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
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Proceedings of World Business Research Conference
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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
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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.
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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
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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
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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,
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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:
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Proceedings of World Business Research Conference
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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.
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Proceedings of World Business Research Conference
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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
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Proceedings of World Business Research Conference
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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
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Proceedings of World Business Research Conference
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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
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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)
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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
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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.
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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. Board members in petroleum marketing
and distribution companies
should not be allowed to own significant number of shares of the companies, due to its inverse
relationship with voluntary disclosure so that, their decision on VD reporting would be enhanced.
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