Proceedings of World Business Research Conference 21 - 23 April 2014, Novotel World Trade Centre, Dubai, UAE, ISBN: 978-1-922069-48-1 Impact of Corporate Governance on Voluntary Disclosure by Firms in the Downstream Sector of the Nigerian Petroleum Industry Junaidu Muhammad Kurawa and Ali Shariff Kabara This study examines the impact of Corporate Governance on Voluntary Disclosure by firms in the downstream sector of the Nigerian petroleum industry over the period 2001 - 2010. A sample of seven firms listed on the floor of Nigerian Stock Exchange was studied. The study made use of secondary data generated from annual reports and accounts of the sampled companies and the Nigerian Stock Exchange Fact book. The data was analyzed by means of descriptive statistics and regression analysis using STATA package. The results reveal that ownership concentration being one of the major determinants of corporate governance has significant positive association with the extent of voluntary disclosures; whereas the relationship with board composition shows positive but insignificant association. However, managerial ownership and CEO duality indicate negative relationship with voluntary disclosure of the sample firm. Based on the findings, the study recommends among others; that the oil marketing and distribution companies should encourage concentration of shares to a certain degree, so that managerial influence in decision making in revealing voluntary disclosure would be offset due to the pressure from the block-holders. Board composition should comprise both executive and non-executive directors with the non-executive as majority. Moreover, the board members should not be allowed to own significant shares of the companies due to its adverse effect on voluntary disclosure reporting. 1.0 Introduction Corporate governance systems have evolved over centuries, often in response to corporate failures or systemic crises. For example, the Sarbanes-Oxley Act (SOX) put into practice in response to Enron, WorldCom, and collapses in other corporations such as Arthur Andersen, Global Crossing and Tyco. It is a system by which all parties interested in the well-being of the firm (the stakeholders) ensure that managers and other insiders take measures that safeguard the interest of the stakeholders. The first well-documented corporate failure in U.K. was the South Sea bubble in the 1700s, which revolutionized business law and practices in England (Borgia, 2005). Moreover, the recent financial crisis that began in East Asia, and rapidly spread to Russia, Brazil and other parts of the globe according to Borgia (2005) was as a result of insufficient financial disclosure. Similarly, the Cadbury Report (1992) argues that a major barrier to the flow of relevant information is the risk of opportunism inherent to the manager’s influence in the firm, which is an incomplete distorted disclosure of information to mislead, or otherwise confuse the public and shareholders. For example, where investors cannot distinguish between good and bad information they will value both at an average level (Healy and Papelu, 2001). However, Lundholm and Van Winkle, (2006) as cited in Okpara (2009) opined that a credible disclosure is believed to be a remedy to the corporate failure problem and it comprises both mandatory and voluntary disclosure as noted by Chetkovich (1995) and Miller and Bahnson (1999). ____________________________________________________________________________ Junaidu Muhammad Kurawa PhD, Department of Accounting, Northwest University, Kano-Nigeria, mmjndkurawa@gmail.com, +2348081423006 Ali Shariff Kabara, Department of Accounting, Bayero University, Kano-Nigeria. sheriff@buk.edu.org +2348060577022 1 Proceedings of World Business Research Conference 21 - 23 April 2014, Novotel World Trade Centre, Dubai, UAE, ISBN: 978-1-922069-48-1 Disclosure simply means revealing of financial and non-financial information about a company in the annual financial report. While mandatory disclosure refers to that information which is required by statutes, regulatory and professional pronouncements to be published in the annual report, on the other hand voluntary disclosure refers to free choices in the release of information on the part of managers to users of the annual reports. The rationale behind disclosure of accounting information is to meet information needs of various users of financial statements. Some empirical studies that were conducted in Nigeria on compliance with accounting standards found that, the extent of compliance with requirements of (SAS 2 and 17) by the oil marketing companies was inadequate (Kantudu, 2005, 2008; and Barde, 2009). In contrast, Ion and Adina (n.d.) on their part believe that, voluntary disclosure comes to complete the mandatory reporting process that often seems to be inadequate for satisfying users need. However, voluntary disclosure improves the quality of mandatory disclosure as it always considers the need of all users of accounting information apart from reducing the firm‟s cost of capital, as well as, enhancing its market value. Therefore, studying corporate governance with voluntary disclosure hereby referred to as CG and VD respectively, has become imperative for a company to improve information quality (Hongxia and Ainian, 2008). Also, it became a constituent of governance as it discourages managers from non-disclosure of relevant information in the annual report. It is for this reason that, CG and VD reporting have received significant attention from regulators, investors, academics and the general public especially after recent high profiles company corporate collapses. Like Enron and World Com in USA (2001), Vivendi and Parmalat in Europe (Dlamini, 2004) and some companies in Nigeria like AP Oil. The petroleum industry comprises of two sectors, the upstream and the downstream sectors. The upstream sector deals with oil exploration and production activities, while the downstream sector deals with storage and transportation, refining and hydro processing, and marketing and distribution. To fully standardize reporting practice in the petroleum industry, companies operating in the downstream sector need an accounting standard that regulate their financial reporting practice and for this purpose, SAS 17 was issued by the Nigerian Accounting Standards Board. However, It has been found that high quality accounting standards might not necessarily lead to high quality accounting information due to weak governance system (Ball, Robin, and Wu (2003); Leuz, Nanda, and Wysocki (2003); and Ball and shivakumar, (2005)). Therefore, studying whether corporate governance may increases the release of voluntary disclosure is potentially interesting and important to regulators, investors and academics. This is what this study is out to achieve. 