American Journal of Industrial and Business Management, 2024, 14, 905-918

https://www.scirp.org/journal/ajibm
ISSN Online: 2164-5175
ISSN Print: 2164-5167

Effect of Corporate Governance on

Organizational Performance: A Study of Listed
Manufacturing Companies in Nigeria

Obinime-Imbu Sotonye, Saheed A. Lateef, Josephine Ene

Department of Accounting and Finance, Faculty of Management and Social Sciences, Baze University, Abuja, Nigeria

How to cite this paper: Sotonye, O.-I., Abstract

Lateef, S.A. and Ene, J. (2024). Effect of
Corporate Governance on Organizational This study examined the effect of corporate governance on the performance
Performance: A Study of Listed Manufac- of listed manufacturing companies in Nigeria with reference to board size
turing Companies in Nigeria. American
and audit committee independence. The study covered the influence of board
Journal of Industrial and Business Man-
agement, 14, 905-918. size and audit committee independence on performance variables such as net
https://doi.org/10.4236/ajibm.2024.146046 profit after-tax and return on capital employed. The secondary source of data
collection was adopted which includes the use of data collated from listed
Received: May 24, 2024
manufacturing companies through the Nigerian Exchange Group (NGX) Fact
Accepted: June 25, 2024
Published: June 28, 2024 Book (2023). Data collated was analyzed using the descriptive statistics and
correlation matrix with the aid of STATA version 15. The results revealed
Copyright © 2024 by author(s) and that board size and audit committee independence has a significant positive
Scientific Research Publishing Inc.
This work is licensed under the Creative
impact on return on capital employed (ROCE) and net profit after-tax
Commons Attribution-NonCommercial (NPAT). The study therefore recommended that manufacturing companies
International License (CC BY-NC 4.0). listed on stock exchanges should ensure their audit committees consist of in-
http://creativecommons.org/licenses/by-nc/4.0/
dependent directors with appropriate experience and knowledge in risk
Open Access
management, financial reporting, and auditing.

Keywords
Audit Committee, Board Size, Corporate Governance, Net Profit After Tax,
Return of Capital Employed

1. Introduction
The lack of full compliance in corporate governance has arisen due to the in-
creasing number of prominent corporate failures in recent times. These failures
are often linked to deficient corporate governance practices within organizations
that aim to create economic value. Implementing these best practices enhances

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O.-I. Sotonye et al.

managerial effectiveness, boosts investor confidence, and helps prevent situa-

tions that could diminish shareholder value, as well as reduce waste and ineffi-
ciency (Geraldine, Sunday, & John, 2017). The significant corporate losses and
collapses experienced during the global financial crisis that began in 2008 un-
derscore the importance of robust corporate governance in sustaining a healthy
business environment and safeguarding stakeholders’ interests. Given the pro-
found impact of recent global corporate failures, there is a pressing need to pri-
oritize the improvement of corporate governance practices to protect sharehold-
ers’ interests, enhance national economic conditions, and reduce unemployment
and crime rates.
The Organization for Economic Cooperation and Development (OECD)
(2004) emphasizes that fairness, transparency, integrity, and managerial ac-
countability are fundamental aspects of effective corporate governance. Unfor-
tunately, corporate governance has often been criticized for becoming detached
from its intended stakeholders, the company’s owners and shareholders, and has
distanced itself from other important stakeholders, such as consumers, em-
ployees, government, and local communities, all of whom have a vested interest
in the company’s operations. Therefore, the concept of “corporate governance”
will inevitably receive significant attention going forward. The separation of
ownership from control, a characteristic of capitalism, highlights the critical is-
sue of corporate control within the corporate governance framework. Histori-
cally, the power vacuum between owners and managers has been exploited by
management for corporate takeovers.
Corporate governance encompasses a system of controls, procedures, policies,
guidelines, and practices established by a company’s board and management to
ensure smooth business operations, optimize shareholder value, and serve the
interests of all stakeholders. According to Owolabi and Dada (2011), corporate
governance comprises procedures, norms, laws, and regulations that influence
how a corporation is managed. Recognizing corporate governance as a non-
financial factor impacting a company’s success, previous studies have advocated
for increased disclosure of non-financial information in organizational reports,
whether they are publicly listed or not. Narayanan, Pincus, Kelm, and Lander
(2000) argue that prudent managers should reduce information asymmetry by
encouraging voluntary disclosure, especially of non-financial (corporate gover-
nance) information.
In this study, corporate governance mechanisms of a particular interest are
board size and audit committee independence and their relationship with the fi-
nancial performance of the manufacturing firms who are listed on the Nigerian
stock exchange. Two dependent variables, namely; net profit after taxes and re-
turn on capital employed constitute the measures of the firm’s financial perfor-
mance. The choice of these independent and dependent variables is due to the
fact that the size and constitution of the board of directors as well as the effi-
ciency of audit committee are elements of good corporate governance that can

