The Impact of Corporate Governance on Financial Performance in Nigerian SMEs: A Case Study of SMEs in Kano State
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Background of the Study
Corporate governance refers to the systems, processes, and practices by which companies are directed and controlled, with a focus on ensuring accountability, transparency, and fairness to all stakeholders. In the context of small and medium-sized enterprises (SMEs) in Nigeria, the implementation of sound corporate governance practices is essential to improving financial performance and long-term sustainability (Oluwaseun & Abiola, 2024). In Kano State, which is known for its vibrant small business sector, there is a growing need for SMEs to adopt effective governance frameworks to navigate economic challenges, build trust with investors, and enhance their competitive edge.
Despite the acknowledged importance of corporate governance, many SMEs in Kano State face significant challenges in implementing governance practices due to limited resources, inadequate training, and a lack of regulatory enforcement (Usman & Ahmed, 2023). This study seeks to examine how corporate governance practices influence the financial performance of SMEs in Kano State, with a focus on identifying the key governance structures and practices that contribute to business success.
Statement of the Problem
Many SMEs in Kano State lack formal corporate governance structures, leading to inefficiencies in decision-making, financial mismanagement, and a lack of investor confidence. As a result, these businesses face difficulties in accessing capital, managing resources effectively, and ensuring long-term profitability. This study aims to assess the impact of corporate governance on the financial performance of SMEs in Kano State, providing valuable insights for improving governance practices and enhancing business performance.
Objectives of the Study
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To assess the impact of corporate governance on the financial performance of SMEs in Kano State.
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To identify the key corporate governance practices that contribute to improved financial performance in SMEs.
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To propose recommendations for improving corporate governance practices in SMEs in Kano State.
Research Questions
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How does corporate governance affect the financial performance of SMEs in Kano State?
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What corporate governance practices are most effective in enhancing SME financial performance?
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What recommendations can be made to improve corporate governance practices among SMEs in Kano State?
Research Hypotheses
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H₀: Corporate governance does not have a significant impact on the financial performance of SMEs in Kano State.
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H₀: There are no key corporate governance practices that significantly influence financial performance in SMEs.
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H₀: There are no significant recommendations that can improve corporate governance practices in SMEs in Kano State.
Scope and Limitations of the Study
This study will focus on SMEs in Kano State and their corporate governance practices, excluding large businesses and those outside the state. Limitations include the potential bias in self-reported data from SME owners and the challenge of measuring the direct impact of governance practices on financial performance.
Definitions of Terms
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Corporate Governance: The system of rules, practices, and processes by which a company is directed and controlled.
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SME Financial Performance: The financial success of small and medium-sized enterprises, typically measured by profitability, liquidity, and return on investment.
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Kano State: A state in northern Nigeria with a significant concentration of SMEs, especially in agriculture and retail industries.
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