i
JOURNAL OF
ACCOUNTING
Volume 11 Number 1,
January – June, 2022
ISSN-1118-9094
Published by Nigerian College of Accountancy (NCA)
Association of National Accountants of Nigeria (ANAN)
ii
EDITORIAL BOARD
Editor-In-Chief
Professor Patrick A. Egbunike, Ph.D., FCNA
Nnamdi Azikwe University, Awka, Nigeria
Managing Editor
Jonathan C. Nwagboso, FCNA
Ag. Director General, Nigerian College of Accountancy, Kwall, Nigeria
Assit. Managing Editor
Okike Benjamin Matthew, FCNA
Ag. Director of Studies, Nigerian College of Accountancy, Kwall, Nigeria
Editorial Secretary
Emmanuel Victor Yoko, FCNA
Nigerian College of Accountancy, Kwall, Nigeria
Editorial Board Members
Prof. Hassan Ibrahim, PhD, FCNA
Ibrahim Badamasi Babangida University, Lapai, Nigeria
Prof. Musa Success Jibrin, PhD, FCNA
Veritas University, Abuja, Nigeria
Dr Nestor Ndubuisi Amahalu, PhD, FCNA
Nnamdi Azikiwe University, Awka, Nigeria
Dr Chioma Stella Atogu, PhD, FCNA
Federal Neuropsychiatric Hospital, Enugu, Nigeria
Dr Akor Ikpam, FCNA
Principal Partner, Akor Ikpam & Co, Certified National Accountants
Nathaniel Tyakul Haningyi, FCNA
Demec Multi-Services, Adamawa, Nigeria
Ibekwe Osita Dega, FCNA
Federal University Wukari, Taraba, Nigeria
Augustine Rotimi Odukoya, FCNA
Rotimi Odukoya & Associates, Certified national Accountants, Ibadan, Nigeria
Agbo Emmanuel, FCNA
ANAN FCT II Seceretariat Office, Abuja, Nigeria
Nwobi Theresa Ifeyinwa, CNA
Nigerian College of Accountancy, Kwall, Nigeria
Mrs Chris-Nwosu Nkiru, CNA
Nnamdi Azikiwe University, Awka, Nigeria
iii
Editorial Advisory Board
Rev. Canon Professor Benjamin C. Osisioma, FCNA
Nnamdi Azikwe University, Awka, Nigeria
Professor M. A. Mainoma, FCNA
Nasarawa State university, Keffi, Nigeria
Professor M. I. Fodio, FCNA
ANAN University, College of Accountancy Road, Kwall, Jos Nigeria
Professor A. Okwoli, FCNA
University of Jos, Nigeria
Professor Jane Modupe Ande, FCNA
University of Jos, Nigeria
Professor E. I. Okoye, FCNA
Nnamdi Azikwe University, Awka, Nigeria
Professor Abimaje Akpa, FCNA
Benue State University, Makurdi, Nigeria
Professor Mohammed Dije Suleiman, FCNA
Bayero University Kano, Nigeria
Professor J. J. Adefila, FCNA
University of Maiduguri, Nigeria
Professor A. S. Mikailu, FCNA
Usuman Danfodio University, Sokoto, Nigeria
Professor Mary Ifeoma Okwo, FCNA
Enugu State University of Science and Technology, Enugu, Nigeria
Professor Y. M. Damagun, FCNA
University of Abuja, Nigeria
Professor Suleiman A. S. Aruwa, FCNA
Nasarawa State University, Nigeria
Aniete Dikki, PhD, FCNA
Ahmadu Bello University, Zaria, Nigeria
Kayode Olushola Fasua, PhD, FCNA
Chief Executive Officer, Association of National Accountants of Nigeria (ANAN)
iv
EDITORIAL NOTE
The Journal of Accounting (JOA) is the only authoritative academic journal of the Nigerian
College of Accountancy (NCA), the Post Graduate Professional College of the Association of
National Accountants of Nigeria (ANAN) which is focused on research that impact on
accounting education, profession, and practice, in a profound and comprehensive manner.
Nigerian College of Accountancy, a training arm of the Association of National Accountants
of Nigeria, aims to advance the science of accounting in Nigeria through a multidisciplinary
focus on the production of well-rounded, well-blended, and well-trained professionals
possessing sound knowledge, skilful in practice, and ethical conduct.
