CHAPTER ONE

1. INTRODUCTION

1.1   BACKGROUND OF STUDY

Ownership structure and firm’s performance has been a subject of importance in the society today. Often times, the interest of managers and shareholders are usually not aligned, which results to a problem that reduces firm’s value as well as financial performance (Tatiana & Stela, 2013). Shareholders are always regarded as the corporate owners, while directors are agents or representatives of shareholders who are supposed to allocate business resources in a way to increase their wealth (Benjamin, Love & Kabiru 2014).

Corporate governance structure specifies the distribution of rights and responsibilities among the different stakeholders in a business enterprise. Corporate governance mechanisms are expected to affect achievement of corporate objectives at a minimal cost. This is because the means of monitoring performances will be provided resulting in strengthened protection of interest and confidence of investors.

Part of the internal corporate governance mechanisms is ownership structure. In this study, ownership structure is assumed to be directors (insider) shareholding. The link between ownership structure and firm performance has been the subject of debate going back to Berle and Means (1932), who submitted that firms with a wide dispersal of shares tend to underperform. They predicted a positive relation between ownership concentration and firm financial performance. Several studies on ownership structure and financial performance exist in the literature, but most of these studies were conducted in the developed countries.

The developing/ emerging economies, particularly from the African continent have limited studies conducted so far. For the Nigerian business environment, we are aware of the works of Adenikinju and Ayorinde (2001); and Sanda, Mikailu and Garba (2005). This study intends to enrich knowledge by contributing to existing literature through empirical evidence on the impact of ownership structure on performance in the nonfinancial sector of an emerging capital market. The disparities between the financial theory and the actual event in many cases make the Nigerian study a special case. Performance measurement is critical for effective management of any firm (Demirbag, Tatoglu, Tekinus and Zaim, 2006). The process improvement is not possible without measuring the outcomes. Hence, organizational performance improvement requires measurements to identify the level to which the use of organizational resources impact business performance (Gadenne and Sharma, 2002; Madu, Aheto, Kuei and Winokur, 1996).

Performance of a firm is significantly impacted by corporate governance and if the functions are appropriately established for the corporate governance system, it attracts investment and helps in maximizing the company’s funds, reinforcing the company’s pillars and this will result in the expected increase in firm performance.

In other words, effective corporate governance protects against probable financial challenges and facilitates remarkable growth and therefore, corporate governance plays a key role in the growth of the firm performance. Currently the impact of corporate governance upon the general firm well-being has been examined (Ehikioya, 2009).

1.2   STATEMENT OF THE PROBLEM

        Ownership structure, as a mechanism in corporate governance to facilitate increased efficiency of a firm is believed to effect firm performance. Corporate governance or the system by which companies are directed and controlled has an influence on firm performance. The challenge with ownership structure and firm performance could be as a result of lack of means of monitoring the performance of the firm which might lead to not strengthening of interest and confidence of investors, thereby making them unwilling to invest. Finally, several researches has been carried out on the firm performance and ownership structure but not even a single research has been carried out on ownership structure and firm performance of quoted companies in Nigeria.

1.3   AIMS AND OBJECTIVES OF STUDY

        The main aim of the study is to examine ownership structure and firm performance of quoted companies. Other specific objectives of the study include;

1. to determine the extent to which ownership structure affects firm’s performance of quoted companies in Nigeria.
2. to determine the factors affecting ownership structures and firm’s performance of quoted companies in Nigeria.
3. to determine the impact of ownership structure on firm’s performance of quoted companies.
4. to proffer possible solutions to the problems.

1.4   RESEARCH QUESTIONS               

1. What is the extent to which ownership structure affects firm’s performance of quoted companies in Nigeria?
2. What are the factors affecting ownership structures and firm’s performance of quoted companies in Nigeria?
3. What is the impact of ownership structure on firm’s performance of quoted companies?
4. What are the possible solutions to the problems?

1.5   STATEMENT OF RESEARCH HYPOTHESIS

H0:   Ownership structure has no significant effect on firm’s performance of quoted companies in Nigeria.

H1:      Ownership structure has a significant effect on firm’s performance of quoted companies in Nigeria.

1.6   SIGNIFICANCE OF STUDY

        The study on ownership structure and firm performance of quoted companies will be of immense benefit to the entire corporate firms in Nigeria in the sense that it will educate on the potential investors of corporate firms in Nigeria to know whether ownership structure made impact on firms’ performance, which will guide them in taking relevant investment decision. The study will also educate the regulatory authority; Security and Exchange Commission (SEC) in the sense that it will enable them examine the effectiveness of their monitoring instruments as well as review and upgrade them as appropriate. Finally, the study will contribute to the body of existing literature and knowledge to this field of studies and basis for further research.

1.7   SCOPE OF STUDY

        The study on ownership structure and firm performance of quoted companies is limited to Nigeria.

1.8   LIMITATION OF STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.9   DEFINITION OF TERMS

Ownership: Ownership is the ultimate and exclusive right conferred by a lawful claim or title, and subject to certain restrictions to enjoy, occupy, possess, rent, sell, use, give away, or even destroy an item of property.

Structure        : A    structure is a construct or arranges according to a plan; give a pattern or organization to.

Firm                Is an organization which sells or produces something or which provides a service which people pay for

Performance:         Performance is the action or process of performing a task or function.

Quoted Companies:                A company whose shares can be bought or sold on the Stock Exchange.