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ACCOUNTING
ETHICS AND FIRMS PERFORMANCE: A STUDY OF NIGERIA DEPOSIT MONEY BANK
CHAPTER ONE
INTRODUCTION
1.1 OVERVIEW OF THE STUDY
Banks
Worldwide are more regulated than any other institutions because of their role
as financial intermediaries. As financial intermediaries, banks mobilize funds
from the surplus spending units as a cost for on-lending such funds to the
deficit spending units at a price.
Banks
also provide an efficient payment mechanism in the economy. They provide smooth
and efficient system for making payments to settle both business and personal
transactions, and international obligation of their customers. However, banks
must operate within certain guideline, either as defined by law, public policy
or practice.
Banking
is essentially based on trust where depositors entrust their funds to banks for
safety and investment. Consequently, banking business must be done in a
transparent and ethical manner.
Sufficient
legislation has been enacted to regulate banking operations and ensure a firm
competitive environment. But regulations and penalties alone are not sufficient
to ensure discipline in operations. Consequently, high ethical standards are
expected to guide operations in the banking industry.
The
banking industry in Nigeria witnessed a lot of changes following the
liberalization of banking business as part of the Structural Adjustment Program
(SAP) introduced in 1986 in order to revamp the economy.
However,
the phenomenal increase in the number of banks heightened competition amongst
the banks. The stiff competition for customers and deposits led to sharp
unethical practices leading to the distress syndrome in the banking industry.
This was compounded with the abolition of the dichotomy between commercial and
merchant banks in 2000 with the introduction of Universal Banking aimed at
providing a “one stop shop” for banking services.
Consequently,
following the distress syndrome, some banks were liquidated. The Central Bank
of Nigeria (CBN) has classified a vast majority of others as marginally
healthy.
This
scenario warranted the desire to introduce a Code of Ethics and Professionalism
in the industry to stem the detracting menace and sanitize the industry.
Banks
are not only expected to operate professionally but ethically so that the
general public would have confidence in the system. Ethics and professionalism
would also help to check the distress in the industry and avert the collapse of
the payment system.
1.2 STATEMENT OF THE PROBLEM
Ogunleye
(2004) observes, “One of the areas of concern in most of our respective banking
systems is the issue of ethical standards. Unethical conduct manifests itself
in various ways, including violation of banking laws and contravention of
professional ethics, insider abuses, fraudulent dealings, mismanagement,
uncontrolled risk appetite, et cetera.
The
consequences of violating laws and ethical standards by the industry are many
including loss of confidence as well as trust in the system, loss of business
for the institutions, distress in the sector and liquidation of institutions”.
In
Nigeria, in spite of the banking regulation and bank examination by the Central
Bank of Nigeria (CBN), the supervisory role of the Nigeria Deposit Insurance
Corporation (NDIC), and The Chartered Institute of Banks of Nigeria (CIBN),
there is still a growing concern with unethical practices in the banking
industry in the country. Nwankwo (2001:1185) indicates that “crisis confidence
in the banking sector in Nigeria manifests itself in technically insolvent and
distressed institutions, bank failures, severe liquidity problems, defaults,
meeting depositor/creditor obligations, large portfolio of non performing
credits and shareholder/board room conflicts. These were caused by
macroeconomic instability, policy induced shocks, meddlesome interference by
shareholders, insider dealing and abuse, proliferation of financial
institutions unmatched with increase in supervisory and executive capacity,
gross mismanagement and political instability, among others”. A host of these
problems are as a result of unethical and unprofessional practices.
Thus,
in line with the applicable laws, the Central Bank of Nigeria (CBN) sought the
cooperation of the Bankers’ Committee with a view of checking this ugly trend
of unethical practices in the industry. The Bankers’ Committee was therefore
charged with the responsibility of sanitizing the industry. A Sub-committee on
Ethics was established to develop an acceptable code of ethics and also put in
place effective machinery for enforcing compliance with the code. The Code has
since been adopted in the Banking and Finance Industry. Sanuis (2001) cited by
Ememe (2003) points out that “the adoption of the Code is a demonstration of
the seriousness the Bankers’ Committee attaches to the need to weed out the
“bad eggs’ and sanitize the industry.” To this end, this study is set out to
unravel the accounting ethics and firms performance, with emphasis on the
Nigerian deposit money banks.