The journal promotes opportunities for research in accounting and makes research results easy
to use. It is in this mission that ANAN publishes, through this journal, well-studied, original,
theoretical, and empirical research on contemporary issues in accounting and related
disciplines.
The JOA is a reputable journal that requires rigorous peer review of all research articles. All
articles submitted to the journal undergo initial editor screening and are later reviewed by at
least three anonymous referees. We welcome theoretical and empirical papers on Accounting,
especially papers that have implications that can be tested. Contributions from a variety of
contributors are also welcome.
We are open to submissions on all aspects of accounting. However, the views and
interpretations expressed in this journal are those of the authors and do not necessarily
represent the views and policies of the institutions, NCA, and ANAN. The editorial board does
not guarantee the accuracy of the data contained in this publication and does not accept any
responsibility for the consequences of their use.
Professor Patrick Egbuinike
Editor-in-Chief
June, 2022
v
CALL FOR ARTICLES/GUIDELINES FOR CONTRIBUTION
The Editorial Board of the Journal of Accounting Committee (JOA) calls for scholarly articles on
relevant current and contemporary issues from academics in Accounting, finance, and other related
multidisciplinary fields of study for publication. JOA is a biannualrefereed journal published in June
and December each year. All submissions must be made no later than two months before any issue.
All articles must comply with the following guidelines:
i.
Articles must be original, theoretical, and empirical studies.
ii.
The article should not be more than 20 pages of A4-size paper including references.
iii.
The article must be typed with double-line spacing at a 12” font size.
iv.
The paper should have a title page with the author’s name and affiliations (including email and phone number).
v.
The Abstract should not be more than 20 words and keywords should not be more than
five (5) words arranged Alphabetically.
vi.
The paper should have a definite structure (five sections) showing the (i) Introduction, (ii)
Literature Review/Theoretical Framework (iii) Methodology, (iv) result and Discussions,
and (v) Conclusion and Recommendations.
vii.
American Psychological Association (APA) 7th edition format is recommended for intext
and reference citations.
viii.
Electronic copy of the paper should be submitted through the email address provided
below.
ix.
Articles assessment and publication cost Five thousand Naira (N5,000.00) only, pay into
Nigerian College of Accountancy Account online via: ncapayment.anan.org.ng or pay
direct from any bank nationwide.
The Editor-in-chief,
Journal of Accounting (JOA)
Nigerian College of Accountancy,
PMB 2734College of Accountancy Road, Kwall Bassa
Jos, Plateau State, Nigeria
Inquiry: Contact the Editor-in-Chief:
(+234)8035973319
Email: journalofaccounting@anan.org.ng
vi
TABLE OF CONTENT
Editorial Board Editorial Advisory Board
Editorial Note -
-
-
-
-
-
-
-
-
ii
iii
iv
Effect of Auditor Switch Decisions on Financial Performance of Quoted Firms in Nigeria
Okerekeoti Chinedu U & Ezeiofor Raymond A.
-
1
Human Resource Management and Sustainable Development
Musa Success Jibrin- -
-
11
Effect Of Ownership Structure on Sustainability Reporting Assurance Practice: Evidence
From Quoted Oil And Gas Firms In Nigeria
Okoye Pius Vincent Chukwubuikem; Amahalu, Nestor Ndubuisi; Okoye Jane-Frances
Nwamaka & Obi Juliet Chinyere
-
19
Effects of Fiscal and Monetary Policies on Private Sector Investment in Nigeria
Okwuchukwu Odili, Paul Ede Ugwu & Nwaeze Chinweoke-
-
32
Restructuring of the Assets of Microfinance Banks Affected by Covid 19 Pandemic in
Nigeria
Nwadighoha Chinedum E, Ogungbangbe Bashir Muyiwa & Ogbonna Chikodi Ferdinand -
48
Company Income Tax Reform and Internally Generated Revenue in Nigeria.
John-Akamelu, Chitom Racheal
-
-
-
54
Tax Planning and Growth of Businesses in North Eastern Nigeria
Sani Ilemona & Nwite Sunday -
-
-
65
Relationship between University Entry Requirements and Academic Performance of
Accounting Students in Nigeria
Ibrahim Umar -
77
Value Relevance of Performance Disclosure and Transparency on Shareholders’ Reward:
An Empirical Investigation of Nigerian Banks
Ejike Sunday Okoroigwe
-
88
-
-
-
-
Ownership Structure and Financial Reporting Quality of Listed Oil Companies in Nigeria
Michael Chidiebere Ekwe & Amah Kalu Ogbonnaya.
