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VOLUNTARY INFORMATION DISCLOSURE AND CORPORATE GOVERNANCE: EMPIRICAL EVIDENCE ON EARNING FORECASTS
This study examines the effects of voluntary information disclosure and corporate governance on earnings forecasts. The study is focused on firms listed in the Nigerian stock exchange. The population was chosen by convenience sampling and the sample size was determined five (5) listed companies and the Port Harcourt. The researcher adopted the primary source data questionnaire and oral interviews for data collection. Simple percentage and correlation coefficients Pearson products moment correlation were used in analyzing the data. It was found that voluntary information disclosure and corporate governance codes board independence and audit committee independence have significant relationship or effects on earnings forecasts. Nevertheless, board size revealed to have no effect on earnings forecast. Thus, it was recommended that board independence and audit committee independence should be ensured and enhanced to promote voluntary information disclosure and earning forecast.
TABLE OF CONTENTS
Title Page i
Table of Content vi
1.1 Overview of the Study 1
1.2 Statement of Problem 3
1.3 Purpose of the Study 4
1.4 Research Questions 5
1.5 Hypothesis 5
1.6 Significant of the Study 6
1.7 Limitation of the Study 7
1.8 Definition of Terms 7
1.9 Organization of the Study 7
REVIEW OF RELATED LITERATURE
2.0 Introduction 10
2.1 Conceptual Governance Measures in Nigeria 12
2.2 Corporation Governance Measures in Nigeria 17
2.2.1 The Role of the Board of Director 18
2.2.2 The CEO and Management 19
2.2.3 Shareholder Rights and Privilege 19
2.2.3 Shareholder Rights and Privilege 19
2.2.4 The Role of the Audit Committee 20
2.3 Corporate Governance Mechanisms 23
2.3.1 Board Size 23
2.3.2 Board Composition 25
2.3.3 Audit Committee 27
2.3.4 CEO Status 27
2.4 Systemic Problems of Corporate Governance 28
2.4.1 Role of the Accountant 29
2.4.2 Regulation 31
2.4.3 Enforcement 31
2.4.4 Action Beyond Obligation 32
2.5 Corporate Governance Models around the World 33
2.5.1 Anglo- American Model 34
2.6 Codes and Guidelines 36
2.6.1 Ownership Structure 39
2.7 Corporate Governance and Firm Performance 39
2.7.1 Board Composition 41
2.7.2 Remuneration/ Compensation 41
2.8 Review of Empirical Literature 44
3.0 Introduction 49
3.1 Research Design 49
3.2 Sample procedure/Sample size determination 50
3.3 Data Collection Method 51
3.4 Test of Validity and Reliability 53
3.5 Operational Measures of Variable 53
3.6 Data Analysis Technique 55
4.0 Introduction 56
4.1 Presentation of Questionnaire Response Rate 56
4.2 Data Analysis Hypothesis 57
DISCUSSION, CONCLUSION AND RECOMMENDATION
5.0 Introduction 60
5.1 Discussion of findings 60
5.2 Conclusion 62
5.3 Recommendation 62
5.4 Suggestion for Further Research 62
1.1 OVERVIEW OF THE STUDY
The corporate governance literature has discussed many, mechanisms for resolving the fundamental issue the agency problems. Perhaps the most pervasive and important factor causing the agency problem between a manager and an investor is the information asymmetric between them. If manager who are better informed about the future prospects have divergent incentives with their investors, they may expropriate investors benefits for their private objectives.
Therefore, corporate governance is the framework of rules and practices by a board of directors which ensures accountability, fairness, and transparency in a company’s relationship with its all stakeholders. Financiers, customers, management, employees government and community.
Voluntary information disclosure refers to that disclosure not explicitly required by GAAP or an SEC rule, but are made to comply with SEC’s requirements concerning description of a business and management’s discussion and analysis of financial condition and results of operations.
Nevertheless, the term “Corporate governance” has been identified to mean different things to different people. But OCED (1999) provides a more encompassing definition of corporate governance. It defines corporate governance as the system by which business corporations are directed and controlled. The corporate governance structure specific the distribution of rights and responsibilities among different participants in the firm such as the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decision on corporate affairs. By doing this, it also provides the structure through which the company’s objectives is set and the means of attaining those objectives and monitoring performance. This definition is in the with submission of Wolfensolan (1999) Uche (2004) and Akinsuhre (2006).
