a combination of the sociological and organizational disciplines. Stakeholder theory can be defined as any group or individual who can affect or is affected by the achievement of the organization s objectives. Stakeholder theorists suggest that managers in organizations have a network of relationships to serve this include the suppliers, employees and business partners. And it was argued that this group of networks is important other than owner-manager-employee relationship as in agency theory. On the other end, Sundaram & Inkpen (2004) contend that stakeholder theory attempts to address the group of stakeholders deserving and requiring management s attention. 3.0 RESEARCH METHODOLOGY Research Design Research design refers to the arrangement of conditions for collection and analysis of data in a manner that aims to combine relevance to the research purpose with economy in the procedure (Babbie, 2002). A research design is a framework that indicates the type of information that is needed for the research, the source of such information and the method of collection (Udeagha, 2003). This research design employed is the ex-post facto design which seeks to establish the causeeffect relationship and the variables of interest are not under the control of the researcher and therefore cannot be manipulated. Sources of Data Data for the empirical study are secondary data sourced from the Mutual Benefits, FBN Life, and Zentih Life Insurance Annual Financial Reports from 2005 to 2015, NAICOM Publication Method of Data Analysis The statistical technique adopted for this study is multiple regression econometric procedure with the aid of E-view package. The t-test was employed to ascertain the significance of each of the constant parameters, while the diagnostic test based on the coefficient of determination (R 2 ) was used to check for the goodness of fit of the model. The Durbin-Watson statistic will be employed also to measures the serial correlation in the residuals. If the DW is less than 2, there is evidence of positive serial correlation. A DW statistic output that is very close to one indicates the presence of serial correlation in the residuals. Model Specification In line with our objectives, we employed a multiple regression in analyzing the relationship between Corporate Governance and Insurance Industry in Nigeria in order to examine the performance effect of corporate governance on the insurance industry. The functional relationship is given as: Profit Before Tax (PBT) = (Board Size, Leverage, Audit Committee) (1) The equation is transform into econometric form as: Profit Before Tax (PBT)= β0+β1boardsize+ β2leverage+ β3audit Committee+ μ...(2) Where: Profit Before Tax is the dependent variable as a measured of insurance industry performance. Corporate Governance is the independent variable proxied by board size, leverage and Audit Committee. Where β0>0, β1>0, β2>0, β3>0 β0,= constant parameters 10

7 β1>0, β2>0, β3>0,= Coefficient and μ = the error term 4.0 DATA ANALYSIS AND RESULT Table 1 TEST OF HYPOTHESIS Variables P-value 5% Observation Decision rule Board Size P-VALUE < 5% Reject Null Leverage P-VALUE >5% Accept Null Audit committee P-VALUE >5% Accept Null (Source: Author Computation, 2016) Decision Rule The test of hypothesis used was Multiple Regression method. The E-view highlighted the result that is significant with the output indicating significant at 5% level. Reject the null hypothesis if p-value The formulated hypotheses are; Hypothesis One: H0: There is no positive relationship between Board Size and profit before tax of insurance companies in Nigeria. H1: There is a positive relationship between Board Size and profit before tax of insurance companies in Nigeria. Based on the result above, the null hypothesis is rejected because the p-value of is less than 5% significant. Therefore, the study concludes that Board Size has significant impact on profit before tax of insurance companies in Nigeria. Hypothesis Two: H0: There is no positive relationship between leverage and profit before tax of insurance companies in Nigeria. H1: There is a positive relationship between leverage and profit before tax of insurance companies in Nigeria. The null hypothesis is accepted, because the p-value of is greater than 5% significant. Therefore, the study concludes that leverage does not significant impact on profit before tax of insurance companies in Nigeria. Hypothesis Three: H0: There is no positive relationship between Audit Committee and profit before tax of insurance companies in Nigeria. H1: There is a positive relationship between Audit Committee and profit before tax of insurance companies in Nigeria. Finally, the null hypothesis is accepted, because the p-value of is greater than 5% significant. Therefore, the study concludes that Audit Committee has positive significant impact on profit before tax of insurance companies in Nigeria. Recommendation and Conclusion From the table 4.1, the multiple regression model show a r 2 of 76% signifying that corporate governance can explain 76% of the Nigerian insurance industry growth and development. While only 24% of Nigerian insurance industry growth and development could be accounted or explain by other variables or factors not included in the model. Also, looking at the Durbin Watson Statistics of shows the presence of positive auto correlation among the variables in the model. However, the overall p- value of Therefore, the study concluded that corporate governance significantly impact of the Nigerian insurance industry growth and development. This finding agrees with Momoh and Ukpong (2013) their findings reveals that there is significant relationship between corporate governance and insurance industry financial performance. In light, of the findings the study recommends that Nigerian Insurance industry should properly define corporate governance and its mechanisms and implement them effectively to reach the firm s long-term goals, build stakeholders confidence and generate positive investment flows. We conclude that there is a significant impact for corporate governance on firm s performance in the insurance industry in Nigeria. This result, however, stresses the importance of good governance structure on the firm s equity utilization. REFERENCES Alsaeed, K. (2006). The association between firm specific characteristics and disclosure: The case of Saudi Arabia. Managerial Auditing Journal, 21(5), Baker, E., G. B. Godridge, A. Gottesman and Morey, M., (2007). Corporate Governance Ratings in Emerging Markets: Implications for Market Valuation, Internal Firm Performance, Dividend Payouts and Policy. Paper presented at the International Research Conference on Corporate Governance in Emerging Markets, Istanbul, Bansal, B. and Bansal, A. (2014) Corporate Governance and Risk Management in Insurance Sector: A review of literature, International Journal of Scientific and Research Publications, Volume 4, Issue 10. Bhimani, A. (2008). Making corporate governance count: The fusion of ethics and economic rationality, Journal of Management and Governance, 12(2), Central Bank of Nigeria (2006) code of corporate governance for Nigerian banks post consolidation. conso.pdf Clark, T. (2004). Theories of corporate governance: The philosophical foundations of corporate governance. London: Routledge. 11

