CORPORATE GOVERNANCE AND ITS IMPACT ON THE MANAGEMENT OF MTN MOBILE COMMUNICATION NIGERIA LTD. KADUNA MAIN BRANCH
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CORPORATE GOVERNANCE
AND ITS IMPACT ON THE MANAGEMENT OF MTN MOBILE COMMUNICATION NIGERIA LTD.
KADUNA MAIN BRANCH
CHAPTER ONE:
INTRODUCTION
1.1 Background to the
Study
Corporate governance is concerned with ways in which all
parties interested in the well-being of the firm (the stakeholders) attempt to
ensure that managers and other insiders take measures or adopt mechanisms that
safeguard the interests of the stakeholders. Such measures are necessitated by
the separation of ownership from management, an increasingly vital feature of
the modern firm. A typical firm is characterized by numerous owners having no
management function, and managers with no equity interest in the firm.
Shareholders, or owners of equity, are generally large in number, and an
average shareholder controls a minute proportion of the shares of the firm.
This gives rise to the tendency for such a shareholder to take no interest in
the monitoring of managers, who, left to themselves, may pursue interests
different from those of the owners of equity. For example, the managers might
take steps to increase the size of the firm and, often, their pay, although
that may not necessarily raise the firm’s profit, the major concern of the
shareholder.
Corporate governance issues in both the private and public
sectors have become a popular discussion in recent time. There have been some
legislative changes and provisions imposed by governments on public and private
organizations around the world to improve on their governance arrangements.
Telecommunication sector in Nigeria have been one of the ‘interests caught up
in the national surge in governance of organizations’
Particularly in
Nigeria, governance issues such as size and composition of board of directors
and their roles, responsibilities and relationships have been discussed in
several Government business policy reports for more than a decade.
Corporate governance can simply be defined as the system by
which companies are directed and controlled which focuses on the “hygiene” and
“housekeeping” aspects of running a business. As such, corporate governance can
be seen as a set of relationships between a company’s management, its board,
its shareholders and other stakeholders that provides a structure through which
the objectives of the company are set and the means of attaining those
objectives and monitoring performance are determined.
Corporate governance issues are as old as companies
themselves. At its broadest, it concerns the question of who should own and
control the company and at the narrowest; it concerns the relationship between
the shareholders and directors.
Many a research has been carried out world over to unearth
the impact of the corporate governance on listed firms as well as correct and
good practice of corporate governance in developing countries.
However Nigeria have been faced with a myriad of issues,
ranging from “underdeveloped and illiquid stock markets, economic
uncertainties, weak legal controls and investor protection, and frequent
government intervention and coupled with poor economic performance, a predominance
of concentrated shareholding and controlling ownership Therefore, Nigeria
demand higher levels of effective corporate governance practices.
However, until quite recently the issue of corporate
governance has received minimal attention in Nigeria. This is the reason why,
many corporate organizations have been caught of getting involved in unethical
practices. For example, seven top Bank executives in Nigeria that were
discovered to be involved in one of the highest financial scam in the nation’s
banking industry, after the CBN consolidation exercise ; which has put the
credibility of their corporate image under suspicion, and threatening
investors’ confidence.
Therefore an important theme of corporate governance in this
regard is the nature and extent of accountability of people in the business and
mechanisms that try to decrease the principal agent problem. Consequently,
corporate governance mechanism has been a crucial issue under discussion with
vested interest. It is against this background that the researchers see the
subject matter; corporate governance and its impact on the management of Mobile
Telecommunication Nig. Ltd Main Branch as an issue worthy of being
investigated.
1.2
Statement of Problem
There has been considerable discussion in the academic
literature of corporate governance especially managerial agency problems that
arise from the separation of ownership and control. For example, Jensen and
Meckling (2006) opined that a number of corporate governance mechanisms have
been proposed to ameliorate this agency problem between managers and their
shareholders. The proposed governance mechanisms include, for example, CEO
incentive compensation, managerial ownership, monitoring by large shareholders,
board size and independence, and stronger shareholder rights. Many studies have
found a positive contemporaneous correlation between firm performance and good
governance, which has led to numerous attempts to reform governance by
institutional investors, stock exchanges and Congress in so many countries in
order to increase accountability in corporate organizations.
