Corporate Governance, Agency Conflicts, and the Investment-Profitability Nexus in Nigerian Firms

The relationship between corporate investment decisions and firm profitability is theoretically complex, mediated by agency conflicts between controlling shareholders, minority investors, and creditors, and moderated by governance institutions that shape the severity and resolution of these conflicts. This study develops a unified governance-augmented investment model that endogenises agency conflicts as determinants of the investment-profitability relationship in the context of Nigerian listed firms. The theoretical contribution is a principal-agent model of investment allocation that incorporates controlling shareholder tunnelling behaviour, creditor monitoring intensity, and the moderating role of legal enforcement quality. The model generates testable predictions about how governance quality shifts the investment-profitability elasticity and about the conditions under which investment-profitability covariance is negative due to misallocation. The empirical application uses a 12-year panel dataset from 2011 to 2022 covering 90 Nigerian listed non-financial firms, employing the Euler equation investment model estimated using the generalised method of moments alongside a mediation analysis to decompose total governance effects. A firm-level governance index is constructed from board independence, ownership concentration, audit quality, and remuneration transparency metrics. The instrumental variables strategy exploits exogenous variation in governance quality driven by staggered adoption of the Securities and Exchange Commission's corporate governance code updates. The study employs the geographic and cultural heterogeneity of Nigerian firms as a natural source of variation in informal governance institutions. The PhD-level contribution lies in the theoretical model development, the instrumentation strategy, and the integration of formal and informal governance into a unified analytical framework. Findings carry implications for the Securities and Exchange Commission's governance policy and for institutional investors engaged in responsible investment in Nigeria. Keywords: corporate governance, agency conflicts, investment decisions, profitability, Nigeria