2.0 Literature Review In 1990s, researchers began to investigate whether corporate governance could help to achieve voluntary disclosure. For example, Mckinnon and Dalimunthe (1993) examined economical incentive of voluntary disclosure of segment information among Australian diversified companies, and found that managerial ownership as a CG mechanism was a factor affecting voluntary disclosure. Below are the empirical findings of the relationship between individual CG mechanisms and voluntary disclosure. Board Composition and Voluntary Disclosure The work Stiles and Taylor (2001) as cited in Okpara (2009) described the board as a group of individuals that emerged as a result of the stewardship role granted by the shareholders of the firm to this group of individuals responsible for undertaking the day-to-day operations of the organization. One of the challenges facing modern corporations in Nigeria may stem from lack 2 Proceedings of World Business Research Conference 21 - 23 April 2014, Novotel World Trade Centre, Dubai, UAE, ISBN: 978-1-922069-48-1 of qualifications of corporate board members. According to the Central Bank of Nigeria (2006), many board members may lack the requisite skills and competencies to effectively contribute to leadership of modern corporations. The board needs a range of skills and understanding to be able to deal with various business issues and have the ability to review and challenge management performance. It needs to be of sufficient size and have an appropriate level of commitment to fulfill its responsibilities and duties. Some researchers believed that the composition of board members is also proposed to help reduce the agency problem (Weisbach, 1988; Hermalin and Weisbach, 1991). Corporate governance, which promotes corporate transparency and accountability, is predicted to have a significant association with voluntary disclosure. Xiangyu and Xiuming (2004) investigated the relationship among constitution of the board of directors and the extent of voluntary disclosure, and the result showed that the ratio of independent directors had no obvious relationship with the index of voluntary disclosure. Furthermore, evidence of outside directors‟ roles in financial reporting in Malaysia generally implies that their influence is insignificant (Haniffa and Cooke, 2002; Abdullah and Mohd-Nasir, 2004; and Mohd-Salleh, Rahmat and Mohd-Iskandar, 2004). Unlike the samples of prior Malaysian studies, which were either randomly-selected (Haniffa or Cooke, 2002) or from the public listed companies (PLCs) population (Abdullah and Mohd-Nasir, 2004) The composition of board members is also to help reduce the agency problem (Weisbach, 1988; and Hermalin and Weisbach, 1991). Unlike inside directors, outside directors are better able to challenge the Chief Executive Officers (CEOs). It is perhaps in recognition of the role of outside directors that in the UK a minimum of three outside directors is required on the board; and in the USA, the regulation requires that they constitute at least two-thirds of the board (Bhagat and Black, 2000). While in, Nigeria‟s Code of CG recommends a board size of not more than 15 and not less than 5 with a mix of executive and nonexecutive directors. Therefore, it is not specific as to the number of non executive directors to be included in the board. The presence of outside directors, less aligned to management, may encourage firms to disclose more information to outside investors. Therefore, it is expected that companies that have more outside directors on the board will have more voluntary disclosures. In a CG context, Fama (1980) and Fama and Jensen (1983) suggest that boards that include a higher proportion of outside directors will have greater monitoring ability over management. Forker (1992) argues that the presence of nonexecutive directors on corporate boards would boost the monitoring of the quality of the financial disclosures and reduce the benefits from withholding information. As a result, it would lead to the presence of a positive relationship with disclosure. Several empirical studies have reported the presence of relationship between the presence of independent directors and the quality of board decisions. They found that presence of independent directors has an impact on the negotiation of tender offers (Byrd and Hickman, 1992), firing non-performing CEOs (Weisbach, 1988), and resistance to greenmail payments (Kosnik, 1987). Beasley (1996) found less likelihood of fraud in financial statement produced by companies with boards with higher proportions of outside directors. Other empirical studies have found significant impact on which firms that have higher proportion of outside directors in their boards. Supporting a complementary relationship, Adams and Hossain (1998) reported that there is a significant positive association between the proportion of independent directors on the board and voluntary disclosure. Chen and Jaggi (2000) reported a significant positive association between the Comprehensiveness of financial disclosure and the proportion of independent directors in companies operating in Hong Kong. Similarly, Leung and Horwitz (2004) found the presence of significant positive association between voluntary segment disclosure and board independence. 