Firm Attributes and Dividend Payout: Study of Deposit Money Banks Listed in Nigeria.
Musa Success Jibrin
: Determinants of Labour Productivity in Nigeria
Odili Okwuchukwu, Kingsley Onyekachi Onyele,Ihekwereme & Joseph Onyemaechi
100
112
-
126
Corporate Governance and Firm Value: Is Poor Corporate Governance Responsible For
The Persistent Crises In Nigeria Banking Sector?
Ejike Sunday Okoroigwe, Habiba Mohammed-Bello Umar &. Abdullahi Ndagi -
144
Moderating Effect of Audit Quality on Value Relevance of Accounting Information of
Listed Firms in Nigeria
Success Blessing Ejura, Musa Success Jibrin & Agbo Emmauel -
156
vii
-
Journal of Accounting
Vol. 11 (1) January - June 2022
EFFECT OF AUDITOR SWITCH DECISIONS ON FINANCIAL
PERFORMANCE OF QUOTED FIRMS IN NIGERIA
Okerekeoti, Chinedu U.1, Ezejiofor, Raymond A.1
1
Department of Accountancy, Nnamdi Azikiwe University, Awka
Corresponding author: thaddray4life@yahoo.com
Abstract
This study examined the effect of auditor switch decisions on financial performance of firms in Nigeria.
Specifically, the study ascertained the effect of auditor switch decisions on Tobin’s Q of Nigerian firms. Ex-Post
Facto research design was employed and data were extracted from the annual reports and accounts from 2012 to
2020 from a sample size of 75 firms in Nigeria. Data obtained were analysed via descriptive statistics and lest
regression analysis. The results revealed that auditor switch decisions and corporate performance variables fitwell in the estimated models, since it is statistically significant at 0.05%, hence auditor switch decisions and
Tobin’s Q were significantly affected. Based on the findings, The analysis suggested that auditor switch would
not considerably alter Tobin's Q in light of its findings. Tobin's Q) of their companies would significantly
increase further; Nigerian businesses should assess the quality of the auditor before transferring.
Keywords: Audit Switch, Financial Performance, Audit Fee, Firms, Nigeria
Introduction
The primary goal of financial statements, both in Nigeria and around the world, is to deliver
data that helps a variety of people make knowledgeable economic decisions. The goal of
financial statements, according to Chadegani, Mohamed, and Jari (2011), is to offer
information on the financial situation, performance, and changes in the financial position of
businesses. Managers use financial statements to report on their stewardship to owners of
wealth (International Accounting Standard Board framework - IASB, 2005). In general,
financial accounting information has two (2) main goals. First, it allows managers to
communicate with interested parties both inside and outside of a company, which reduces
information asymmetry between them, and It is frequently used in agreements between
businesses and other parties involved in their operations, including financiers, managers,
business partners, and the government (Chen, Rong-Ruey, Cheng-Ta and Lin-Hui, 2019).
As a result, there is flexibility for ownership and control to be separated. In most organizations,
the division of ownership and control frequently results in agency problems. The necessity for
wealth owners (principals) to confirm the actions of managers (agents) may have given rise to
external audit as a means of resolving the agency issue between wealth owners and corporate
management (Hamza, Wan, Norfadzilah, Razana, Nadiah and Zarinah, 2018; Sook, Seon,
Dong and Seung, 2019; and Utomo, Zaky and Imang, 2019).
There are two types of financial statement audits: internal and external. However, this study
concentrated on external financial statement audits, which are regarded as mandatory for all
organizations. According to the law (Collis, Jarvis, and Skerratt, 2004; Hussein, 2018),
publicly traded corporations are required by law to perform external audits (Nzomo, 2002). As
1
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
a result, external auditors are required by law to express an opinion on the accuracy and
integrity of an entity's financial accounts for a specific time (Quick, 2012). External auditors
are therefore responsible to shareholders and have a duty to the company to execute the audit
with due professional care.