The cardinal issues in corporate governance in relation to companies in Nigeria resides in the proper management of business risk, internal control, professional and overbearing influence of the chief executives issues etc, therefore, promoting good corporate governance is crucial to the earning forecasts and voluntary information disclosure of companies. Though, imperfections in the company reporting process and other related short comings have shown in the effectiveness of corporate governance. We will however in this study try to ascertain the level of prominence corporate governance has gained and its effects on earning forecasts.
1.2 STATEMENT OF PROBLEMS
There has been considerable discussion in the academic literature of managerial agency problems that arise from the separation of ownership and control (Jensen el al 1976). A number of corporate governance mechanisms have been proposed to ameliorate this agency problem between managers and their shareholders. This includes: board size, board independence, CEO inventive compensation, ownership structure etc (Morek, 2008).
A study conducted by Klein (2002) documents a positives relation between earnings management and audit committee independent, and Sundgren (1998) finds that small boards size are positively related to firm value.
However, there is little evidence on the effect of corporate governance and voluntary information disclosure on earning forecasts by investors and management. This study therefore will empirically examine the effects voluntary information disclosure and corporate governance on earnings forecasts in Nigeria.
1.3 PURPOSE OF THE STUDY
This research study will examine corporate governance practice and voluntary information disclosure and their effects on earning forecasts.
Aside from the purpose stated above, the study intends to achieve the under mentioned objectives.
i) To determine whether there is a relationship between board size and earnings forecasts.
ii) To determine whether there is a relationship between board independence and earning forecasts.
iii) To examine the relationship between audit committee independence and earning forecast.
iv) To determine whether there is a relationship between voluntary information disclosure and earning forecast.
1.4 RESEARCH QUESTIONS
In view of the objectives of this study, an attempt will be made to address the research question: what are the effects of voluntary information disclosure and corporate governance on earning forecast? More specifically, an attempt will be made to address the following research questions:
i) What is the relationship between board size and earning forecasts?
ii) What is the relationship between board independence and earnings forecasts?
iii) What is the relationship between audit committee independence and earning forecasts?
iv) What is the relationship between voluntary information and earning forecasts?
Using the research question as the backbone to the study the following null hypothesis were developed:
H01: There is no significant relationship between board size and earning forecast.
H02: There is no significant relationship between board independence and earning forecast.
H03: There is no significant relationship between audit committee independence and earning forecast.
H04: There is no significant relationship between voluntary information disclosure and earning forecast.
1.6 SIGNIFICANT OF THE STUDY
The result of the study will aid potential and existing investors on how to ascertain corporate financial performance inn terms of earning forecasts.
It will assists analysis of financial statement e.g. broker, for quality financial information.
It will also enable government, policy makers and other users of financial statements ascertain the extent of corporate governance practices and voluntary information disclosure in Nigeria.
Finally, it will add to the existing body of knowledge in voluntary information disclosure and corporate governance.
1.6 LIMITATION OF THE STUDY
This research works covers voluntary information disclosure, corporate governance practice and earning forecast in 5 listed firms in Port Harcourt.
It is limited by time financial resource of the researcher.
1.7 DEFINITION OF TERMS
Corporate Governance: A system by which company are governed and controlled with a view to increasing shareholder value and meeting the expectations of other stakeholders.
Voluntary Information Disclosure: This refers to financial disclosure that not explicitly required by the law but are relevant to and decision making.
Earni in g
Earning Forecasts: This is the future empirical prediction of earnings-Return on Equity, divided yield.
1.8 ORGANIZATION OF THE STUDY
This study is organized into five chapters.
Chapter one deals with the context of the problem, statement of the problem, purpose of the study, research questions, hypotheses, significance of the study, definition of terms, and the limitations of the study.
Chapter two deals with the review of related literature on the subject matter.
Chapter three attempts to describe the research design, sampling procedure/sample size determination, data collection method, operational measures of the variables and the data analysis technique.
Chapter four deals with the presentation and analysis of data.
Chapter five presents the discussion, conclusions, implications of the research findings, as well as the recommendations. Finally, there are suggestions for further research.