INTERNATIONAL JOURNAL OF ACCOUNTING AND BUSINESS MANAGEMENT (IJABM)
Managerial Ownership, Firm Performance, and Capital Structure of Listed Pharmaceutical Companies in Nigeria: The Moderating Role of Board Independence
E-ISSN: 4556-2236
P-ISSN: 5433-437X
DOI: https://iigdpublishers.com/article/1675
Nigeria's pharmaceutical manufacturers, who are dependent on foreign exchange and importation for their production, face a special challenge in making decisions regarding their capital structure. The interaction between managerial ownership and firm performance with leverage and the moderating effect of board monitoring are less explored in this industry. This study examines the relationship between managerial ownership, firm performance and the capital structure of the listed pharmaceutical companies of Nigeria, with the board independence as moderator. It is based on agency theory, pecking order theory and trade-off theory, and is constructed based on 48 firm-year observations obtained from four purposive selected firms ex post facto. It is the ordinary least squares model with robustness in the form of random-effects and fixed-effects models. Diagnostics are all in favour of pooled OLS and there is no evidence of heteroskedasticity, serial correlation, nor cross sectional dependence. Board independence has a significant impact on leverage reduction, indicating that independent boards serve as a monitoring device in the place of debt. The leverage ratio has a negative effect on firm performance at the 10 percent level, which is consistent with the pecking order behaviour and managerial ownership has no significant impact. The results reject the both hypotheses because the effect of managerial ownership and firm performance is not significantly moderated by board independence. The financing decisions, in turn, are thus determined by board monitoring and internal funding capacity, not by inside interests. The only way to improve the quality of boards is through increased independence and a preference for retained earnings rather than the use of fresh capital, and the regulators should put the board composition rules in the Nigerian Code of Corporate Governance into practice.
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