Corporate Governance and Oil and Gas Performance , Degree thesis for Corporate Governence. University of Lagos
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oluwasegun-ayodele26 July 2017

Corporate Governance and Oil and Gas Performance , Degree thesis for Corporate Governence. University of Lagos

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Microsoft Word - 9_Corporate Governance

155

Assessing the Connectedness between Corporate Governance Mechanisms and

Financial Performance of Listed Oil and Gas Companies in Nigeria

Segun AYODELEa Adeyemo K. ADEREMIb Imoleayo F. OBIGBEMIc Stephen A. OJEKAd

a MSc, ACA, Niger Delta Exploration & Production PLC, Lagos, Nigeria, segunng@yahoo.com

b Ph.D., Covenant University, Ogun State, Nigeria, kingsley.adeyemo@covenantuniversity.edu.ng

c Ph.D., Covenant University, Ogun State, Nigeria, imole.obigbemi@covenantuniversity.edu.ng

d Ph.D., Covenant University, Ogun State, Nigeria, stephen.ojeka@covenantuniversity.edu.ng

Keywords

Governance, Corporate, Oil and Gas, Board, ROE, Disclosure. Jel Classification

M10, M41, G34.

Abstract

This research examines the nature of relationships that exist between corporate governance mechanisms (board composition, audit committee, board size and corporate governance disclosure) and financial performance (return on equity, profit margin and return on asset) in the Nigerian oil and gas industry. Secondary data from the audited financial statements of the fifteen listed oil and gas companies in Nigeria were employed. The test of hypotheses and other analysis of data were done using Pearson Correlation and regression analysis generated from SPSS, version 17. Findings from the study revealed that insignificant but positive relationship does exist between board composition and the performance of oil and gas companies in Nigeria. Evidence also exist that corporate governance disclosure level has a positive and significant impact on the ROE. This study therefore suggests that board of directors and stakeholders of oil and gas companies in Nigeria should pay more attention towards enhancing the independence of their audit committees and the extent of their corporate governance disclosure in order to enhance their level of profitability.

Journal of Accounting, Finance and Auditing Studies 2/4 (2016) 155-171

156

1.0 Introduction

There has been an upsurge in quest for good corporate governance among companies in

various nations for excess of a decade. Corporate governance has assumed a significant

position in driving firm’s value creation and improving financial performance especially

in the face of consistent corporate scandals that have continued to rock corporate entities

globally (Korac-Kakabadse et al 2001, Shivdasani and Zenner, 2002, Rose, 2005 as cited

by Lawal , 2012). Various theoretical and empirical studies have been occasioned by

corporate governance failures both at local and international level yet daily occurrence of

financial scandals are on the increase. According to Egwuonwa,(1997),

Corporate governance refers to the control of corporate policy through the

power legally vested in a group or groups of people to chart a course of

action to be followed by the organization in areas of fundamental

importance to its survival, prosperity and proper functioning. It

encompasses the mode of structure, the power that determines the rights

and responsibilities of the various groups involved in running the

organization, the legitimate expectation of the business, the method of

operating and the overall accountability of management and of the

directors.

No doubt the fall of Enron, WorldCom, Global Crossing and Rank Xerox in USA, Parmalat

in Italy, the Maxwell saga in the UK, Daewoo in Korea, Leisurenet and Regal Bank in South

Africa are all pointers to the enormous cost of corporate governance failure. It is worthy

of note that Nigeria is not immune to this challenge of corporate governance failure as

various cases of financial scandal governance are increasingly being recorded and

published on daily basis. The cases of Cadbury Nigeria Plc, Oceanic bank Plc,

Intercontinental bank Plc, Union bank of Nigeria, Afribank, just to mention a few are part

of Nigeria’s share of corporate governance failures.

In response to these corporate scandals, countries and agencies around the world began

to introduce a series of legislations and guidelines otherwise known as the codes of best

practices. These guidelines are a set of norms that regulates the behavior and structure of

the corporate board in exercising their monitoring and supervisory roles. Some of the

existing codes across the globe include amongst others: UK Cadbury Code, (1992), South

Africa King Report (1994), The Organization for Economic Co-operation and

Development (OCED) Principles of Corporate Governance (2004), Russian CG Code,

Journal of Accounting, Finance and Auditing Studies 2/4 (2016) 155-171

157

(2002); Security and Exchange Commission (SEC) code of corporate governance (2003),

US Sarbanes-Oxley Act (2002), Central Bank of Nigeria (CBN) Code (2006), National

Insurance Commission (NAICOM) Code (2009), Pension Commission (PENCOM) Code

(2008).

