Board Independence and Firm Financial Performance: Evidence from Nigeria

Abstract

This study examined the relationship between board independence and firm financial performance, using data of varying sample size (ranging from 89 firms for regression to 205 firms for descriptive analysis) obtained from the Nigerian Stock Exchange for the period 1996 through 2004. The key results were that share ownership was highly concentrated inNigeria, and this structure tended to engender board structureswith close family affiliations in which the chief executive officers (CEOs) were activemembers of audit committees.While family affiliation of board members was found to support firm growth, we found evidence that audit committee membership of chief executives hurt firm performance. We also found that foreign chief executives performed better than their local counterparts. These results suggested the need for Nigerian firms to adopt better corporate governance mechanisms in order to make the boards of directors more independent, avoid unnecessary intervention of CEOs in important committees, and in that way aid financial performance.