But in spite of this, there is, however, little evidence on
whether changing a firm’s governance structure leads to subsequent firm
performance, as such doubt is expressed by previous studies whether firms can improve their longer term
performance by implementing changes to their governance structure. It is
against this gap that the researcher intend to take a survey into the subject
matter:corporate governance and its impact on the management of MTN mobile communication By attempting to
address an important limitation of past
studies which has failed to address this gap. As such, this study aims to
provide additional insights into the relationship between governance mechanisms
and firm financial performance in Nigeria. The need for a study of this kind is
even more important in an environment like Nigeria’s, which is characterized by
growing calls for effective corporate governance, particularly for public
limited liability companies. This call is understandable in view of the
importance of effective governance at both microeconomic and economy-wide
levels
1.3
Objective of the Study
The main objective of the study is to examine the corporate
governance and its impact on the management of MTN. other specific objectives
are to:
i)
assess the effect of corporate governance on the performance of Telecommunication companies.
ii)
examine the internal and external corporate governance control mechanism
in Telecommunication companies.
iii)
identify the systemic problems of corporate governance in
Telecommunication companies.
1.4 Significance
of the Study
This study adds a significant practical importance, because
its results support the application of appropriate regulatory agencies such as
central, stock exchange as well as Nigeria security and Exchange commission and
financial organization in their various
policy formulations as regard corporate governance . As such the study will be
significant to these organinisations and regulatory Agencies especially as they
utilize the findings of this research in enhancing policy formulation as regard
corporate governance in their organization. This study is important as it
provides new insights into governance and performance of organization in private sector.
The study will also add to the existing knowledge as well as
making an original contribution to the study of corporate governance, since it
is a comprehensive investigation into the comparative roles of governance in
affecting performance of organizations
in Nigeria and elsewhere in the world.
The study will also be a reference material for further
research on corporate governance. As such, it will be a springboard to students
intending to carryout similar research.
1.5
Research Questions
The central research question is: What is the impact of
corporate governance on the management of MTN Mobile Communication? The
specific questions are:
i)
how does corporate governance affect the performance of MTN?
ii)
what are the internal and external corporate governance control
mechanism in place in MTN?
iii)
what are the systemic problems militating against corporate governance
in MTN?
iv) what
are the solutions to such problems?
1.6 Scope
of the Study
The study covers the examination of the impact of corporate
governance in the telecommunication industry with reference to MTN Mobile
Communication. The collection of empirical data is limited to MTN Kaduna main
office. The study covers a time from 2001 – 2011.
1.7
Definition of Terms
In this section we define the various proxy variables we use
to capture changes in corporate governance.
Corporate Governance:
This is a set of the structure through which the objective of the firm
and set and the means of obtaining these objectives and monitoring performance
are determined.
Corporation: This refers to corporate entity or a body by
means of which capital is acquired and used for investing in assets producing
goods and services.
Shareholder rights: Our first measure of shareholder rights
is the G-Index used by Gompers, Ishii, and Metrick (2003). As in Gompers et
al., we use the incidence of governance rules to construct the G-Index. Firms
with low G-Index values have the strongest shareholder rights and firms with
high values of the G-Index have the weakest shareholder rights.
Insider Ownership: Consistent with Himmelberg, Hubbard, and
Palia (1999) we calculate the ratio of insiders’ holdings of common shares over
total shares outstanding. Morck, Shleifer, and Vishny (1988) find a
non-monotonic relationship between insider ownership and firm value and show
two inflection points at 5% and 25% respectively.
Shareholders: People who have invested in a company through
subscribing to the company’s stock.
Board Structure: Management at the top comprising of board of
directors.
Ownership Structure: Shareholders and directors.
CEO: Acronym for Chief Executive Officer.
MTN: Mobile Telecommunication Nigeria
AGM: Annual General Meeting
BOFID: Banks and Other Financial Institution Decree
CAC :Corporate Affairs Commission
CAMD: Company and Allied Matters Decree
CBN: Central Bank of Nigeria
DPC :Development Policy Centre
FOS: Federal Office of Statistics
IAS:International accounting standard
ISD:Investments and Securities Decree
MENA: Middle East and North Africa
NAICOM: national insurance commission of nigeria
NICON: National Insurance Corporation of Nigeria plc
NEPA: National Electric Power Authority
NDIC: Nigerian Deposit Insurance Corporation
NNPC: Nigerian National Petroleum Corporation
NITEL: Nigerian Telecommunications Plc
NSE: Nigerian Stock Exchange
OECD: Organisation For Economic Cooperation And Development.
PLC: Public Limited Company
SEC: Securities And Exchange Commission
SOE: State Owned Enterprises
TCPC: Technical Committee On Privatization And
Commercialization
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