In Nigeria, though several efforts have been directed at curbing the menace of corporate

governance failure as shown above, they are however largely limited to listed financial

institutions and other non-oil sector thereby excluding insights into the behavior of

quoted oil and gas companies in Nigeria. This shortfall is what triggers this study.

A lot of work has been done to examine the relationship between corporate governance

and firm performance across the globe but sadly, little has been done in Nigeria Oil and

Gas industry despite the prevalent financial scandals which have their roots in corporate

governance failures. Despite the fact that most of the world oil and gas are produced in

the third-world countries, the industry is still far more exposed to the risk of corruption

than other kinds of business. Nigeria which is Africa’s biggest oil producer and a host

country for western oil majors such as Shell, Total, Mobil and ENI was ranked 144 out of

177 in corruption index (Transparency International corruption perception index, 2013).

Complementarily, Chazan, (2012), noted that Oil and gas sector has the highest bribery

rate in Nigeria. Thus, primary objective of this research is to explore the relationship

between corporate governance and the financial performance of Nigerian oil and gas

sector. The rest of this paper is divided into four sections. Section 2 highlights the review

of related literature and hypotheses. Overview of the Nigerian Oil & Gas Industry is the

concern of section 3. Section 4 is devoted to the research method and analytical

procedures. Finally, section 5 focused on the research findings and conclusions

2.0 Literature Review

According to Cheffins (2011), the term of corporate governance first came to light in the

1970s in the United States. However, with the collapse of Enron and world.com, corporate

governance has become increasingly important. International organizations such as

Organization for Economic Cooperation and Development (OECD), International

Monetary Fund (IMF), World Bank and The International Organization of Securities

Commissions (IOSCO) have shown interests in the adoption of corporate governance

principles as yardstick in countries’ assessment and standard settings.

Undoubtedly, the integrity of financial reporting will largely dependent on the conduct of

the parties that make up the corporate governance structure. Dar, Naseem,Rehman and

Journal of Accounting, Finance and Auditing Studies 2/4 (2016) 155-171

158

Niazi (2011) listed the parties involved in corporate governance to include: board of

directors, shareholders, audit committee, chief executive officer and management.

Azeem,Hassan andKouser (2013) studied the impact of quality corporate governance on

firm performance by using fixed effects estimation method of panel data of 50 largest (by

market capitalization) companies listed at Karachi Stock Exchange (Pakistan) for a ten

year perspective. The result showed that quality of corporate governance significantly

determines firm performance. It is therefore believed that better corporate governance

should lead to healthier corporate performance by ensuring better decision-making. In

expectation of such an improvement, the firm’s value should respond simultaneously to

information indicating better corporate governance. This is in conformity with the view

by Obiyo (2011) and Adeusi et al. (2013).

Recent studies on these issues are Uwuigbe, (2013), Adeusi, et al. (2013), Duke and

Kankpang (2011), Uadiale (2010), Babatunde and Olaniran (2009), Obiyo (2011), and

Adegoke (2013). Even though some of these researchers picked one or two listed oil and

gas companies in their samples, the results cannot be generalized to have empirically

demonstrated how oil and gas companies in Nigeria will response to the relationship

between corporate governance and financial performance. Below are the tabular

presentation of some studies that have been conducted to establish connectivity between

corporate governance mechanisms and the performance of firms. As compiled by the

researchers:

Table 1.0: Some previous studies of corporate governance and firm performance

Author(s)

Industry

Performance

Measurement

variables

Corporate

Governance

Mechanisms

Methods of

Analysis Research Findings

Ravivathani, T.

(2013)

Financial

institution ROA and ROE

Board size, board

composition and

audit committee

Correlation

and simple

linear

regression

model

*Board size, board composition are

not significantly correlated with

ROE and ROA

*Audit committee and ROE are

significantly related.

* No significant relationship

between audit committee and ROA

Dar, L.A.,

Naseem, M.

A., Rehman,

R.U., & Niazi,

G.S. (2001).