There have been many debates in the modern era over the selection of auditors and the
justifications for changing auditors. When an audit firm's contract expires, the company must
choose a new auditing firm to undertake its external audits. However, the transfer may also
take place for other reasons, such as contract violations. Auditor switch decisions entail the
replacement of the current auditor, which leads to the selection of high-caliber, distinctive
audit firms in order to realign the features of the audit company with expanding client needs
under shifting conditions (Okere, Ogundipe, Oyedeji, Eluyela and Ogundipe, 2018 and Choi,
Lim and Mali, 2017).
The act of switching auditors entails resignation and release from obligations to client firms
(Gwizu, Waeni, Chimanga, Saidi and Karasa, 2017). Changing auditors can leave investors
with bad feelings and low faith in financial reports, depending on whether the change is from
a Big-4 to a Big-4 or a Big-4 to a non-Big 4. Companies must periodically switch out their
external auditors, say every three to nine years, under a required auditor switch regime.
Advocates of audit switching or rotation contend that forcing auditors to switch or rotate would
undermine their independence and prevent them from aligning with management.
Altering your auditors can also help prevent rapid company failure. Major corporate scandals
including those involving Worldcom and Enron (US), Parmalat (Italy), Transmile Group
Berhad (Malaysia), Oceanic Bank (Nigeria), Intercontinental Bank (Nigeria), Afribank and
Cadbury (Nigeria), among others, have all been connected either directly or indirectly to
dishonesty, misleading, and untruthful accounting (Vlatu, Amat, and Cuzdrirean, 2017.
On the other side, Nigeria currently has over 2,000 audit firms that offer audit services to
both listed and unlisted domestic businesses (World Bank, 2011). Despite the fact that
there are many audit companies available, the "Big-4" are a limited group of very large
audit firms that predominate the audit market. KPMG, Ernst & Young, Akintola Williams
Deloitte, and Price water house Coopers are the country's top four auditing companies
(PWC). According to the World Bank (2004), the largest four audit firms handle the audits
for around 90% of Nigeria's listed companies, with the remaining 10% being national
firms with international affiliations. In light of this, the current study used Tobin's Q to
ascertain the impact of auditor switch choices on the financial performance of quoted Nigerian
firms. At the backdrop of these, the researchers formulated the below stated hypothesis in the
null form to navigate their investigations:
H0:
Auditor switch decisions have no significant effect on Tobin’s Q of manufacturing
firms in Nigeria.
2
EFFECT OF AUDITOR SWITCH DECISIONS ON FINANCIAL PERFORMANCE OF QUOTED FIRMS IN NIGERIA
Okerekeoti, Chinedu U & Ezeiofor, Raymond A.
Review of Related Literature
Conceptual Review
Auditor Switch Decisions
According to Choi and Wong (2007), selecting a particular auditor is a strategic and
complicated choice that differs between firms due to their various motivations/incentives.
According to Stergiou (2013), managers assess each auditor based on a variety of criteria and
considerations. Therefore, managers weigh the marginal costs and benefits of engaging a
specific auditor (Okere et al 2018). An alternative perspective on client-auditor coalition is
one in which the minimum cost match between client needs (supply side) and auditor services
(demand side) is taken into consideration (Datar, Feltham and Hughes, 1991). It is interesting
to note that wealthy people are captivated by the idea of selecting a certain auditor because of
the possible impact on maximizing their wealth (Jubb, 2000). Theoretically, such a transition
could involve moving to a Big-4 audit company from a smaller, non-Big-4 audit firm (Lin and
Liu, 2009). Prior research (Gharibi and Geraeely, 2016, Stergiou, 2013) has demonstrated that
switching to a smaller audit company results in a negative reaction from investors and other
market participants. Contrary to the latter, which reduces the chance of earnings management
or "tunneling" activities and improves audit quality (Kusrina and Yulivani, 2016; Olowookere
and Inneh, 2016).
The choice to transfer auditors has been defended in a number of ways. For the proposed
positive correlation between auditor size and audit quality, Gray and Ratzinger (2010)
presented two hypotheses. First, according to the "reputation theory," major auditors are more
motivated to produce higher-quality audits in order to prevent losing client-specific rents from
incorrect reports (DeAngelo, 1981). By creating a corporate governance index made up of
governance features, Cassell, Giroux, Myers, and Omer (2012) explored the impact of
corporate governance on realignments of auditors and clients. The results showed that Big-4
auditors considered client corporate governance mechanisms in making client portfolio
decisions. Besides, they found a tendency for switching to a non-Big-4 auditor for clients that
scored lower on corporate governance index.