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 O.-I. Sotonye et al.

have profound effect on a company’s performance. Board size has been impli-
cated with decision making and with monitoring while audit committee inde-
pendence is very vital in the corporate world so as to determine the indepen-
dence of the financial reports and internal control.
In addition, the Nigerian manufacturing sector has had its share of failed
corporates and corporate governance issues indents which included institutions
like Dunlop Nigeria Plc as well as Cadbury Nigeria Plc. These incidences have
therefore called for research effort to establish how the corporate governance
mechanisms affect the performance of the firms listed in the Nigerian stock ex-
change manufacturing sector. Thus, while filling this void, the study will offer
empirical data that will be useful for policy purposes of enhancing manufactur-
ing business governance standards in Nigeria. Global financial market and man-
ufacturing industry has been highly threatened which hindered the economic
growth because of the financial crisis and most unexpected corporate failures,
losses, scandals and organizational destruction throughout the world. The
present social crises in corporate governance practices have led to the demise of
organizations of great importance including those from Nigeria. The problem
has continuously seen extraordinary collapses and loss-making due to gover-
nance among the listed manufacturing firms forcing devastating system failures
as well as scandals resulting from fraud and other unlawful conducts affecting
the financial performance of most of the manufacturing firms.
A large part of this problem is blamed on the issue of size and composition of
Boards of Directors. Pressed to increase board diversity, several proposals sug-
gest that quotas should be set to have more women directors, and in order to re-
formulate boards, one must admit that directors’ performance and their conduct
may well reflect their background. A good number of these companies operate
with all-male or family-related boards thus violating the Nigerian Code of Cor-
porate Governance 2018 and, therefore, are potential threats to the existence of
corporate entities in Nigeria. Thus, the work of the audit committee crucially
depends on the specialists in accounting and auditing being part of the commit-
tee, whereas the members of these committees are often friends and relatives
with no professional background, which results in company failures. These is-
sues, therefore, affects the performance of Nigerian manufacturing companies in
a rather considerable manner. Therefore, this research has aimed at establishing
the impacts of corporate governances on the performance of selected manufac-
turing companies in Nigeria bearing particular emphasis on the following im-
portant issues.

1.1. Objectives of the Study

The primary aim of this research is to investigate the influence of corporate go-
vernance on the performance of Nigerian listed firms. The specific objectives of
the study are as follows:
1) To assess the effect of board size on the net profit after taxes of listed man-

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O.-I. Sotonye et al.

ufacturing companies in Nigeria.

2) To analyze the impact of audit committee independence on the return on
capital employed by listed businesses in Nigeria.

1.2. Statement of the Hypotheses

The study tested the following null hypotheses:
Ho1: The size of the board does not have a significant impact on the net profit
after tax of listed manufacturing companies in Nigeria.
Ho2: The independence of the audit committee does not have a significant
impact on the return on capital employed by Nigerian listed businesses.
The study holds relevance for various stakeholders:
Investors: Members of the Nigerian Exchange Group (NGX) can gain insights
into the corporate governance practices employed by listed industrial enterprises.
Government: Policymakers can utilize the findings to identify effective corpo-
rate governance practices and develop business-friendly policies that attract for-
eign investment.
Students and Researchers: This study can serve as a valuable reference for
students and researchers conducting related research. The data and findings
contribute to theoretical discussions on corporate governance and performance
of Nigerian quoted companies, providing evidence of the effect of corporate go-
vernance on the profitability of listed manufacturing firms within the Nigerian
Exchange Group (NGX).