Oil and gas ROE, PM

Board size,

chief executive

status, annual

general meeting

and audit

committee

T-test and

multiple

regression

analysis

*significant effect and positive

relationship between ROE, board

size and annual general meeting

* ROE has significant negative

relationship with audit committee

and CEO status

* Positive insignificant relationship

between PM, board size and annual

Journal of Accounting, Finance and Auditing Studies 2/4 (2016) 155-171

159

Author(s)

Industry

Performance

Measurement

variables

Corporate

Governance

Mechanisms

Methods of

Analysis Research Findings

general meeting * CEO status and

audit committee have a significant

negative relationship with PM

Adeusi, S. O.,

Akeke, N. I.,

Aribaba, F.O.,

& Adebisi,

O.S. (2013)

Financial

institution ROA

Board size, board

composition

Multiple

regression

A need for increase in board size

and decrease in board composition

in order to increase the bank

performance

Yasser, Q. R.,

Entebang, H.,

& Mansor, S.

A. (2011).

30

companies

on

Karachi

Stock

Exchange

covering all

sectors

ROA & PM

Board size, board

composition and

audit committee,

CEO/chairman

duality

Multiple

regression

Board size should be limited to a

sizeable limit and board must be a

right mixture of executive and non-

executive directors

Younas, Z. I.,

Mahmood,

H., & Saeed,

A. (2011).

50

companies

on

Karachi

Stock

Exchange

covering all

sectors

ROA, debt ratio

Board size, CEO–

chairman

combined structure

and audit

expenditure

Multivariate

OLS

regression

models

Prior year firm’s performance has

positive relationship with board

size but negative relationship with

audit expenditure. Furthermore,

any change in prior year firm’s

performance causes change in CEO

duality.

Yasser, Q. R., & Al

Mamun, A.

(2012).

Five year

data of

listed

companies

in Pakistan

Market-based

Tobin Q,

accounting-

based ROA and

economic value

added

Duality, board Size,

supervisory

directors, outside

independent

directors, inside

directors

Regression

model

The results indicated that

independent variables have no

effect on firm’s performance in

terms of Tobin Q, ROA and EVA.

When using Tobin Q, ROA and EVA

as outcome variables, the results

indicated that duality has no

influence on firm’s performance;

supervisory directors, outside

independent directors and inside

directors also have no significant

effect on firm’s performance; board

size and financial leverage have

positive effect on firm’s

performance

Journal of Accounting, Finance and Auditing Studies 2/4 (2016) 155-171

160

Author(s)

Industry

Performance

Measurement

variables

Corporate

Governance

Mechanisms

Methods of

Analysis Research Findings

Chaghadari, M. F.

(2011).

selected

sample of

companies

listed on

Bursa

Malaysia

Return on

equity and

return on asset

Board

independency, CEO

duality, ownership

Structure and

board size.

Linear

multiple

regression

There is no significant relationship

between board independency,

board size and ownership structure

as independent variables and firm

performance as dependent

variable.

Moscu, R. (2013).

Companies

quoted on

Bucharest

Stock

Exchange

Debt to equity

ratio

Board size and

board composition

Linear

multiple

regression

i) Board size has a positive

relationship with firm performance,

ii) there is a negative association

between non-executives directors

and firm performance, iii) there is a

positive and significant association

between firm performance and

dummy which take value 1 when

the percentage executives on the

board is more than non-executives

percentage

Duke II, J., &

Kankpang, K.

(2011)

40

companies

on

Nigerian

Stock

Exchange

covering all

sectors

ROA & PM

Board Size, board

chair/chief

executive status,

reliability of

financial reporting,

audit committee,

code of corporate

governance

Least

squares

regression

Strong relationships were found

between a number of corporate

Governance variables and firm

performance measures. The study

also found that there were no

material differences between the

reliability of financial reporting

between quoted and unquoted

firms.

Uwuigbe, O.R.

(2013)

30

companies

listed on the

Nigerian

Stock

Exchange

Share prices

over a three-

year period

Ownership

structure and the

audit committee

Regression

and

correlation

analysis

The empirical findings suggest that

ownership structure have a

negative association with share

price, whereas the audit committee

is positively related to share price

Source: Compiled by researcher

As evidenced from the above table, no study was exclusively focused on the oil and gas

sector. This gap the researcher intends to fill by this study. To this end, the following

hypotheses are considered relevant:

1. H0: The relationship between board composition and financial performance of

listed oil and gas companies in Nigeria is not statistically significant.