3 Proceedings of World Business Research Conference 21 - 23 April 2014, Novotel World Trade Centre, Dubai, UAE, ISBN: 978-1-922069-48-1 Supporting a substitute relationship, other researchers report the presence significant negative association between the level of voluntary disclosure and board independence (Eng and Mak, 2003; Barako et al., 2006; and Gul and Leung, 2004). However, some researchers, did not find significant relationship between the level of voluntary disclosure and board independence (Ghazali and Weetman, 2006; Haniffa and Cooke, 2002; and Ho and Wong, 2001). Empirical evidence on the relationship between the proportion of non-executive directors and the extent of voluntary disclosure is mixed. While companies with a higher proportion of non-executive directors have a higher level of voluntary disclosure in United Kingdom (Forker, 1992), Hong Kong (Leung and Horwitz, 2004), Singapore (Cheng and Courtenay, 2006), Australia (Lim et al., 2007) China (Xiao and Yuan, 2007), a negative association also exists. For example, Eng and Mak (2003) reported a negative association with the percentage of non-executive directors in Singapore regarding voluntary disclosure. Gul and Leung (2004) document a significant negative association between a direct measure of voluntary disclosure and the percentage of „expert‟ non-executive directors in Hong Kong. However, Ho and Wong (2001) were unable to confirm a significant relationship between voluntary disclosure and board independence in Hong Kong. Haniffa and Cooke (2002) and Abdullah and Mohd-Nasir (2004) also found no such relationship in Malaysia. Managerial Ownership and Voluntary Disclosure Managerial ownership refers to the proportion of a firm‟s shares owned by board members and other management staff. A high concentration of shares especially by managers tends to create an avenue for them to behave in ways that are value-maximizing. Professional managers have a strong independence and cross incentives through bonus shares payments (Sanda, Mika‟il and Tukur, 2005). This implies that they have incentives to disclose information when a company‟s investments succeed but they also tend to hide information when there are significant losses. Many researchers investigated whether corporate governance could help to achieve voluntary disclosure among which Mckinnon and Dalimunthe (1993) opine that Firms with high Managerial ownership have high level of voluntary disclosure and are more concerned with the benefits of shareholders. Thus, a capital structure with high managerial ownership decreases agency costs and increases voluntary disclosure. Agency theory predicts that there is a positive association between management interests and the level of voluntary disclosure. Warfield, Wild and Wild (1995) provide evidence supporting the agency theory when they found that the extent of shareholding by management is positively associated with the amount of information given about earnings. In contrast, Eng and Mark (2003) reveal that lower managerial ownership and significant government ownership are associated with higher disclosure among listed firms in Singapore, inconsistent with that prediction. Nevertheless, Fama and Jensen (1983) argue that firms that are controlled by management are less likely to survive in competition. Perhaps this is the explanation for the insignificant relationship between management‟s ownership interest and the firm‟s performance found by Demsetz and Lehn (1985). Stultz (1988) also proposes that the likelihood of successful takeovers is reduced as management ownership increases, due to the high premium being asked by management who hold substantial shares. Excessive management ownership could be counter-productive to the firm‟s long-term value, as management could effectively wield external threats. This contention is found in the entrenchment theory (Morck et al., 1988) which predicts that high management interest leads to lower voluntary disclosure. Further, the controlling owner of the firm effectively decides “… the accounting reporting policies” (Fan and Wong, 2002: 403). It is predicted that this leads to a low level of disclosure, driven 4 Proceedings of World Business Research Conference 21 - 23 April 2014, Novotel World Trade Centre, Dubai, UAE, ISBN: 978-1-922069-48-1 primarily driven by the controlling owner‟s motive to hold up minority shareholders (Fan and Wong, 2002): manipulation is achieved by limiting the amount of disclosure in the annual reports. Agency theory predicts that there is a positive association between management interests and the level of voluntary disclosure. Warfield, Wild and Wild (1995) provide evidence supporting the agency theory when they find that the extent of shareholding by management is positively associated with the amount of information given about earnings. In contrast, Eng and Mark (2003) reveal that lower managerial ownership and significant government ownership are associated with higher disclosure among listed firms in Singapore, inconsistent with that prediction. Nevertheless, Fama and Jensen (1983) argue that firms that are controlled by management are less likely to survive in competition. Perhaps this is the explanation for the insignificant relationship between management‟s ownership interest and the firm‟s performance found by Demsetz and Lehn (1985). Stultz (1988) also proposes that the likelihood of successful takeovers is reduced as management ownership increases, due to the high premium being asked by management who hold substantial shares. Excessive management ownership could be counter-productive to the firm‟s long-term value, as management could effectively wield external threats. This contention is found in the entrenchment theory (and Morck et al., 1988) which predicts that high management interest leads to lower voluntary disclosure. Further, the controlling owner of the firm effectively decides “… the accounting reporting policies” (Fan and Wong, 2002). It is predicted that this leads to a low level of disclosure, driven primarily driven by the controlling owner‟s motive to hold up minority shareholders (Fan and Wong, 2002): manipulation is achieved by limiting the amount of disclosure in the annual reports. The extent of shareholding by executive directors is associated with agency theory (Jensen and Meckling, 1976). They further argue that substantial shareholdings by outside directors provide greater incentives for them to monitor top management. Shareholdings by non-executive directors (Jensen, 1993) and by outside block holders (Shleifer and Vishny, 1986) are associated with higher monitoring incentives. Therefore, these outside block holders are predicted to demand more information to be disclosed in the annual reports to reduce information asymmetry among the small shareholders. However, it is found that the extent of executive directors‟ shareholdings also have a positive influence to the voluntary disclosures level. Also, non-executive directors‟ interest is not associated with voluntary disclosures (mohd-nasir and Abdullah 2004). Furthermore, voluntary disclosure is one of the means for the principals (shareholders) to monitor