2. Literature Review
2.1. Conceptual Review
2.1.1. Concept of Corporate Governance
Corporate governance, as defined by the Organization for Economic Coopera-
tion and Development (OECD, 2004), encompasses the framework that governs
the management and direction of commercial businesses. This structure estab-
lishes rules and processes for decision-making in corporate affairs, delineates the
rights and responsibilities of key participants such as shareholders, managers,
the board, and other stakeholders, and provides the framework for setting orga-
nizational goals, defining methods to achieve them, and monitoring perfor-
mance.
According to Ammar, Saeed, and Abid (2013), corporate governance is a
process used by management to take appropriate actions that safeguard stake-
holders’ interests. It also serves as a framework for regulating relationships, sys-
tems, processes, and norms (Osundina et al., 2016). Implementing corporate
governance involves adhering to established norms, rules, and regulations,
which in turn fosters stability and effective management. Good corporate go-
vernance enhances stakeholder confidence and improves a company’s efficiency
and value in the capital market rather than diminishing it.
Board Size

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To enhance stronger corporate governance within the organization, board size

should consider an appropriate blend of expertise and skill sets to avoid a biased
composition of skills and experience. Board size refers to the total number of di-
rectors, including executive and non-executive members, and may vary depend-
ing on the country and culture (Zabri, Ahmad, & Wah, 2016). Consequently,
there is no standard board size.
While some companies advocate for a larger board size to enhance deci-
sion-making quality, others prefer a smaller board size for more effective and ef-
ficient monitoring. Ahmed and Hamdan (2015) suggested that a board with 12
members would be beneficial, while Effiok, Effiong, and Usoro (2012) found that
having 12 members was not statistically significant. Xavier, Shukla, Oduor, and
Mbabazize (2015) recommended a board size of nine members, and Odiwo,
Chukwuma, and Kifordu (2013) concluded that a larger board would lead to
better performance.
Audit Committee Independence
The Board utilizes a committee system to carry out its functions, including
standing committees such as the appointment and promotion committee, audit
committee, finance committee, tenders board committee, and other specialized
committees as prescribed by applicable laws. According to the Nigerian Compa-
nies and Allied Matters Act (CAMA) of 2022, the audit committee should con-
sist of six members, with three representing shareholders and three representing
management/directors.
Thuraisingam (2013) observed that the committee’s membership varies be-
tween two and five directors but does not significantly impact performance.
Osundina et al. (2016) similarly found a weak but favorable correlation. Howev-
er, empirical research by Kajola (2008) suggested minimal correlation between
audit committee performance and other factors, whereas Narwal and Jindal
(2015) found that audit committee members had a negative impact on profita-
bility.
Management, responsible for the company’s day-to-day operations, is ap-
pointed by the Board of Directors (BOD). The management, including the Chief
Executive Officer (CEO), acts as the BOD’s “agent” and establishes operating
procedures and guidelines, known as the operating manual, and internal control
measures to organize the organization’s daily activities. The CEO reports to the
BOD on behalf of the management.

2.1.2. Concept of Organizational Performance

The term “performance” in corporate governance refers to the effectiveness of
collaboration between a company’s management team and board of directors in
achieving organizational goals while considering the interests of various stake-
holders. It encompasses risk management, operational efficiency, financial per-
formance, and adherence to ethical principles. Corporate governance perfor-
mance is crucial as it directly impacts the company’s reputation, competitive-
ness, and ability to thrive in the market.