2. H0: There is no relationship between corporate governance disclosure and

financial performance of listed oil and gas companies in Nigeria.

Journal of Accounting, Finance and Auditing Studies 2/4 (2016) 155-171

161

3.0 Overview of the Nigerian Oil & Gas Industry

Nigeria is the largest oil producing country in Africa and holds the largest natural gas

reserves in Africa. The Nigerian economy is highly dependent on the production and

export of its oil and gas resources with Nigeria’s oil sector accounting for 95% of its export

earnings and about 75% of the Nigerian government’s revenue. Presently, Nigerian oil

reserves stand at about 37.1 billion barrels, the 9th largest oil reserves in the world while

the country's gas reserves are estimated at about 182 Tcf. Overall, the oil sector

contributed 14.4% to GDP for 2013, lower than the 15.9% recorded in 2012. These

figures, together with associated figures relating to gas production, resulted in a decline

in real terms in 2013 compared with 2012.

Oil was first discovered in Nigeria in 1956 at Oloibiri in the Niger Delta region by Shell-BP

(the then sole concessionaire) following about 50 years of exploration. Production

commenced in 1958 at about 5,000 bpd. The foremost offshore oil discovery was also

made by SPDC in 1965 within the shallow waters, south east of Warri. Shortly after, other

international oil companies such as Elf, Agip, Total, Mobil and Chevron commenced

operations in Nigeria.

Nigeria became a member of the Organization for the Petroleum Exporting Countries

(OPEC) in 1971, and established the Nigerian National Petroleum Company (NNPC) in

1977 by Decree 33. Being a member of OPEC, Nigeria is subject to the organization’s

production quota. Oil production grew to approximately 2MMbpd in the early 70s before

declining in the early 80s to 1.24MMbpd. This was precipitated by the fall in global oil

demand following the oil price increase in 1979 and the ensuing global economic

recession. By the 90s, oil production had picked up and steadied at a range of 2MMbpd to

2.4MMbpd, at a time when oil prices were approximately US$20/bbl.

Civil unrest in the Niger Delta region, coupled with poor capital infrastructure investment

in production facilities inhibited growth in oil production. In the recent past the industry

has benefited immensely from the continued upsurge in world crude oil demand which

has kept prices at high levels. The average daily production as at 31 December 2012 and

December 31, 2013 were 2.21MMbpd and 2.23MMbpd respectively.

The majority of Nigeria’s oil production comes from onshore fields. However, in recent

times, there has been significant production coming from the shallow water and deep

water areas from projects such as Total’s 180Mbpd Usan field, which was commissioned

in February 2012. According to NNPC, joint venture arrangements accounted for 49.89%

Journal of Accounting, Finance and Auditing Studies 2/4 (2016) 155-171

162

of Nigeria’s total crude oil production in 2013. PSC and service contract arrangements

(which are more common in Nigeria’s deep offshore acreage) accounted for 39.22% and

0.40% of the country’s 2013 crude oil production respectively, whilst independents/sole

risk and marginal field operators (which include Nigerian companies) accounted for

10.49% of total production in 2013.

In 2011, the US was the largest importer of Nigerian crude oil accounting for 33.0% of

Nigeria’s oil production. However, more recently, the US gradually imported less from

Nigeria following its discovery of shale. In June 2014, the FG announced that the US has

stopped the importation of Nigerian crude oil, and India had taken over as the major buyer

of Nigerian crude oil. Other major buyers of Nigerian crude oil are Brazil (7.7%) and the

Netherlands (7.1%). Nigeria’s export blends are light, sweet crude oils, with gravities

ranging from API 29 - 47 and low sulphur contents of 0.05% - 0.3%. These characteristics

allow Nigerian crude oil to trade at a premium to Brent, the North Sea benchmark for

crude oil.