their economic interests, and the agents (managers & directors) can signal that they act in the best interest of the owners. Hossain, Tan, and Adams (1994) and Chau and Gray (2002) provide support for this contention where they revealled an association between the ownership structure and the extent of information voluntarily disclosed by the listed Malaysian, Hong Kong and Singapore firms, respectively. Fama and Jensen (1983) further propose that when there is diffusion in ownership, the potential for conflicts between the principal and the agent is greater. Ownership Concentration and Voluntary Disclosure Ownership concentration refers to the proportion of a firm‟s shares owned by a given number of the largest shareholders. A high concentration of shares tends to create more pressure on managers to behave in ways that are value-maximizing. In support of this argument, Gorton and Schmid (1996), Shleifer and Vishny (1997), Morck, Schleifer and Vishny (1988) suggest that at low levels of ownership concentration, an increase in concentration will be associated with an increase in firm value, but 5 Proceedings of World Business Research Conference 21 - 23 April 2014, Novotel World Trade Centre, Dubai, UAE, ISBN: 978-1-922069-48-1 that beyond certain level of concentration, the relationship might be negative. The current literature on corporate governance structure has stressed the agency problem where ownership is dispersed and shareholders have a passive role. Similarly, Shleifer and Vishny (1997) argue that ownership concentration is, along with legal protection, one of the two key determinants of corporate governance. Large shareholders can benefit minority shareholders because they have the power and incentive to prevent expropriation or asset stripping by managers. In this vein, ownership concentration can be viewed as an efficient corporate governance mechanism. On the other hand, large shareholders can collude with managers to expropriate minority shareholders‟ benefits, which is called tunnelling described as one of the central agency problems in countries with relatively poor shareholder protection (La Porta et al., 1999; 2000) as cited in Okpara (2009). In a similar view, Morck et al. (2000) also discuss how controlling shareholders may pursue objectives that are at odds with those of minority shareholders. Many researchers investigated whether corporate governance could help to achieve voluntary disclosure among which Mckinnon and Dalimunthe (1993) check up economical incentive of voluntary disclosure of segment information among Australian diversified companies, and found that the extent of ownership concentration was a factor affecting voluntary disclosure. In contrast, Raffoumier (1995) found that the extent of ownership decentralization has a negative relation with voluntary disclosure through the research of the determinants of voluntary financial disclosure by Swiss listed companies. ElGazzar (1998) expounded that those organization investors possessed stocks in some extent can make voluntary disclosure increased. Mohd-nasir and Abdullah (2004) in their study on VD and CG among financially distressed firms in Malaysia found that ownership concentration are positively related with voluntary information disclosure. In the same vein, Hong Xia and Ainian (2008) conducted a similar study on the impact of CG on voluntary disclosure using 100 listed companies in Shangai and Shenzheu Stock Exchanges and found a similar result of positive relationship. This finding is consistent with Hossain, Tan and Adams (1994) and Chau and Gray (2002). Hossain, Tan, and Adams (1994) and Chau and Gray (2002) provide support for this contention where they reveal an association between the ownership structure and the extent of information voluntarily disclosed by the listed Malaysian, Hong Kong and Singapore firms, respectively. Fama and Jensen (1983) further propose that when there is diffusion in ownership, the potential for conflicts between the principal and the agent is greater. Agency problems, is argued that it can be mitigated through the involvement of large shareholders in monitoring or controlling activities that potentially lead to these problems (Shleifer and Vishny, 1986; Admati, Pfleiderer, and Zechner, 1993; Huddart, 1993; Maug, 1998; and Noe, 2002). Large shareholders are expected to have greater incentives to monitor management as their wealth is tied to the firm‟s financial performance. Evidence by Bethel, Liebeskind and Opler (1998) is consistent with above prediction, where they find that the performance of a firm improves following an acquisition of a block of shares by an activist investor. Therefore, these outside block holders are predicted to demand more information to be disclosed in the annual reports to reduce information asymmetry among the small shareholders. Role Duality and Voluntary Disclosure In role duality, a single individual serves as both the CEO and chairman of the board, creating a unified leadership structure. According to agency theory, the combined functions can significantly impair the board's monitoring, disciplining and compensating of senior managers (Molz, 1988 and Jensen, 1993). It also enables the CEO to engage in opportunistic behaviour, 6 Proceedings of World Business Research Conference 21 - 23 April 2014, Novotel World Trade Centre, Dubai, UAE, ISBN: 978-1-922069-48-1 because of his/her dominance over the board. Individuals who hold both roles are aligned more with management than with shareholders and hence tend to withhold unfavourable information from shareholders. Forker (1992) asserts that a dominant personality in both roles poses a threat to monitoring and is detrimental to disclosure. Previous empirical studies on this relationship offer some evidence that companies with duality disclose less information. This is found in the United Kingdom (Forker, 1992), United States (Abbott et al, 2000), Hong Kong (Gul and Leung, 2004), France (Lakhal, 2005) China (Xiao and Yuan, 2007). However, Ho and Wong (2001) and Al-shammari and Alsultan (2010) found no association in Hong Kong. Therefore , in order to prevent undue concentration of power in the hand of one person in the board, 2003 SEC code of corporate governance recommends that different person should hold the position of chairman and CEO and in the event that is in-evitable a strong non-executive independent director should be vice chairman. 