New corporate code and immediate performance change of the Nigerian firms

Purpose – This study aims to investigate the immediate impact of a newly released code of governance on the financial performance of Nigerian companies. Tests are carried out to determine whether firms that comply more with the code experience better performance. Design/methodology/approach – The governance change of Nigerian listed firms after the newly released code is classified into ex ante good governance change or ex ante bad governance change; the differences in performance between the good governance change firms and bad governance change firms are then compared. Since firms in any year can change more than one governance indicator, an index of aggregate governance change is computed and the performance of firms from two extreme governance rankings is compared. Findings – It is found that in the immediate period after the release of the code, Nigerian firms reorganised their governance mechanism, and this sometimes involved substitution among mechanisms. However, the performance increase accrued to any firm with reorganisation towards a good mechanism could have been eroded when the same firm instituted a change towards another mechanism that matches the definition of bad change. This therefore makes an attempt to differentiate performance based on governance change (pre‐ and post‐new code) difficult and insignificant. Originality/value – This study contributes to the scarce literature on corporate governance and firm performance in developing countries. Specifically, it can be regarded as the first study to test the immediate impact of a new code of governance on Nigerian firms. Equally, the adopted methodology makes it the first study to compute and test an aggregate index of governance change for Nigeria.