Figure 1: Overview of the Nigerian Oil & Gas Industry

Source: http://www.cliqenergy.com/faq_sheets.php

The Niger Delta region has had a history of civil unrest, caused by host community

agitation in the face of perceived environmental degradation by the International Oil

Companies (IOCs). This has led to severe interruptions of petroleum operations by local

militants. Significant efforts have been made by the Government to tackle the problems

Journal of Accounting, Finance and Auditing Studies 2/4 (2016) 155-171

163

in the Niger Delta. For example, the Niger Delta Development Commission was

established to, amongst other things:

1. Develop the infrastructural needs of the Niger Delta region

2. Manage the sums received from upstream oil companies and the allocation of the

Federation Account for tackling ecological problems which arise from the

exploration of oil minerals in the Niger Delta area and

3. Alleviate the plight of local inhabitants.

In addition, in 2009, the Government implemented an amnesty program, which has been

highly successful in reducing militancy. As a result of this, the oil industry has gradually

recovered from the disruptions. Most of the onshore fields in the country that were shut

down due to a lack of security (including the Bonga and Escravos fields of Royal Dutch

Shell and Chevron Texaco) have been reopened.

Despite this, the oil sector has suffered from significant disruptions in 2011/12 due to

the leakages, which caused the temporary shutdown of facilities such as Bonga, a 200,000

barrel per day (bpd) facility, which supplies nearly 10 percent of Nigeria's total crude

output. Leakages on the Trans Forcados Pipeline (which is a major supplier to various

power stations across the Niger Delta region) also resulted in SPDC declaring a force

majeure on its Forcados export program (which has a production capacity of 400,000

bpd) during the fourth quarter of 2011.

Africa’s proven oil reserves are currently in excess of 128 billion barrels, representing 8%

of the world’s proven oil reserves. This is an increase from 123 billion barrels in 2009; a

trend which we expect to continuously see in coming years. Despite Africa being home to

8% of the world’s proven oil reserves; the continent produces 12% of the world’s supply.

Figure 2: Proven Oil Reserves - Africa (2013),

Source: OPEC Annual Statistical Bulletin, 2014

Journal of Accounting, Finance and Auditing Studies 2/4 (2016) 155-171

164

Various new opportunities still exist in Africa. This is evident from the licensing of only

45% of the 4,200 oil and gas blocks available and the emergence of East African countries

such as Tanzania and Mozambique as new industry players. A classic example of the

developments in Africa is the production of the Jubilee Field located in Ghana which took

a remarkable 24 months from development to production. It is hailed as the fastest

deepwater development ever, producing 95,000 bpd and demonstrating to the world the

possibilities in Africa.

There are a number of challenges facing the Nigerian oil and gas industry which are

constraining the industry’s growth. Notable among the challenges faced are:

i. Poor l infrastructure

i. Corruption

ii. Uncertain legal and regulatory framework

iii. Set-up costs

iv. Access to funding

v. Political influences

vi. Uncertainty and delays in passing laws

vii. Security and host community management.

The petroleum industry in Nigeria is regulated by the following acts and agencies:

a) Ministry of Petroleum Resources

b) Nigeria National Petroleum Corporation (NNPC)

c) Department of Petroleum Resources (DPR)

d) National Petroleum Investment Management Services (NAPIMS)

e) Nigeria Content Development and Monitoring Board (NCMB)

f) Niger Delta Development Commission (NDDC)

g) Oil and Gas Policy Commission

h) The Petroleum Act 1969

i) The Petroleum Profit Tax 1958

j) The Deep Offshore and Inland Basin Production Sharing Contracts Act No. 9 of

1999 (as amended)

k) The Associated Gas Re-injection Act 1979

l) Public Procurement Act 2007

m) Central Bank of Nigeria Act 2007

n) Nigeria Extractive Industry Transparency Initiative (NEITI) Act 2007

Journal of Accounting, Finance and Auditing Studies 2/4 (2016) 155-171

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o) Nigeria Oil and Gas Industry Content Development Act 2010

p) Sovereign Wealth Funds Act 2011/Nigeria Sovereign Investment Act 2011

q) The Petroleum Industry Bill 2012

4.0 Research Method and Analytical Procedures

This research (as earlier enunciated) investigates the relationship between corporate

governance and financial performance of listed oil and gas companies on the Nigerian

stock and Exchange. Studies that establish causal relationships between variables may be

termed explanatory studies (Saunders et al.2007 as cited in Adeyemi, & Fagbemi, 2010).

Population, Sample and Sampling Technique

The research population to serve the purpose of this study is the fifteen listed oil and gas

companies listed and active on the floor of the Nigerian Stock Exchange. The ultimate test

of a sample design is how well it represents the characteristics of the entire population

(Emory & Cooper, 2003 as cited in Adeyemi, & Fagbemi, 2010). In order to achieve this,

the entire 15 listed oil and gas companies in Nigerian were considered. The period

between 2011 and 2012 financial years for the fifteen companies were chosen as our

sample and technique is purposive.