3.0 Research Methodology The research design specifically employed by this study is ex post factor design. This is in view of the fact that, all voluntary disclosure and CG variables can be extracted from annual account and reports of the sampled companies in the petroleum marketing and distribution companies. The population of this study comprises all the quoted petroleum marketing and distribution companies in Nigeria which as at 31st December, 2010, were nine (9) in number (NSE, 2010). Table 1: List of Quoted Companies in Petroleum Marketing & Distribution Industry as at 31st December, 2010 S/N Company Name Years of Listing Years of Operation after listing 1 African Petroleum Plc (AP) 1978 32 2 Mobil Oil Nig. Plc 1978 32 3 MRS Oil Nig. Plc 1978 32 4 Total Nig. Plc 1979 31 5 Conoil Plc 1989 21 6 Afroil Plc 1990 20 7 Oando Plc 1992 18 8 Eterna Oil &Gas Co. Plc 1998 12 9 Beco Petroleum Plc 2009 1 Source: Generated by the Author from NSE Fact Book, 2010 Table 1 shows the number of listed companies in the petroleum marketing companies as at 31 st December, 2010. Also shown in the last two columns of the table are year of listing and years of operation after listing. Therefore, for any company in this sector to qualify as a member of the population, firstly it must have been in operation for at least ten years after being listed in the Nigerian Stock Exchange as at 31st December, 2010. Secondly, it must have been quoted without being delisted between 2001 and 2010. The criteria are included to enable the researcher have access to the accounts and reports of the sampled companies from 2001-2010. After considering the criteria developed in this section, one company was eliminated because was quoted in 2009 thereby not fulfilling the above conditions. Hence, researcher came up with the working population as presented in table 2 below: 7 Proceedings of World Business Research Conference 21 - 23 April 2014, Novotel World Trade Centre, Dubai, UAE, ISBN: 978-1-922069-48-1 Table 2: Working Population of the Study Petroleum Marketing & Distribution Companies s/n Company name Year of listing Years of operation after listing 1 African Petroleum plc (AP) 1978 32 2 Mobil Oil Nig. Plc 1978 32 3 MRS Oil Nig. Plc 1978 32 4 Total Nig. Plc 1979 31 5 Conoil Plc 1989 21 6 Afroil Plc 1990 20 7 Oando Plc 1992 18 8 Eterna Oil &Gas Co. Plc 1998 12 Source: Generated from NSE Fact Book, 2010 Table 2 shows the working population of the study from where the sample of the study was drawn. Also shown in the last 2 columns of the table are year of listing and years of operation after listing. For the purpose of this study all the companies were considered for inclusion due to their small number. The list of companies is contained in the NSE market fact book-2010. The main criteria used for sampling the firms were: (i) annual reports must be available at the stock exchange and (ii) the firm must have been listed for the entire period of the study 2001-2010. Firms that did not meet any of these criteria were excluded. One company was excluded because its annual reports were not available. Therefore, seven (7) companies were selected as sample size as shown in the table below: Table 3: Sample Size of the Study S/N Company Name Years of Listing Years of Operation after listing 1 African Petroleum plc (AP) 1978 32 2 Conoil Plc 1989 21 3 Eterna Oil & gas Nig. Plc 1998 12 4 Mobil Oil Nig. Plc 1978 32 5 MRS Oil Nig. Plc 1978 32 6 Oando Plc 1992 18 7 Total Nig. Plc 1979 31 Source: Extracted by the Author from Table 2 above. It is observed that, all voluntary disclosure and CG variables can be extracted from annual account and reports of the sample companies in the petroleum marketing and distribution industry. Also a composite of governance attributes was constructed to measure the quality of CG. Therefore, annual financial report constitutes the sources of data for the study. Hence, the source of data used by this study is secondary. The adoption of this method is informed by the fact that in previous similar studies on disclosure including that of Simon and Karsun (2001), Chau and Gray (2002), Mohd-nasir and Abdallah (2004), Hoxia and Ainian (2008) and Al-shammari (2008) annual reports and accounts were used. 8 Proceedings of World Business Research Conference 21 - 23 April 2014, Novotel World Trade Centre, Dubai, UAE, ISBN: 978-1-922069-48-1 This study has used the multiple regression techniques and descriptive statistics to test the strength of the relationship between the attributes of CG (Independent Variable) and Voluntary Disclosure (Dependent Variable). The choice of this technique is consistent with (Hossain, Tan and Adams, 1994; Simon and Karsun, 2001; Chau and Gray, 2002; Mohd-nasir and Abdallah 2004; and Al-shammari, 2010). Also descriptive analysis was chosen because it was found to be the basic of all types of research and suitable in giving a clear picture of population as noted by Osuala (1987) that it is prerequisite to interpretation, generalization and or finding answers to questions. It should be noted that, all the four hypotheses would be tested through multivariate regression techniques. The next subsection presents brief explanation of the techniques used. In an attempt to determine the variations in dependent variable (Voluntary Disclosure) due to variation in any of the independent variables (i.e. Board Composition (BC), Managerial Ownership (MO), Ownership Concentration (OC) and Role Duality (RD)), the research used multiple regression analysis. This is because multiple regressions are expected to explain the variation in dependent variable due to variation in any of the independent variables. However, the selection of the appropriate statistical techniques among the many multivariate statistical tools that were available will surely depend on the measurement of the research variables. The regression equation is expressed as follows: VD = f (BC, MO, OC and RD) ----------------------- 1 VD = α + b1BC + b2MO+ b3OC +b4RD--------------- 2 Where: VD = Voluntary Disclosure BC = Board Composition MO= Managerial Ownership OC = Ownership Concentration RD= Role Duality b1 – b4= Partial derivatives or gradient of the independent variables a = Overall VD intercept (i.e. value of VD when the values of all other independent variables are zero).It should be noted that, equation 1 shows the study variables‟ hypothesized functional relationship (i.e. VD is a function of BC, MO, OC and RD), while equation 2 is a customized version of the usual regression equation. The researcher intends to; first, examine the separate impacts of the independent variables before evaluating their overall impact on the dependent variables (VD). The following statistics were used in the regression models to analyze the effect of each individual factor on VD, and to test the utility of the hypotheses. Variables Used as Measurement Tools for the Study The measurement of the variables used in this study is explained below: Corporate Governance Variables 9 Proceedings of World Business Research Conference 21 - 23 April 2014, Novotel World Trade Centre, Dubai, UAE, ISBN: 978-1-922069-48-1 In this study the quality of CG is estimated as the function of the board composition, managerial ownership, ownership concentration and role duality of board of directors and the managerial ownership. 