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Financial performance, specifically a company’s ability to generate profits,

maintain liquidity, and achieve sustainable long-term growth, is a key aspect of
corporate governance performance. Strong governance frameworks ensure ac-
countability and transparency in financial reporting, enabling stakeholders and
investors to assess the company’s financial standing accurately. Operational
performance is another critical component of corporate governance, focusing on
the efficiency and effectiveness of business operations, resource allocation
processes, strategic decision-making, and performance evaluation. Strong go-
vernance frameworks establish clear roles, responsibilities, and monitoring sys-
tems, contributing to improved operational performance in businesses (Alza-
hrani et al., 2020). Enhanced operational performance allows companies to in-
crease productivity, reduce costs, and enhance overall competitiveness.
Net Profit After Tax (NPAT) is a critical financial indicator that reflects a
company’s profitability after deducting all costs, including taxes. NPAT
represents the portion of earnings available to shareholders after taxes are de-
ducted from the company’s pre-tax profit. It is a key metric used by analysts and
investors to assess a company’s profitability and capacity to generate returns.
Research by Li et al. (2018) and Chen et al. (2019) underscores the significance
of NPAT in evaluating business profitability and shareholder value creation.
Return on Capital Employed (ROCE) is another financial metric used to eva-
luate how efficiently a company generates profits from its capital investments. It
measures the return on both debt and equity financing relative to the profitabil-
ity of business activities. ROCE is an important indicator of a company’s finan-
cial health and ability to generate returns for investors. Studies by Zhou et al.
(2019) and Arif et al. (2018) emphasize the significance of ROCE in evaluating
operational effectiveness and capital utilization, with higher ROCE suggesting
superior profitability and capital consumption in comparison to industry peers.
In summary, corporate governance performance encompasses various aspects
including financial performance, operational efficiency, risk management, and
key financial metrics like NPAT and ROCE. Strong governance frameworks
contribute to improved organizational performance, resilience, and sustainable
growth, enhancing stakeholder confidence and value creation for shareholders.

2.2. Theoretical Review

This research is grounded in agency theory, which was elaborated by Jensen and
Meckling (1976) following the pioneering work by Alchian and Demsetz (1972)
in the corporate governance literature. Agency theory addresses issues that arise
in agency relationships due to misaligned goals or differing levels of risk aver-
sion. In the financial sector, a common agency relationship exists between a
principal (shareholder) and multiple agents (business executives). This relation-
ship often leads to conflicts identified as agency conflicts or conflicts of interest
between principals and agents.
Agency theory explains the challenges that arise from differences in objectives

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between the principal and the agent. Such situations can occur when owners lack
knowledge of managers’ actions or face constraints in accessing information. It
is also possible that managers pursue personal objectives that may not align with
shareholders’ goals of achieving strong capital growth. According to Okpolosa
(2018), a critical aspect is the extent to which managers of commercial organiza-
tions use management resources to reduce costs in the best interests of share-
holders. Shareholders may also be concerned about hiring competent managers
and ensuring that decisions are made with shareholder interests in mind. All
these factors contribute to agency costs, which refer to the expenses incurred by
owners to ensure that managers are motivated to maximize shareholder profit
rather than pursuing personal gain.

2.3. Empirical Review

Bui and Krajcsák’s 2024 study explored the relationship between corporate go-
vernance (CG) and financial performance in publicly listed companies in Viet-
nam from 2019 to 2021. The research uses generalized system methods of mo-
ments to address dynamic endogeneity in CG research. Financial performance is
measured using Tobin’s Q, return on equity (ROE), and return on assets (ROA).
The study found a positive correlation between transparency disclosure and fi-
nancial performance and CG and company size. However, the COVID-19 pan-
demic caused a decrease in transparency and information index scores.
Affes and Jarboui’s 2023 study examined the impact of effective corporate go-
vernance on the financial performance of 160 UK companies between 2005 and
2018. Using multivariate regressions and FGLS models, they found that good
corporate governance improved company returns on equity. This study is sig-
nificant for future comparative studies on sectoral and temporal levels, allowing
for comparisons before and after Brexit and COVID-19, and offers potential for
future research on different UK sectors.
Guluma’s 2021 study examined the relationship between corporate gover-
nance (CG) measures and firm performance in a Chinese listed firm. The study
used internal and external CG measures, including independent board, dual
board leadership, ownership concentration, debt financing, and product market
competition. The results showed that ownership concentration and product
market competition positively influenced firm performance, while dual leader-
ship negatively impacted performance. Managerial overconfidence negatively in-
fluenced board independence, dual leadership, and ownership concentration.
However, overconfidence positively moderated debt financing’s impact on firm
performance. The study contributes to the theoretical perspective by examining
how managerial behavior influences CG practices and firm performance in
emerging markets.
Anandasayanan and Velnampy (2018) conducted a study on the corporate
profitability and governance of listed diversified holding firms in Sri Lanka. The
research aimed to investigate the effect of corporate governance on the profita-

