Investors, especially institutional ones, are concerned about corporate governance. This implies that companies and financial markets that do not have it in place may face low patronage. Therefore, fundamental and technical analysis are no longer the only investment criteria.
What does this mean?
To ensure investors' confidence in the financial market or a company, there must be a sound corporate governance (CG) policy in place. This CG is not just a casual one. It must be made compulsory for every listed company to comply with it.
The Financial Reporting Council of Nigeria has made corporate governance reporting compulsory for listed companies and private financial institutions. Also, the Securities and Exchange Commission has alerted all listed companies, stockbrokers, and other entities involved in the Nigerian Exchange Group to practice and report their governance activities.
We can say that investors' confidence is not built by simply submitting company financials to investors. It also includes compliance with corporate governance principles. Of course, reporting of financial statements to the public is part of CG.
Some corporate governance criteria to trigger investors' confidence
Reputation of directors
This is the primary criterion to boost investors' confidence. Investors do observe the reputation of the directors. They might do research on their integrity. What they know, what they do on their social media accounts, and their previous work experience. Some investors will check the academic background of directors before making a decision to buy, sell, or hold a company's stock.
Directors are expected to ensure compliance with the company's policies, including CG, be accountable, transparent, and ethical. If the top leaders are not showing these qualities, who will?
Prompt financial reporting
When listed entities in a financial market provide their financial statements on time, it aids investors' confidence. As it does happen in the Nigerian Exchange Group, a latest audited financial report by a company can either increase the company's market value or reduce it.
Other disclosures
Stock market rules ensure that companies provide certain information to the investors as soon as it occurs. If a director is acquiring new shares, the investing public must be informed. If there is a sale or acquisition of a capital expenditure, it is disclosed.
Planned annual general meetings or extraordinary meetings must be made known. In fact, any decisions and issues that will have a material impact on shareholders and potential investors must be disclosed via the windows laid out in the Nigerian Exchange Group. This has helped build investors' confidence over time.
The company's reputation
Stock market companies ensure that they maintain a good public image. And this is part of good corporate governance. Once there is bad publicity due to news headlines or what a popular influencer says on social media, it is the responsibility of the directors to counteract it through their official media.
For example, when the Central Bank of Nigeria released a circular stating that banks will no longer enjoy the regulatory forbearance that was provided to them during the COVID-19 period. It became necessary for the listed Banks’ directors to clear their name or reputation concerning defaulted loans to avoid social media nuances.
Corporate governance has an impact on investors' confidence. Truly, the best financial market is the one with good governance policies. Investors will invest in companies on a stock exchange market if they have good CG. They will move their money to another market with quality CG. Therefore, it is the responsibility of financial regulators such as the SEC, FRCN, CBN, and others to ensure mandatory compliance with corporate governance policies.
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