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THE
QUALITY OF CORPORATE FINANCIAL DISCLOSURE IN BANKING INDUSTRY IN NIGERIA
ABSTRACT
Due to the study on corporate reports in the banking
industry, the research took interest to study an empirical analysis on the
quality of corporate financial disclosures in Nigeria banking industry.
Chapter one contained the introduction, statement of
problem, objective of the study, statement of hypothesis, scope of the study,
summary of research methodology, limitation of the study and the significance
of the study.
Chapter two dealt with annual report and corporate
disclosure demands for financial information. It entails the review of the
related literature.
Chapter three dealt with research methodology,
research design, population and sample size, sample and sampling techniques,
data sources, description of research instrument, hypotheses and data analysis.
Chapter four dealt with the data presentation,
analysis and interpretation.
The four hypotheses were analyzed and tested with the
aid of data analyzed.
Chapter five is a summary of the research findings,
conclusion and recommendations.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
1.1 Background of
Study
1.2 Statement of
Problem
1.3 Objective of
Study
1.4 Scope of
Study
1.5 Significance of
Study
1.6 Statement of
Hypothesis
1.7 Limitation of
Study
References
CHAPTER TWO:
LITERATURE REVIEW
2.0
Introduction
2.1 Principles of Corporate
Governance
2.2 Disclosures and Corporate
Governance
2.3 Disclosures in Corporate
Governance:
Empirical
Analysis
2.4
Why Disclosures Philosophies Differ
Across
Countries
2.5
Approaches to International Disclosures Diversity
2.6
Disclosure Benefits and Cost
References
CHAPTER
THREE: THEORETICAL FRAMEWORK AND MODEL SPECIFICATION
3.1
Theoretical
Framework
3.2
Model
Specification
3.3
Method of
Analysis
3.4
Population
3.5
Data
Sources
3.6
Sample and Sampling
Technique
Reference
CHAPTER
FOUR: PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA
4.0
Introduction
4.1 Presentation and
Interpretation of Result
4.2
Findings of the Study
4.3
Test of
Hypothesis
CHAPTER
FIVE; SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Summary of Finding
5.2
Conclusion
5.3
Recommendation
Bibliography
Appendix
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND
OF STUDY
In any Business
entity, whether profit or non-profit making, has sets of objectives. It
mobilizes resources from various sources to achieve the set goal at the end of
the period. This is necessary to determine how well these resources have been
utilized.
Where there is separation of ownership from management, the owners will want to
know how judiciously these resources have been used. This is the stewardship
function of accounting. This function is discharged by the presentation of a
report of the activities to owners by management. Such reports are usually
conveyed by means of financial statements. Statement of Accounting. Standard 2
(Information to be disclosed in Financial Statement) and Section 334 (2) of Companies
and Allied Matters Acts provide that financial statement shall include the
following:
·
Profit and loss account,
·
Statement of account policies,
·
Balance sheet,
·
Notes to the accounts,
·
Auditors report,
·
Directors report,
·
Value added statement and
·
Five year financial summary.
The financial statements must accurately represent the underlying economic
activities of the organization. It is possible to have a discontinuity between
the activities of an organization. When this occurs, the credibility of such
statement induces doubt and uncertainty in the minds of the various users of
the statement. This therefore means that, the information asymmetry (i.e. lack
of uniformity) between information available to management and information
available to the investing public.
There are two sources of information asymmetry as regards to financial
statements.
1.
Management’s understanding of underlying activities may not be accurately
represented in financial statements.
2.
Investing publics understanding or perception of information represented in
financial statement may be different from that which has been documented.
Financial statements more or less make a case for reporting entity in their
quest for invisible funds. Where a
reporting unit creates uncertainty in the minds of investors, it is perceived
as risky. The effect is that investors demand a compensation for a perceived
level of risk. This result to an increase in cost of capital of such economic
unit. This is known as “Capital Need Hypothesis”. Choi (1973) suggest that a
prime motive for disclosure is to raise capital at the lowest cost. Cooke
(1991) posits that “a number of explanations can be advanced for this
hypothesis”. In order to raise capital from the market, he says that companies
must increase their voluntary disclosure and increase their compliance with
mandatory disclosure.
Disclosures in financial statement determine the level of transparency of such
entities. Hitherto, prior response of international investors has been adduced
to lack of transparency not only of government, but also of private economic
Sectors. Regulatory agencies such as Central Bank of Nigeria (CBN) and (SEC),
have been perceived as ineffective. This perception has been accentuated
especially in the banking industry, but the increases in the value of distress
especially in situations where such banks have been given a clear bill of
health by auditors. What this translates to is an economic environment
characterized by lack of trust.