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O.-I. Sotonye et al.

bility of companies listed under the Diversified Holdings category on the Co-
lombo Stock Exchange. Secondary data were utilized for the study, focusing on
17 out of 20 selected organizations based on data accessibility during the re-
search period. Independent variables such as CEO duality, board size, and board
composition were examined, with return on assets (ROA) serving as the profita-
bility metric. Additional factors, including debt-to-equity ratio and company
size, were considered as control variables. The study employed Panel Least
Square regression analysis to test hypotheses and utilized descriptive statistics to
outline key attributes of the research variables. The results indicated that while
business size and debt-to-equity ratio had minimal impact on corporate profita-
bility, corporate governance significantly influenced profitability. Notably, the
study focused solely on return on assets and debt-to-equity ratio as performance
variables, excluding consideration of additional performance characteristics in-
fluenced by corporate governance.
Herdjiono and Sari (2017) explored the effect of corporate governance on
company performance using empirical data from Indonesia. The study aimed to
examine how financial performance of manufacturing companies listed on the
Indonesia Stock Exchange was affected by audit committee size, board size, in-
stitutional ownership, and management ownership. Linear regression analysis
was applied to 156 Indonesian listed companies. Results showed that institution-
al ownership, management ownership, and audit committee size did not impact
financial performance significantly, whereas board size had a positive effect. Si-
multaneous testing indicated that financial performance was influenced by audit
committee size, institutional ownership, management ownership, and board
size. The study focused on the manufacturing sector and internal corporate go-
vernance mechanisms within Indonesian enterprises, suggesting the use of cor-
porate governance as an external predictive variable. The research contributes to
understanding corporate governance and company performance in developing
nations, emphasizing that managerial, institutional, and audit committee own-
ership do not necessarily enhance business performance. Notably, the study
recommended an audit committee size equivalent to that of a board of directors
for improved financial success, acknowledging the limitation of excluding per-
formance variables beyond financial success.
Jaradat (2015) investigated capital structure and corporate governance proce-
dures, specifically focusing on board size, gender diversity, outside director
duality, and CEO duality. Findings indicated a strong correlation between leve-
rage and board size, diversity in board culture, and outside directors, while no
meaningful correlation was observed between leverage and CEO dualism. Firm
size demonstrated a positive correlation with leverage, whereas managerial own-
ership, profitability, and return on assets showed significant negative correla-
tions. The study primarily used leverage as a performance measure, omitting
consideration of other variables.
Abdul (2012) explored the impact of capital structure choices on Pakistani

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 O.-I. Sotonye et al.

company performance. The study found that financial leverage significantly re-
duced company performance, as indicated by return on assets (ROA), gross
margin (GM), and Tobin’s Q. Although financial leverage and return on equity
(ROE) displayed a negative relationship, it was not statistically significant. The
study’s selection of ROE, growth, and ROA as performance indicators provided
a comprehensive assessment.
Vakilifard et al. (2011) analyzed the effect of corporate governance on capital
structure in Iranian listed firms. Findings suggested that companies are more
likely to use debt when CEO and chairman roles are separate, but no discernible
connection was found between capital structure and the proportion of outside
directors. The study focused solely on capital structure as the dependent varia-
ble, which may limit understanding of how corporate governance influences this
variable.