The model specification:

Y= ƒ (a+β1(BCOM) + β2(AUDCOM) + β3(BSIZE) + β4(CGDI) + ε) ----------------- (i)

Where: Y= firm performance (ROE, PM and ROA)

BCOM= Board Composition (proportion of representation of non-executive directors on

board). AUDCOM= Audit Committee (proportion of audit committee outside to total audit

committee) BSIZE= Board Size (total number of the directors on board).

CGDI= Corporate Governance Disclosure Index (total score per company/maximum

score) x100.

From equation (i), three equations were derived emerged for this study:

ROE= a+β1(BCOM) + β2(AUDCOM) + β3(BSIZE) + β4(CGDI) + ε--------------------1

PM= a+β1(BCOM) + β2(AUDCOM) + β3(BSIZE) + β4(CGDI) + ε----------------------2

ROA= a+β1(BCOM) + β2(AUDCOM) + β3(BSIZE) + β4(CGDI) + ε--------------------3

Where: ROE= Return on Equity (profit after tax/shareholders’ fund)

PM= Profit Margin (profit after tax/turnover)

ROA=Return on Assets (profit after tax/total assets)

Journal of Accounting, Finance and Auditing Studies 2/4 (2016) 155-171

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Table 2: Level of Corporate Governance Disclosure

S/N

CODE FOR LISTED

OIL & GAS

COMPANIES IN

NIGERIA

SECTOR

YEAR YEAR

TOTAL AVERAGE CGDI

CGD 2012 CGD 2011

1 OAO Oil & Gas 25 21 46 23.000 1.533

2 CAO Oil & Gas 14 14 28 14.000 0.467

3 CON Oil & Gas 23 20 43 21.500 0.717

4 ETE Oil & Gas 21 21 42 21.000 0.700

5 FOR Oil & Gas 20 20 40 20.000 0.667

6 JOM Oil & Gas 22 22 44 22.000 0.733

7 MON Oil & Gas 29 29 58 29.000 0.967

8 MRS Oil & Gas 20 20 40 20.000 0.667

9 SEP Oil & Gas 21 21 42 21.000 0.700

10 TON Oil & Gas 29 29 58 29.000 0.967

11 AFR Oil & Gas 28 28 56 28.000 0.933

12 NAV Oil & Gas 8 10 18 9.000 0.300

13 ANI Oil & Gas 15 12 27 13.500 0.450

14 BEC Oil & Gas 11 7 18 9.000 0.300

15 RUP Oil & Gas 14 10 24 12.000 0.400

Source: computed by researcher using data extracted from annual reports and websites of listed oil and gas

companies in Nigeria (2014)

Table 2, revealed that all the observed oil and gas companies presented a statement of

their corporate governance practice. However, the extensiveness of the disclosure varies

between companies. Based on the 30 governance indices used for assessment, Mobil Oil

Nigeria Plc, and Total Nigeria plc emerged with highest number of corporate governance

disclosure with 29 disclosure items i.e. (97%). On the other hand, BECO Petroleum

Product Plc and Navitus Energy Plc disclosed the least governance items with 30% level

of disclosure.

5.0 Findings and Conclusions

From the above regression Table 3 below, the coefficient of determination R2 revealed

that the explanatory variables accounted for 43% of change in ROE, 39.9% of change in

PM and just 6.1% of changes in ROA.

Table 3: Regression Coefficient for Model 1- 3

ROE= a+β1(BCOM) +β2(AUDCOM) +β3(BSIZE) +β4(CGDI) + ε ……… Model 1

Journal of Accounting, Finance and Auditing Studies 2/4 (2016) 155-171

167

Model

Unstandardized

Coefficients

Standardized

Coefficients T Sig.

