The concept of corporate
governance has drawn the focus of attention in recent years, because of its
promising importance on the economic health of business organizations and
society in general. This is in affirmation with Claessens & Fan (2002) who
expressed an opinion that corporate governance has received much attention in
recent years.Several empirical studies have provided the link between corporate
governance and firm performance. Bebchuk, Cohen and Ferrell (2004) asserted
that “firms directed and controlled efficiently has higher firm performance”;
Gompers, Ishii &Metrick (2003) demonstrated through their study that firms
with lower level of corporate governance quality leads to higher risk and lower
stock returns than those with a higher level of governance quality.

The corporate scandals
of the early 2000s, including Enron, Worldcom, Tyco, those of USA, South East
Asia, Europe and others, were directly linked to corporate governance failures
(Hussin& Othman 2012; Abdul-Qadir&Kwambo, 2012). Nigeria is not
excluded of this occurrences as similar financial and accounting scandal has
been concealed this include the banking sector with 26 banks liquidated in 1997
and the falsification of the company’s financial statement in Cadbury Nigeria
Plc. in2006 and more recent events in 2009 post consolidation banking crises
when ten banks were declared bankrupt and eight (8) executive management teams
of the banks were removed by the Central Bank of Nigeria (CBN 2010).

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However, corporate
governance is considered to involve a set of complex indicators, which face
substantial measurement due to the complex nature of the interaction between
governance variables (such as board composition, ownership structure, executive
compensation, transparency and disclosure of information.) and firm performance
indicators.Corporate governance ensures that corporations are managed in the
best interests of their owners (shareholders). For instance, Magdi and Nedareh
(2002) emphasized the need for organization managers to act in the interest of
the firm,particularly minority shareholders or investors by ensuring that only
action that facilitate delivery of optimum returns and other favorable outcome
are taken at all times.

According to
Ogbulu (2012), effective corporate governance apportion powers and
develop room for checks and balances which most times ensures that managers infuse
in positive net present value projects thus helping the relationship between
management and shareholders to be characterized by transparency and
fairness.Corporate governance is therefore, about building credibility,
ensuring transparency and accountability as well as maintaining an effective
channel of information disclosure that will foster good corporate performance.
This has led to a wave of regulation aimed at preventing similar problems in
the future. Corporate governance is not only necessary at the individual
company level but it is also a critical element in maintaining a sound
financial system and a robust economy.

Executive compensation
is often used as an instrument to align both the managerial interests (agents)
and the shareholders (principals). The basic idea is to reward executives according
to their performance. It is another important component of corporate governance
that connotes the compensation package provided to firm management in orderto
encourage firm performance. While good quality corporate governance leads to
better firm performance (Klapper and Love, 2004; Nelson 2005), it also has an
effect on the level of executive compensation of the firm through improving
firm performance and accordingly rewarding executives (Ryan and Wiggins Iii,
2004; Bratten et al., 2011).This indicated that there remains simultaneous
relationship between executive compensation and firm performance.

Firm performance is a
concept that supports the effective and efficient use of financial resources to
achieve overall company objectives which include both shareholders wealth
maximization and profit maximization objectives.According to Richard et al
(2009), organization performance encompasses three specific areas of firm
outcomes. First is the financial performance such as profits, return on assets,
return on investments etc. Secondly is the product market performance (sales,
market shares etc.) and lastly shareholder return (total shareholder return,
economic value added etc.).

In general terms three
levels of determinants of firms’ performance can be identified. Firstly it
relates to external factors which firms do not have charge of and areeconomy
wide. Second factors are internal and under the direct purview of the firms. These
factors, which include managerial efficiency, governance structure and
ownership structure, affect the ability of the firms to manage external
factors.Finally, there are other factors such as size, leverage, and nature of
the industry. Performance therefore is directly influenced by the concept of
profitability; this is because profit is the rallying point of all
stakeholders.

This study examines
three accounting performance indicators which are Return on Equity, Return on
Assets and Earnings per Share Market to Book Ratio as a market based indicator
and Economic Value Added.  This study
will further empirically explore this subject matter by finding the
relationship between corporate governance mechanisms and financial performance
of some selected companies listed on the Nigeria Stock Exchange (NSE).