1) The board composition is measured by percentage of independent directors on the board of the company and 2) Managerial Ownership is measured by percentage of shares owned by members of board of directors to total outstanding shares. 3) The ownership concentration is measured by the percentage of shares owned by the top twenty share holders to total outstanding shares. 4) Role duality is measured by whether CEO chaired the board. The governance composite or index is constructed to assist the researcher in measuring individual attributes of corporate governance. The index is the sum total value of the governance composite measures. A value of one is to be assigned to each of the following variables: i. The proportion of independent executive directors to total number of directors on the boards is higher. ii. The percentage of shares owned by the members of the board of directors to total outstanding shares is greater. iii. The percentage of shares owned by the top twenty share holders to total outstanding shares is greater. iv. The CEO does not serve as the chairman of the board. A value of zero (0) is to be assign if otherwise as shown in the table below: Table 4: Operational Definitions of Variables Independent variables Operational definitions Sources of data Board composition % of independent directors to Company annual reports total number of directors on the board(Dichotomous, 1 or 0) Managerial Ownership % of shares owned by the Company annual reports members of the board of directors to total issued shares (Dichotomous, 1 or 0) Ownership concentration % of shares owned by top 20 Company annual reports share holders to total issued shares (Dichotomous, 1 or 0) Role duality Dichotomous, 1 or 0 Company annual reports Therefore, the governance scores range from 0 to 4, with 4 being the highest score. Being the commonly used approach of giving the item a score of 1, 0, or not applicable N/A (Cooke, 1989, 1991; Ho & Wong, 2001; Chau & Gray, 2002; Haniffa & Cooke, 2002; and Ghazali & Weetman, 2006) so as to ensure that companies were not penalized for non-disclosure of relevant items each annual report was read in its entirety, following Cooke (1989, 1991). Independent directors are defined as directors who (i) are not current executives (ii) and are not past executives. Measuring Voluntary Disclosure 10 Proceedings of World Business Research Conference 21 - 23 April 2014, Novotel World Trade Centre, Dubai, UAE, ISBN: 978-1-922069-48-1 The voluntary disclosure checklist was prepared by the researcher to measure voluntary disclosure, based on the checklist developed by Meek et al. (1995) in relation to voluntary disclosures of U.K and continental European firms. The Meek et al (1995) instrument which was later used by Chau and Gray (2002) for Hong Kong and Singapore firms; also recently used by Mohd-nasir and Abdullah (2004) for Malaysian listed companies; Ghazali and Weetman (2006) for Malaysian firms and more recently Al-Shammari (2008) for Kuwait firms were validated based on the Nigerian situation and use. To validate the checklist, (as shown in table 3.6) it was first screened to eliminate any mandatory disclosure requirements. Second, it used an internal mandatory checklist, obtained from two auditing firms, for comparison with the checklist of the study to eliminate any mandatory items. Third, two experienced Nigerian accountants (who are associate members from ICAN and ANAN) refined the checklist to confirm its validity. A scoring sheet for each annual report was prepared based on the checklist. Each disclosure item was given equal weight in the index, consistent with prior studies (Cooke, 1992; Wallace and Naser, 1995; Owusu-ansah, 2000; Owusu-ansah and Yeoh, 2005; Al-shammari, 2008). The voluntary disclosure checklist was categorized into three major parts: Strategic, Non-financial and Financial. According to Meek et al (1995), strategic and financial information are included, since previous studies show that they are relevant to investors and are widely discussed in the literature (Tonkin, 1989). Meek et al (1995), also argue that non financial information is directed more towards a firm‟s social accountability and is aimed at a broader group of stakeholders than the owners/investors. All items, namely strategic, financial and non-financial categories were initially checked against the mandatory requirements in Nigeria in order to arrive at the checklist with items relevant to the Nigerian environment. From the screening, the final checklist excluded eight items from the original list, namely R & D activities, recruitment problems, segment reporting, financial highlights statement- > 3 years, financial highlights statement- 2 years, picture of employees‟ welfare, profit sharing schemes policy and number of employees, due to their non-applicability to the industry or because it is mandatory. After this exclusion a total of twenty seven items were used as the final list as shown in the table below: Table 5: Voluntary Disclosure Checklist Items 1. General Corporate Information (Strategic Information) 1 Mission statement 2 Brief history of firm 3 Profitability Ratio (i.e. ROA, ROE) 4 Description of corporate structure 2. Information about directors (Strategic Information) 5 Picture of chairperson only 6 Picture of all directors 7 Academic qualifications of directors 8 Position or office held by executive directors 9 Identification of senior management 10 Functions of senior management 11 Proceedings of World Business Research Conference 21 - 23 