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CORPORATE GOVERNANCE
AND PERFORMANCE OF TELECOMMUNICATION COMPANIES IN NIGERIA
CHAPTER ONE
INTRODUCTION
1.1 Background to
the Study
The telecommunications industry is undergoing a critical
transformation, creating exciting new opportunities and new challenges for
infrastructure and service providers. The established value chain is
increasingly being reconstructed, with the entry of powerful new players and
radical restructuring of the industry. Rapid technological developments and
increasing market competitions have added new dimension to an already complex
scenario. Countries and sectors equipped with the requisite telecommunication systems
are rapidly moving into post-industrial, information-based economic growth.
Telecommunication sector across the globe has been identified as one with
generic effect on almost all other sectors of the economy. Its function, in any
economy, is described as a strategic one aimed at promoting economic growth and
as one that has the linkages with other sectors. For the developing world, a
modern telecommunications infrastructure is not only essential for domestic
economic growth, but a prerequisite for participation in increasingly
competitive world markets and for attracting new investments.
Recently, the role of telecommunication infrastructure in
enhancing economic growth has been a subject for discourse in the economic
literature. Arguments are that the development of a modern nation to its full
potential in contemporary world can never be attained without adequate
telecommunications infrastructure. This implies that the development of
telecommunication infrastructure will significantly boost economic growth and
development. Report in the Fact sheet of
U.S Embassy showed that most of the developed economies such as U.S, Japan and
China, having realized this, had deregulated their telecommunication sectors to
allow more investment and the results they got were not just improved
telecommunication capabilities but also increased foreign investment, boom in
private sector development, more employment opportunities and better education
and training facilities.
In the global setting, the telecommunications industry has
experienced some drastic changes during the last few years; from the fixed
telephone lines, to GSM and then the interconnections. The result of these
changes has led to a fall in service charges coupled with increased
flexibility, functionality and the overall attractiveness of the services.
Introduction of new technologies has changed the role of mobile services,
leading to a significant increase in mobile penetration, which now exceed fixed
line communications. The annual
report of telecommunication Fact sheet shows that the telecommunications market
has reached the point of saturation, companies have introduced differentiation
strategies by services, which in turn have led to a broadening of the range of
new products in the market. Another key characteristic of the industry is the
requirement for substantial investment in equipment (exchanges), transmission
facilities (wire, optical fibre lines or wireless facilities), and terminals
(subscriber equipment).
This high capital investment provides an effective barrier of
entry to new players in the market. Furthermore, the high level of required
investment has led to a limited number of players within the market with sharp
competition among them. Another specific characteristic of the telecommunications
industry is also its perceived role within society. For many years it has been
viewed as providing essential public services. The increased penetration of
telecommunication lines has to benefit society as a whole. Telecommunications
have changed from being a discretionary or even luxury service to an essential
service that should meet the demands of the majority of consumers. Due to these
factors, the telecommunications industry is strongly regulated by governmental
authorities in order to ensure that telecommunication services are supplied in
accordance with public interest.
Today in Nigeria, there have been large infrastructure
investments resulting from liberalization between 1992 and 2011, which have
enabled million of people to communicate and transact businesses better.
Deregulation attracted new operators from within and outside the country. The
new operators have injected competition and provided new employment
opportunities and emergence of indigeneous telecommunication companies. This
growth has equally profound impact on the job and employment market, enhance
efficiency in other productive sectors and increase national output.
In terms of growth, according to Lawyers Chronicle (2014)
Nigeria is ranked the largest and fastest growing ICT market in Africa and
among the ten fastest telecommunications growth markets in the world. This is
as a result of the robustness of its returns on investments. The impact of this
on the economic growth has become impressive. The telecommunications sector now
contributes significantly to the Gross Domestic Product (GDP), which was
hitherto dominated by the oil sector. Also the Nigeria Telecommunications Fact
Sheet released by the United States Embassy in Nigeria in October 2011, noted
that “the ICT sector is the fastest and most robust sector of the Nigerian
economy, contributing more than the manufacturing, banking and solid minerals
sectors combined”.
Despite the important place telecommunication industry is
playing in nation’s economy both in developed and developing countries
corporate governance of the sector as it relates to their financial performance
has been ignored by researchers. Even in the developed economies such research
has been very scarce in literature. This study therefore aims at opening up such
research in this fast growing industry. The critical role of corporate
governance in the success or failure of companies is not in doubt.
In recognition of this the issues of corporate governance has
been given the front burner status by all sectors of the economy in Nigeria. To
do this, regulating bodies had been set up for all public and private sectors
to regulate and monitor their corporate governances. In Nigeria,
Telecommunication Commission (NCC) was set up to regulate the activities of the
telecommunication sector.
In Nigeria we have few studies on corporate governance
mechanisms and their impact on firm’s financial performance specifically in
banking, manufacturing, stock market and other sectors; among them are the
studies of Mukaila and Garba (2005), Ogechie (2006) and Ranti (2013). Even at that most of the studies have focused
on a single or two aspects of governance like the role of directors on stock
value, omitting other factors of interactions that may be important within the
governance framework.
This study plans to use both external and internal
determinant factors in corporate governance mechanism as the proxies. The
external factors are the outside directors called independent members,
institutional shareholders and external auditors. The internal factors are the
board size and the percentage shareholding of the directors. This is by working
at the cross-relationship of internal and external aspects of corporate
governance structures. It also aims at using all the active firms in the sector
to enable it get all the aspects of the firms. Further, in order to address the
deficiencies in the various prior studies, the study will use the mean of the
summation of Return on Asset and Return on Investment. This is unified
measurement tool for operational efficiency as narrated by Lyndsat, (2014). It
also aims at using long period of annual report data (10 years) for higher
efficacy in research rather than the usual three years in prior studies.
Through the study the level of the code compliance by the industry could also
be revealed.
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