CHAPTER ONE INTRODUCTION
- BACKGROUND OF THE STUDY
Corporate governance has been of concern since the foundation of the joint-stock company. Much of this concern focused on the separation of ownership from control. Adam Smith (1776) expresses unease over separation of ownership and control; and subsequently explored by Ross (1973) and Davis et al. (1997). However, recent discussion and interest in corporate governance stems from issues relating to financial crises and high profile corporate scandals. The most recent of such scandals are the Enron and the WorldCom saga in the United States, the Vivendi and the Parmalat scandals in Europe.
Globalization and technological advancement also provide challenges for corporate governance structure. Good corporate governance is necessary to facilitate effective firms‟ management in the current global and dynamic environment. Moreover, good corporate governance is necessitated by the need for accountability due to deregulation and lesser governmental control. Good corporate governance promotes economic growth and development. The benefits of good corporate governance practices to a firm, among others, include: facilitating greater access to finance, lower cost of capital, better performance and favourable treatment of stakeholders (Claessens et al., 2002); promoting better disclosure in business reporting, thereby facilitating greater market liquidity and capital formation (Frost et al., 2002); and increasing firm valuations and boast profitability (Gompers et al., 2003). Nigeria had its share of inelegant business practices that have resulted in failed corporate firms. Hence, several insurance companies in Nigeria have gone out of business; while some have been acquired or merged due to poor performance, following poor corporate governance practices. For a developing country, like Nigeria, corporate governance is of critical importance.
Recently, Nigeria has initiated pillars of corporate governance by sponsoring a series of legislative, economic and financial reforms which seek to promote transparency, accountability and the rule of law in the nation‟s economy. Consequently, corporate governance is relevant in insurance companies, as it promotes accountability, enhances transparency of operations,
improves firm‟s profitability, protects stakeholders‟ interest by aligning their interest with that of the managers, and facilitates growth of the insurance industry.