2.4. Existing Gap

In the context of the existing literature on CG and on organizational perfor-
mance, there are a number of issues that have emerged as crucial research ques-
tions but that are yet to be properly addressed if the field is to be enriched sys-
tematically. First, the use of secondary data in many of the conducted studies in-
dicates that the methodological approaches are also primarily secondary. For in-
stance, Anandasayanan & Velnampy (2018) conducted a quantitative study uti-
lizing secondary data in which they explored the effect of corporate on profita-
bility of companies in Sri Lanka; while Vakilifard et al. (2011) also employed
quantitative research method to assess corporate governance’s relationship with
capital structure among firms in Iran. On the other hand, primary data can be
more detailed but usually may cover a limited field compared to secondary data.
Conducting primary data enables one to delve deeper into specific internal prac-
tices and employees’ attitudes, which is a starting point for assessing the effi-
ciency of corporate governance in real time and definite setting.
The number of indices of performance is restricted and their operational use
in different research is even more limited. It was established that most studies
like Bui and Krajcsák (2024) that have examined literature on the relationship
between innovation capability and financial performance have relied on finan-
cial performance indicators such as Tobin’s Q, ROE and ROA. For examples,
Abdul (2012) employed ROA as one of the measures alongside with GM and
Tobin’s Q. The studies which were conducted by Anandasayanan and Velnampy
(2018) incorporated only ROA and debt-to-equity ratio. However, the above-
mentioned measures do not encompass other important achievement dimen-
sions of efficiency, market performance, innovation, employees’ satisfaction, and
operations management. Consequently, it remains pertinent to reiterate that
corporate governance has been conceptualized in its broadest sense here and
that the variety of dimensions involved requires a much more complex approach
to analysing the subject.

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In many cases, the findings are not very generalizable due to the small geo-
graphic and sectoral scope of the existing research. For instance, Herdjiono, and
Sari (2017) while carrying out their research on the manufacturing sector in In-
donesia were able to provide conclusions that are majorly relevant to this type of
sector in the Indonesian region only. Similarly, Affes and Jarboui (2023) while
conducting their research on the overall UK firms they came up with recom-
mendations mainly suitable for firms based in the United Kingdom. Future re-
search should incorporate a broad range of industries and locations so that the
findings will hold relevance for any firm across the globe and such research
would contribute to the advancement of overall corporate governance practices.

3. Research Methodology
A quantitative research approach was selected for this study. The study utilized
an ex-post-facto research design within the quantitative method, which relies on
existing data as the study is secondary in nature and focuses on events that have
already occurred. The population of the study consisted of nine (9) manufactur-
ing firms listed on the Nigerian Exchange Group (NGX) (2023), representing
sectors such as agriculture, conglomerates, consumer products, healthcare/
pharmaceuticals, industrial goods, and natural resources. The included manu-
facturing companies were Nestle Nigeria Plc., PZ Cussons, Cadbury, Unilever,
Lafarge, Berger Paints Plc., Pharma Decko, Glaxo Smith Kline (GSK), and Pres-
co Plc.
Secondary data were collected for the study. Given its quantitative design, the
study primarily utilized panel (cross-sectional and time series) secondary data
sourced from various relevant publications. The secondary data were obtained
from annual reports and accounts of the companies. Generalized Least Square
Methods (GLS) were employed to estimate the panel data in this study, analyz-
ing panel-cross sectional and time series secondary data. The aim of panel data
analysis is to quantify fixed and random effects within the model and adjust for
them. The analysis aimed to assess how manufacturing companies’ capacity uti-
lization from the previous year could return to equilibrium in the current year.
The model specification for this study was adapted from Adekunle’s (2022)
investigation on the effect of corporate governance on the financial performance
of listed multinational companies in Nigeria. The adopted model was modified
to incorporate new financial reform indicators before being applied to test hy-
potheses.
Dependent Variable
Y = Performance (PER) therefore, PER = f(NPAT, ROCE)
Independent Variable
X = Corporate governance (CG) CG = f(BS, ACI)
The functional form of the econometric model is therefore given as:
Y = f(X1, Х2, X3 ∙∙∙ Xn)
Net Profit After-Tax = f(BS, ACI);

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 O.-I. Sotonye et al.

Return on Capital Employed = f(BS, ACI)

Where, Y is Performance (PER) (Dependent variable)
X1 to Xn are proxies of the independent variable or explanatory variables.
F = represents the functional notation.
The explicit forms of the models for the two hypotheses are stated thus:
ROCEit = α0 + α1BSit + α2ACIit + Ut (1)
NPATit = α0 + α1BSit + α2ACIit + Ut (2)
where: BS = Board size; ACI = Audit Committee Independence; α0 = Regression
Constant, λ1-2 = Coefficients of Explanatory Variables, Ut = Error Term.