95% Confidence Interval for B

B Std. Error Beta Lower

Bound Upper Bound

1 1 (Constant) -49.995 25.770 -1.940 .064 -103.069 3.079

BCOM 28.479 28.217 .168 1.009 .323 -29.636 86.593

AUDCOM 73.235 30.838 .367 2.375 .026 9.722 136.748

BSIZE -2.756 1.379 -.345 -1.998 .057 -5.597 .085

CGDI 48.358 16.053 .554 3.012 .006 15.297 81.419

R 0.657

R Square 0.431

Adjusted R Square 0.340

F-Statistics 4.738 0.006 sig

PM= a+β1(BCOM) +β2(AUDCOM) +β3(BSIZE) +β4(CGDI) + ε ………… Model 2

Model

Unstandardized

Coefficients

Standardized

Coefficients T Sig.

95% Confidence Interval

for B

B Std. Error Beta Lower

Bound

Upper

Bound

2 (Constant) -17.859 8.460 -2.111 .045 -35.283 -.435

BCOM 2.219 9.264 .041 .240 .813 -16.860 21.298

AUDCOM 39.113 10.124 .614 3.863 .001 18.262 59.964

BSIZE .068 .453 .027 .150 .882 -.865 1.001

CGDI 1.583 5.270 .057 .300 .766 -9.271 12.437

R 0.632

R Square 0.399

Adjusted R Square 0.303

F-Statistics 4.151 0.010 sig

ROA= a+β1(BCOM) +β2(AUDCOM) +β3(BSIZE) +β4(CGDI) + ε …… Model 3

Journal of Accounting, Finance and Auditing Studies 2/4 (2016) 155-171

168

Model

Unstandardized

Coefficients

Standardized

Coefficients T Sig.

95% Confidence Interval for B

B Std. Error Beta Lower

Bound Upper Bound

3 (Constant) -5.363 18.383 -.292 .773 -43.224 32.498

BCOM 16.851 20.129 .179 .837 .410 -24.605 58.308

AUDCOM 12.236 21.999 .111 .556 .583 -33.071 57.544

BSIZE -.274 .984 -.062 -.279 .783 -2.301 1.752

CGDI -4.233 11.451 -.087 -.370 .715 -27.817 19.352

R 0.247

R Square 0.061

Adjusted R Square -0.089

F-Statistics 0.406 0.803 not sig

Source: computed by researcher using data extracted from annual reports of observed companies (2014)

Unlike other sectors like banking, the coefficient of determination R2 is a clear indication

that changes in the profitability level of the oil and gas companies is majorly a function of

changes in other external factors, which may include: global price of crude oil, OPEC

decisions, world trade flexibility, global insecurity , operational risks, government

decisions, technical know- how, fund availability, problems from host communities,

vandalization of assets, kidnapping, court litigations, penalties and political issues among

others and not necessarily the composition of board of directors, board size, audit

committee or level of corporate governance disclosure.

Conclusions

Based on the outcomes of our analysis from Model 1, Model 2, and Model 3 in Table 3

above, we concluded that board composition has a positive relationship with financial

performance of listed oil and gas companies in Nigeria even though the relationship is not

significant. Since the results support our hypothesis 1, we therefore accept the null

hypothesis that board composition does not have a significant relationship with financial

performance of listed oil and gas companies in Nigeria.

The work of Kajola, (2008) and Adeusi, et al. (2013) support our finding.

With regards to hypothesis 2, we conclude from table 3 above, that there exists at positive

relationship between corporate governance disclosure and ROA. For PM, the effect of

corporate governance is positive though not significant and a negative relationship with

Journal of Accounting, Finance and Auditing Studies 2/4 (2016) 155-171

169

ROA. It therefore means that ROE and PM are likely going to increase if companies disclose

their corporate governance policies and principles.

Based on the foregoing outcomes, we reject the null hypothesis which states that there is

no relationship between corporate governance disclosure and financial performance of

listed oil and gas companies in Nigeria. The outcome is in line with the study of

(Danoshana & Ravivathani, (2013), Gurbuz, et al. (2010)).

Recommendations

Stakeholders in the Nigerian oil and gas industry can leverage on corporate governance

as a vital instrument for increasing profitability by taking the following recommendations

into cognizance:

i) Efforts to ensure strong, effective and independent audit committee should be

harnessed by the board of directors and shareholders to drive corporate

governance policies and practice equivalent to global standard.

ii) Company’s objectives and the processes in place for achieving the objectives

should have their roots in established corporate governance framework to drive

compliance, penalties for non-compliance. An effective legal framework should be

developed to specify the rights and obligations of company, the directors,

shareholders, specific disclosure requirements and provisions for the enforcement

of compliance with codes of corporate governance.

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