April 2014, Novotel World Trade Centre, Dubai, UAE, ISBN: 978-1-922069-48-1 3. Capital market data (Financial Information) 11 Stock exchanges (code, name) 12 Volume of shares traded (trend) 13 Volume of shares traded (year end) 14 Share price information (trend) 15 Share price information (year end) 16 Domestic and foreign shareholding 17 Distribution of shareholding by type of shareholders 18 Acquisition and disposal 4. Future prospects (Strategic Information) 19 General discussion of future industry trend 20 Disclosure of specific external factors, affecting firm prospects (economy, 21 Discussion of firm‟s prospects (general) 5. Social reporting and value added information (Non-financial Information) 22 Community programs (health, education) 23 Environmental policies 24 Employees‟ appreciation 25 Discussion on employees‟ welfare 26 Corporate policy on employee training 27 Nature of training Sources: Generated by the Author, from checklist developed by Meek et al. (1995) Extent of voluntary disclosure scores 1 is used if item for individual firm is disclosed, and 0, if otherwise. Hence, the total expected from each firm is 27. 4.0 Data Analysis and Interpretation As previously stated, the study employs regression models with the purpose of testing the relationship between variables of the study. Descriptive statistics merely presents the statistical attributes of the variables in our model. Table 6 provides such statistics. All the variables were computed from the relevant balance sheets and income statements of the sampled companies. Table 6: Descriptive Statistics of Variables Variable | Obs Mean Std. Dev. Min Max -------------+-------------------------------------------------------vd | 70 .65 .052475 .59 .74 mo | 70 8.340571 17.05941 .01 60.03 bc | 70 .666 .068997 .44 .82 oc | 70 .5544286 .1584676 .27 .79 cd | 70 .7285714 .4479075 0 1 Source: Generated by the Researcher from the Annual Reports and Accounts of the sampled companies using Stata (Version 12) 12 Proceedings of World Business Research Conference 21 - 23 April 2014, Novotel World Trade Centre, Dubai, UAE, ISBN: 978-1-922069-48-1 Table 6 reveals that the Voluntary Disclosure (VD) of the firms in the downstream sector of the Nigerian petroleum industry over the ten year period ranged from 59% to a maximum of 74% and with an average values of the dependent of 65% and the standard deviation is 0.052475 indicating lack of substantial variation. The other variables which are all independent in the table also show evidence of some level of variability. On the overall the Managerial Ownership (MO) has the highest standard deviation with about 8.34057 and VD has the lowest standard deviation account for only .052475. The higher the standard deviation, the higher the corporate risks face by firms in relation to the variable. In an effort to establish the nature of the correlation between the dependent and the independent variables, and also to ascertain whether or not multi-collinearity exists as a result of the correlation between variables, Table 7 is incorporated for the purpose of analysis. The correlation matrix in Table 7 provides some insights into which of the independent variables are related to the dependent variable VD. Table 7: Correlation Matrix of Variables | vd mo bc oc cd -------------+--------------------------------------------vd | 1.0000 mo | -0.1661 1.0000 bc | -0.0965 0.0405 1.0000 oc | 0.2614 -0.0420 -0.2794 1.0000 cd | -0.3946 0.0783 0.1238 -0.0625 1.0000 Source: Generated by the Researcher from the Annual Reports and Accounts of the sampled companies using Stata (Version 12) From the above matrix, the values are on the diagonal are all 1.000 indicating that each variable is perfectly correlated with itself. All the independent variables are negatively correlated with VD with exception of Ownership Concentration (OC). The negative correlations imply that as the rate of Managerial Ownership (MO), Board Composition (BC), or CEO role duality (CD) increase, the Voluntary Disclosure (VD) of the firms under study decrease. On the other hand, Ownership Concentration (OC) positive correlation of (0.2614) implies that as the value of OC increases, so does the Voluntary Disclosure (VD) of the firms under study. Though, correlation is positive, the relationship shows no strong correlation. To further assess the validity of non-multi-collinearity indication revealed by the correlation matrices, the study uses Tolerance Value (TV) and Variance Inflation Factor (VIF). The following table represents the results of TV and VIF for the Corporate Governance components. Table 8: Multicollinearity Test Variable | VIF 1/VIF -------------+---------------------bc | 1.10 0.910169 oc | 1.09 0.920346 cd | 1.02 0.978578 mo | 1.01 0.992018 -------------+---------------------Mean VIF | 1.05 Source: Generated by the Researcher from the Annual Reports and Accounts of the sampled companies using Stata (Version 12) From the Table 8, TV ranges from 0.910169 to 0.992018 which suggests non multi-collinearity feature. Multicollinearity feature exists when the value of TV is less than 0.2 (Stat notes, 2007 as cited by Sabari, 2012). The VIF which is simply the 13 Proceedings of World Business Research Conference 21 - 23 April 2014, Novotel World Trade Centre, Dubai, UAE, ISBN: 978-1-922069-48-1 reciprocal of TV range 1.01 to 1.10 and this indicates absence of Multicollinearity, likewise average VIF of all variables shows 1.05. VIF shows Multicollinearity when its value exceeds 10 (Tobachnick and Fidell, 1996 as cited by Sabari, 2012). Table 9: Regression Result -----------------------------------------------------------------------------vd | Coef. Std. Err. t P>|t| -------------+---------------------------------------------------------------mo | -.0003929 .0003365 -1.17 0.247 oc | .0790845 .0376047 2.10 0.039 bc | .0163689 .0868494 0.19 0.851 cd | -.043626 .0129024 -3.38 0.001 _cons | .6303135 .0667296 9.45 0.000 -----------------------------------------------------------------------------Prob > F = 0.0018 R-squared = 0.2285 Adj R-squared = 0.1810 Source: Generated by the Researcher from the Annual Reports and Accounts of the sampled companies using Stata (Version 12) The coefficient of determinations “R-square” shows 22.85% indicating that the variables considered in the model accounts for about 22.85% change in the dependent variable that is VD, while the remaining of the change is as a result of