4. Research Analysis and Findings

Descriptive Analysis
Results

Table 1. Corporate governance and Performance of Manufacturing companies in Nige-

ria.

Dependent ROCE NPAT

Variable B p-value B p-value
BS 0.071 0.000 4.226 0.000
Independent
ACI 0.131 0.000 22.936 0.000
Variable
_cons 22.504 0.000 1308.532 0.000

Dependent variable: ROCE, NPAT. Note: show significance at 1%, 5% and 10% respec-
tively. Source: Author’s Computation, 2024 (STATA 15).

Table 1 presents the results of the Generalized Least Square Methods (LSM)
used to estimate panel data. The table displays the outcomes of the Hausman
test, which combined fixed and random effect models.
Based on the decision rule, the p-values of the Hausman test for the fixed and
random effect models were found to be greater than the 0.05 (5%) level of signi-
ficance, indicating the adoption of the random effect model.
Hypothesis One: The hypothesis tested whether board size (BS) has a signifi-
cant impact on the performance metrics (Return on Capital Employed, Net
Profit After-tax) of listed manufacturing companies in Nigeria. The analysis re-
vealed a significant relationship between board size (BS) and performance indi-
cators. The random effect model indicated that board size (BS) positively affects
Return on Capital Employed (ROCE) and Net Profit After-tax (NPAT) with sig-
nificant coefficient values of 0.071 and 4.226, respectively. The observed p-values
of 0.000 for both ROCE and NPAT were less than the significance level of 0.05,
leading to the rejection of the null hypothesis. Therefore, the study concludes
that the performance of Nigerian listed manufacturing companies is significantly
influenced by the board size (BS).
Hypothesis Two: The hypothesis examined whether audit committee inde-

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O.-I. Sotonye et al.

pendence (AC) has a significant impact on performance metrics (Return on

Capital Employed, Sales Volume, Net Profit After-tax) of listed companies in
Nigeria. The analysis showed that audit committee independence (AC) positive-
ly affects Return on Capital Employed (ROCE) and Net Profit After-tax (NPAT)
with significant coefficient values of 0.131 and 22.936, respectively, based on the
random effect model. The observed p-values of 0.000 for both ROCE and NPAT
were less than the significance level of 0.05, leading to the rejection of the null
hypothesis. Thus, the study concludes that the independence of the audit com-
mittee significantly influences the performance of Nigerian listed manufacturing
companies.

5. Conclusion and Recommendations

In conclusion, this study has provided valuable insights into the relationship
between key aspects of corporate governance and financial performance metrics,
particularly focusing on the impact of board size and audit committee indepen-
dence on ROCE and NPAT. The findings are consistent with existing research,
underscoring the importance of these governance structures in influencing
business success.
The data indicates that a larger board is associated with higher ROCE and
NPAT, suggesting that a diverse board composition may positively impact fi-
nancial outcomes. Furthermore, the study identified a positive correlation be-
tween ROCE and NPAT and audit committee independence, highlighting the
importance of objective oversight and rigorous financial examination in en-
hancing financial performance. These findings emphasize the critical role of ro-
bust corporate governance practices in achieving financial performance and
shareholder value creation.
Based on these conclusions, the study offers the following recommendations:
Listed manufacturing companies should evaluate the size and composition of
their boards to ensure a balance of efficiency, knowledge, and diversity. While
larger boards may bring diverse viewpoints and expertise, companies should
avoid excessive board size, which can lead to coordination issues and inefficient
decision-making. Therefore, businesses should aim for a board size that facili-
tates effective communication, collaboration, and decision-making while ensur-
ing members possess essential knowledge and expertise relevant to the manu-
facturing sector.
Manufacturing companies listed on stock exchanges should ensure their audit
committees consist of independent directors with appropriate experience and
knowledge in risk management, financial reporting, and auditing. By appointing
independent members with diverse backgrounds, companies can promote im-
partiality and objectivity in audit committee discussions and decision-making
processes.

Conflicts of Interest
The authors declare no conflicts of interest regarding the publication of this paper.

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 O.-I. Sotonye et al.

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