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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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