other variables not addressed by this model. In general, the overall probability is positively significant at 5%. Thus, the model equation can be written as: VD = .6303135 - .0003929β1+ .0790845β2 + .0163689β3 - .043626β4 + ε In appraising the model, based on the regression result in table 9, the results show that, as the relationship between VD and MO is negative and non-significant, this can be justified with the negative “t” value of -1.17 and P>|t| 0.247. likewise the results negative coefficient of -0.003929 is proving that, an increase in MO by one more unit, other independent variables remaining constant decreases the industry voluntary disclosure by 0.003929. This implies that, MO has an inverse relationship with VD. This result is consistent with the findings of Eng and Mark (2003) which reveal that lower managerial ownership is associated with higher disclosure among listed firms in Singapore. And conversely, disagree with Warfield, Wild and Wild (1995) who provide evidence supporting the agency theory when they found that, the extent of shareholding by management is positively associated with the amount of information given about earnings. However, the relationship between VD and OC is positive and significant, this can be vindicated by the positive “t” value of 2.10 and P>|t| 0.039 so also it has been also been confirm by the positive coefficient of .0790845 which means that, an increase in OC by one more unit, other independent variables remaining constant increases the industry voluntary disclosure by .0790845. This implies that, OC has a positive relationship with VD. This result is consistent with the findings of Hongxia and Ainian (2008), Mohd-Nasir and Abdallah (2004), Chau and Gray (2002) and Hossain, Tan and Adam (1994). Moreover, it is good to note that, an increase in ownership concentration increases level of voluntary disclosure. So also the relationship between VD and BC is positive but not significant, this can be justified through the positive “t” value of 0.19 and P>|t| 0.851 it has been also been validate by the positive coefficient of .0163689 which means that, an increase in BC by one more unit, other independent variables remaining constant increases the industry voluntary disclosure by .0163689. This implies that, BC has a positive but non-significance relationship with VD. This result is consistent with the findings of Mohd-salleh, Rahmat and Mohd-Iskandar (2004), Abdallah and Mohd-Nasir (2002) and Haniffa and Cooke (2002). However, contradict Eng and Mak (2003) that find a negative relationship between BC and VD. 14 Proceedings of World Business Research Conference 21 - 23 April 2014, Novotel World Trade Centre, Dubai, UAE, ISBN: 978-1-922069-48-1 Conversely, the relationship between VD and CD is negative and significant, this can be justified with the negative “t” value of -3.38 and P>|t| 0.001. Similarly the results negative coefficient of -.043626 attest that, an increase in CD by one more unit, other independent variables remaining constant decreases the industry voluntary disclosure by -.043626. This implies that, RD has an inverse relationship with VD that is as the board leadership structure changes from a two-tier to a one-tier, the extent of the firms‟ VD also reduces. This result is consistent with the findings of Forker (1992), Abbott et al (2000), Gul and Leung (2004), Lakhal (2005) and Xio and Yuan (2007). Particularly, Ho and Wong (2001) and Al-shammari and Al-sultan (2010) found no relationship between RD and VD. Many studies suggest that, a board chaired by the CEO is less effective at monitoring manager‟s activities. Therefore, in holding this dual role, the CEO may find it easier to manipulate the reports by choosing aggressive accounting to disclosed irrelevant and inadequate information to the detriment of the shareholders, rather than voluntarily disclosing relevant information‟s that enhances the value of the firm. 5.0 Conclusion and Recommendations From the findings of this study, it can be deduced that corporate governance increases the application of voluntary disclosure of the firm in the downstream sector of the Nigerian petroleum industry with a very significant relationship. Thus, voluntary disclosure becomes necessary for the firm to make a credible disclosure and to attract investors. It has been proved that the higher number of independent Non-Executive Directors on the board composition is not an important monitoring and control device, which help to ensure the quality of the financial disclosure and reduce the benefits from withholding information. This is because, it is the direct responsibility of the Audit Committee and not the board to monitor the firm‟s financial reporting or because the board members lack prerequisite experience. And Managerial Ownership decreases voluntary disclosure of firms in the downstream sector of the Nigerian petroleum industry as the regression result reveals negative relationship and finally it has been confirmed that Role duality has effect in revealing VD in the regression result. Based on the conclusions of this study, it is recommended that the firm in the downstream sector of petroleum industry should ensure more adherence to Code of Corporate Governance (since it has an effect on VD) so as to ensure the quality of their financial reporting and also the relevant authority i.e. CAC and SEC should ensure that; companies complied with all the rules and regulations governing financial reporting so that; they can adequately disclose financial information voluntarily. Shareholders of firms in the Nigerian petroleum marketing and distribution Industry should ensure that, board composition comprise both executive and non-executive directors, with qualified and experienced non-executive directors independent of managers constituting the majority. Also, to be appointed especially in the audit committee so that would boost the monitoring of the quality of the financial disclosure which will invariably lead to high application of voluntary disclosure. Firms in Nigerian petroleum marketing and distribution industry should encourage ownership concentration to some reasonable extent so that managerial self-interest would not steer decisions in revealing VD as a result of pressure from the block-holders. Which as a result firm‟s credibility, shares value and access to capital will all be increased. 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