Since lack of trust
and unfaithfulness are variables that endanger investment, this study attempts
to evaluate the quality of disclosure of annual reports within the banking
industry using past model like: Buzby (1972), Lerf (1961), and Snighvi and
Desai (1971) and Cooke (1993). The idea is to examine financial statements of
selected banks and rank them according to these models.
1.2 STATEMENT
OF THE PROBLEM
Principally, management activities are conveyed by means of financial
statements. Where these financial statements introduce elements of doubts in
the minds of shareholders and potential investors, the effect is that the
continued survival of the firm is threatened as it is starved of needed funds.
The presence of information asymmetry that produces uncertainty in the minds of
investors can be minimized by meticulously prepared corporate reports that
capture as much as possible the underlying economic activities of a firm.
This research work is aimed at using the develop model in solving the following
problems:
What is quality of corporate disclosure
in the banking industry using the model identified in above?
(a)
What is the gap identified in the quality of corporate reports in the Banking
industry?
(b)
Is there any statistical differences in the quality of corporate reports
between first generation and second generation banks?
1.3 OBJECTIVES
OF THE STUDY
The banking industry is strategic in any economy. The vital exchange of any
modern economy is initiated by a strong banking sector. Banks like any other
organization issue annual report of their activities. The credibility of these
reports is essential for the proper functioning of the banking industry and
economy. Where financial statements issued by banks lack credibility as
exemplified by the recent distress phenomenon, within the banking industry in
Nigeria, they have the negative effect of discouraging investment. Any effort
aimed at improving corporate reporting activities in the banking industry will
have effect of enhancing confidence of investors and it will increase economic
activities. This study has its key objective of evaluating the quality of
corporate reports within the banking industry. Other objective will include:
(a)
to identify the problem in the present corporate reports
(b)
to identify the gap in the quality of corporate reports in the banking
industry.
(c)
to find out whether there is any statistical differences in the first
generation and second generation banks.
1.4 SCOPE OF
THE STUDY
This study focuses on corporate reports in the banking industry. Corporate
reports of interest in this study will be those items listed in Section 334(2)
of CAMA 2004.
Subject to sub
section (3) of this section, the financial statements required under subsection
(1) of this section shall include:
(a)
Statement of the accounting policies;
(b)
The balance sheet as at last ray of the year;
(c)
A profit and loss account a, in the case of a company not trading profit, an
income and expeditor account for the year.
(d)
Notes the account,
(e)
The auditors’ report,
(f)
The director’s report,
(g)
A statement of the source and application of fund;
(h)
A value added statement for the year,
(i)
A five-year financial summary, and
(j)
In the case of a holding company, the group financial statements.
The study is limited to Nigeria and to banks quoted on Nigeria stock exchange.
These banks comprise of two first generation banks viz., First Bank and United
Bank for Africa (UBA) and two second generation banks: Guaranty Trust Bank, and
Zenith Bank. Time frame for this study is year 1999-2004, before the merger
1.5
SIGNIFICANCE OF THE STUDY
This research work on its conclusion, together with whatever solutions or
findings may arise, will prove useful to some particular groups of persons or
otherwise for various reasons in accordance with their varying needs.
(i)
The Industry in General and Bank: It will help the financial manager in
banks to focus their attention on some controversial items when formulating or
revising their disclosure policy.
(ii)
Investors and Interested Parties: Financial reports are considered
useful by investors in making investment decisions. This research will serve as
an indicator to investors for items to watch out for in order to identify banks
that have adequately disclosed all important and necessary information. This
will aid them in making wise decision.
1.6 STATEMENT
OF THE HYPOTHESES
For the purpose of
simplicity, the hypotheses are stated in their alternative form. They includes:
H0:
The rate of return and earnings margin leverage are not significant variables
to financial disclosures of banks.
H1:
The rate of return and earnings margin are number of shareholders are
significant variables i.e. is very important in disclosure of banks.
Ho:
There is no relationship between the financial leverage of a corporation and
its earnings per share (EPS).
H1:
There is a relationship between the financial leverage of a corporation and its
earnings per share (EPS).
Ho:
There is no relationship between the financial leverage of company and its
dividend per share (DPS).
Ho:
There is a relationship between the financial leverage of company and its
dividend per share (DPS).
OPERATIONAL
DEFINITION OF TERMS
C.B.N
Central Bank of Nigeria
N.S.E
Nigerian Stock Exchange S.A.S
Statement of Accounting Standard C.A.M.A
Companies and Allied Matter’s Act
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