8 Coles, J., Mc Williams,V. & Sen, N. (2001). An Examination of the Relationship of Governance Mechanisms on Performance. Journal of Management 27, pp Daily, C. M., Dalton, D. R., & Canella, A. A. (2003). Corporate governance: Decades of dialogue and data. Academy of Management Review, 28(3), Dalton, D., Daily, C., & Ellstrand, A. (1999). Number of directors and financial performance: A metal analysis. Academy of Management Journal, 42(6), Davis, J. H., Schoorman, F. D., & Donaldson, L. (1997). Toward a stewardship theory of Management. Academy of Management Review, 22, Duke, J. and Kankpang, K. A. (2011). Linking Corporate Governance with Organizational Performance: New Insights and Evidence from Nigeria. Global Journal of Management and Business Research. 11(12) Erickson, J., Y.W. Park, J. Reising and H. Shin, Board composition and firm value under concentrated ownership. The Canadian Evidence Pacific-Basin Finance Journal, 13(4): Fodio M.I., Ibikunle J., and Oba V.C. (2013) Corporate Governance Mechanisms and Reported Earnings Quality in Listed Nigerian Insurance Firms International Journal of Finance and Accounting, 2(5): Garba, T. and Abubakar, B.A. (2014) Corporate Board Diversity and Financial Performance of Insurance Companies in Nigeria: An Application of Panel Data Approach; Asian Economic and Financial Review, 4(2): Gollier, C. (2003). To Insure or Not to Insure? An Insurance Puzzle. The Geneva Papers on Risk and Insurance Theory. Hilman, A. J., Canella, A. A., & Paetzold, R. L. (2000). The resource dependency role of corporate directors: Strategic adaptation of board composition in response to environmental change. Journal of Management Studies, 37(2), Idornigie P.O. (2010): Enhancing corporate value through the Harmonization of corporate value through the Harmonization of corporate codes. A paper presented at the 34th Annual conference of ICSAN. Sheraton Hotels and Towers. September 22nd and 23rd Lagos. Sundaram, A.K. and Inkpen, A.C. (2004): The Corporate Objective Revisited. Organization Science, 15(3), IAIS (2004). Insurance Core Principle on Corporate Governance. Switzerland. IRDA (2009). Corporate Governance Guidelines for Insurance Companies. India. Jensen, M.C. and W.H. Meckling, Theory of the firm: Managerial behavior, agency costs and ownership structure. In Clarke T. (Ed), Theories of Corporate Governance: the Philosophical Foundations of Corporate Governance, London: Routledge, pp: Johnson, J. L, Daily, C.M., & Ellstrand, A. E. (1996). Board of directors: A review of research agenda. Journal of Management, 22(3), Kaplan, S. N., & Minton, B. A. (1994). Appointments of outsiders to Japanese boards: Determinants and implications for managers. Journal of Financial Economics, 36(2), Kyereboah-Coleman, A. (2007). Corporate Governance and firm performance in Africa: A Dynamic Panel Data Analysis. A paper presented at the International Conference on Corporate Governance in Emerging Markets. Sabanci University, Istanbul, Turkey. Limpaphayom, J., and Connelly, P. (2006). Board characteristics and firm performance: Evidence from the life insurance industry in Thailand Chulalongkorn. Journal of Economics, 16(2), Kolawole, O. O. and Tanko, M. (2008). Corporate Governance and Firms Performance in Nigeria. Global Journal of Management and Business Research. 8(10) National Insurance Commission Code (2009). NAICOM Code of Corporate Governance for the Insurance Industry. on December 11, Nkwachukwu (2007): Understanding share Registration in Nigeria. A Contemporary issue and management: Lagos. America Ltd. 12

9 Momoh, O. A. and Ukpong, M. S. (2013) Corporate Governance and its effects on the Nigerian Insurance Industry, European Journal of Globalization and Development Research, Vol. 8, No. 1 Naser Najjar (2012) The Impact of Corporate Governance on the Insurance Firm s Performance in Bahrain International Journal of Learning & Development ISSN , Vol. 2, No. 2 Neuman, W. L. (2006). Social Research Methods: Qualitative and Quantitative Approaches, (6th Ed.), Boston. Padilla, A. (2002): Can Agency Theory Justify the Regulation of Insider Trading. The Quarterly Journal of Austrian Economics, 5(1), 3-38 PENCOM Code (2008): National Pension Commission Code of Corporate Governance for Licensed Pension operators. SEC Code (2003): Security and Exchange Commission Code of Corporate Governance for Companies listed in the stock Exchange SEC (2010): Arthur Levitt Tornyeva, K and Wereko, T. (2012). Soft Governance and Firm Performance: A Study of Ghanaian Insurance Firms. European Journal of Business and Management. 4(13), 6-94 Tornyeva, K and Wereko, T. (2012). Corporate Governance and Firm Performance: Evidence from the Insurance Sector of Ghana. European Journal of Business and Management. 4(13), Zheka, V. (2007). Does Corporate Governance casually predict Firm Performance? Panel Data and Instrumental Variables Evidence. Available at 13

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