Independent Variable Dependent Variable
Figure.1.0.
Researcher’s Framework on Accounting Ethics and Firms performance
1.3 PURPOSE OF THE STUDY
The
purpose of this study would be to investigate the extent of accounting ethics
on banks performance. The specific objectives are:
i. To
investigate the extent at which the banks code of ethics its profitability.
ii. To
investigate the extent at which the banks code of ethics affects its return on
investment (ROI).
iii. To
investigate the extent at which the bank code of ethics affects its market
share growth.
iv. To
investigate the extent at which frauds and forgeries in banks affects its
profitability.
v. To
investigate the extent at which frauds and forgeries in banks affects its
market share growth.
vi. To
investigate the extent at which frauds and forgeries in banks affects its
market growth.
vii. To
investigate the extent at which not adhering to the code of ethics affects the
bank’s profitability.
viii. To
investigate the extent at which not adhering to the code of ethics affects the
banks return on investment (ROI).
ix. To
investigate the extent at which not adhering to the code of ethics affects the
banks market share growth.
1.4 RESEARCH QUESTIONS
The
questions that need to be answered would be:
1. To
what extent would the banks code of ethics affects its profitability?
2. To
what extent would the banks code of ethics affects its return on investment?
3. To
what extent would the banks code of the ethics affects its market share growth?
4. To
what extent would frauds and forgeries in banks affects its profitability?
5. To
what extent would frauds and forgeries in banks affects its return on
investment?
6. To
what extent would frauds and forgeries in banks affects its market share
growth?
7. To
what extent would not adhering to the code of ethics affects the bank’s
profitability?
8. To
what extent would not adhering to the code ethics affects the banks return on
investment?
9. To
what extent would not adhering to the code of ethics affects the banks market
share growth?
1.5 RESEARCH HYPOTHESES
The research hypotheses would be stated as:
H01:
There is no significant relationship between the banks code of ethics and its
profitability.
H02:
There is no significant relationship between the banks code of ethics and its
return on investment.
H03:
There is no significant relationship between the banks code of ethics and its
market share growth.
H04:
There is no significant relationship between frauds and forgeries in banks and
its profitability.
H05:
There is no significant relationship between frauds and forgeries in banks and
its return on investment.
H06:
There is no significant relationship between frauds and forgeries in banks and
its market share growth.
H07:
There is no significant relationship between not adhering to the code of ethics
and banks profitability.
H08:
There is no significant relationship between no adhering to the code of ethics
in banks and its return on investment.
H09:
There is no significant relationship between not adhering to the code of ethics
in banks and its market share growth.
1.6 SIGNIFICANCE OF THE STUDY
This
study would be centered on the Nigerian Deposit Money Banks head offices in
Port Harcourt, Rivers State.
1.7 DEFINITION OF TERMS
Ethics
Ethics
is the integrity measure, which evaluates the values, norms and rules that
constitute the base for individual and social relationships, from a moral
perspective.
Code of Ethics
A
central guide and reference for users in support of day-to-day decision-making.
It is meant to clarify an organization’s mission, values and principles linking
them with standards of professional conduct. As a reference, it can be used to
locate relevant documents, services and other resources related to ethics
within the organization.
Fraud and Forgeries
Forgery
and fraud offenses refer to a variety of criminal behavioursd designed to cheat
a person, a business, or government agency out of their money, goods, or
services.
Performance
Performance
here is referred to as the banks the bank’s profitability, return on investment
and market share growth.
1.8 LIMITATION OF THE STUDY
The
major constrain of the study would be on collecting relevant information for
the study. Workers, in fear of their job might not want to disclose unethical
practices in their organization.
Another
limitation of the study is that the research concentrated on the banking
industry even though the Code of Ethics and Professionalism applies to the
banking industry and financial institutions.
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