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VOLUNTARY INFORMATION DISCLOSURE AND CORPORATE
GOVERNANCE: EMPIRICAL EVIDENCE ON EARNING FORECASTS
ABSTRACT
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
Certification ii
Dedication iii
Declaration iv
Acknowledgment v
Abstract vi
Table of Content vi
CHAPTER
ONE
INTRODUCTION
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
CHAPTER
TWO
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
CHAPTER
THREE
RESEARCH
METHODOLOGY
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
CHAPTER
FOUR
4.0 Introduction 56
4.1 Presentation
of Questionnaire Response Rate 56
4.2 Data
Analysis Hypothesis 57
CHAPTER
FIVE
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
Bibliographic
Appendixes
CHAPTER ONE
INTRODUCTION
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?
1.5
HYPOTHESIS
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.
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