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Research Paper | Finance | Nigeria | Volume 10 Issue 7, July 2021 | Popularity: 5.7 / 10

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Internal Control System and Return on Assets of Manufacturing Companies Listed in Nigeria

Ogbebor Peter I., Cole Abimbola A., Akinyemi Akindimeji

Abstract: Manufacturing companies in Nigeria has witnessed poor financial performance, subsequent failure and liquidation which can be traced to weak internal control system, internal fraud, and non-compliance with corporate governance standard, lack of transparency, creative accounting and insider trading. The financial performance of manufacturing companies has been called to question on several occasions. The study examined the effect of internal control system on return on asset of manufacturing companies listed in Nigeria. The study employed ex-post facto research design, a target population of forty-three (43) manufacturing companies quoted on Nigerian Stock Exchange was used and a sample of fifteen (15) companies was selected from the population. The data was gathered from audited financial reports of the sample manufacturing firms for a period of ten (10) years. The study employed descriptive method of analysis to describe the data while inferential statistics such as multiple linear regression technique was used to test the hypotheses using Stata software. Inferences were made at 10% level of significance. The study showed that Risk management has significant and positive effect on return on assets of manufacturing companies listed in Nigeria giving the F-statistics value of 4.865 with the probability value of 0.001 and Adjusted r2 of 0.180 showed that compliance with regulatory framework has statistical effect on return on asset, hence the null hypothesis of no significant effect of compliance with regulatory framework on the financial performance of manufacturing companies listed in Nigeria was rejected. Internal communication of information has statistical effect on financial performance of manufacturing companies in Nigeria giving the F-statistics value of 2.652 with the probability value of 0.036 and Adjusted r2 of 0.045, hence the null hypothesis was rejected. From the findings of the study, the study concluded that manufacturing companies that had invested on effective internal control systems have more improved financial performance as compared to those with a weak internal control system. The following recommendations were made based on the outcome of the study: Management should develop more effective monitoring systems through the internal control department to ensure compliance with regulatory frameworks. Management of companies should regularly upgrade their information and communication frameworks to enable them cope with the frequent changes in the global environment and as such improve their financial performance.

Keywords: Board independence, Financial performance, Internal control, Internal communication, Risk management

Edition: Volume 10 Issue 7, July 2021

Pages: 1485 - 1497

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