Corporate Performance
The financial statement can be used to determine an entity's performance. As a result, a
successful organization is expected to strengthen the quality of disclosure in its financial
statements (Herly and Sisnuhadi, 2011). Additionally, market-based measurement ratios are
distinguished by their prospective nature and their reflection of the shareholders' expectations
of the entity's future success, which is based on either historical or current financial
performance (Wahla, Shah and Hussain, 2012). Tobin's Q, market value added, market-tobook value, annual stock return, dividend yield, etc. are some examples of market-based
measurements. Market-based expectations for an entity's performance may give management
an incentive to change its holdings in accordance with such expectations. The two
measurements of company performance have some clear distinctions, according to accounting
literature. This comprises accounting performance ratios, which are referred to as the
3
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
measurements that look backward, and Tobin's Q, which is primarily viewed as a measure of
an entity's performance that looks forward.
Additionally, research has shown that accounting-based metrics, such as return on asset, return
on equity, earnings per share, book value per share, dividend per share, etc., are used to assess
an entity's short-term financial performance, while market-based metrics are used to assess an
entity's long-term financial performance. In light of the aforementioned, our study
concentrated on market- and accounting-based measures of business performance. The
accounting-based variables used in the study include Tobin's Q, earnings per share, return on
equity, return on capital used, and return on asset. Because management of firms may wish to
present a strong or improved market value to both internal and outside shareholders, the
researcher argues that the decision to switch auditors may have a significant impact on the
market value of an entity. Based on the foregoing, the researcher included Tobin's Q to the
empirical model and hypothesized that there is no relationship between the choice to transfer
auditors and Tobin's Q of listed non-finance enterprises in Nigeria.
Audit Fee
Companies must pay audit fees to public accounting firms in order to have their financial
accounts audited. The body of existing research demonstrates that an auditee's audit expenses
are mostly determined by the size and complexity of the auditee. We included audit fee as one
of our control variables since it is one of the elements that influences auditor switch decisions
(Ismail et al. 2008; Addams and Davis, 1994).
Review of Empirical Studies
Utomo, Zaky, and Imang (2019) investigated the relationship between managerial ownership
as a moderating variable on audit quality and auditor switching to fake financial statements
between 2013 and 2017. They conducted their research in Indonesia. The logistic regression
analysis of 100 non-fraudulent organizations' financial statements revealed a substantial
inverse relationship between audit quality and fraudulent financial statements. A substantial
positive correlation between auditors turning on fake financial statements and other findings
was also discovered. In Malaysia, Hamza, Wan, Norfadzilah, Razana, Nadiah, and Zarinah
(2018) used a descriptive statistical tool to identify the factors affecting audit quality (auditor
rotation, tenure, and switch). The study's conclusions demonstrated that audit quality declines
as audit firms switch and rotate. Additionally, compared to tenure and rotation of auditors,
auditor switch has a greater impact on audit quality. Choi, Lim, and Mali (2017) examined the
audit quality of firms that were required to rotate their auditors with two benchmark groups in
South Korea (a sample that adopted the policy voluntarily and the other consisting of
mandatory rotation). The study discovered that the audit quality of the mandated rotation firm
sample is poorer than that of the firms that voluntarily accepted the policy by using accrualbased measures as the audit quality measure. Kusrina and Yulivani (2016) looked into
Indonesian auditor switching variables. They looked at variables such management turnover,
company size, financial difficulty, audit fee, and ROA. They chose 17 banks from the 2009–
2013 timeframe that were listed on the Indonesian Stock Exchange using selective selection.
4
EFFECT OF AUDITOR SWITCH DECISIONS ON FINANCIAL PERFORMANCE OF QUOTED FIRMS IN NIGERIA
Okerekeoti, Chinedu U & Ezeiofor, Raymond A.
To test their theories, they employed logistic regression. The findings revealed that the only
factor significantly influencing auditor changeover was management turnover. Additional
factors like firm size, financial difficulty, audit fee, and ROA were not statistically significant.
Olowookere and Inneh (2016) examined the factors influencing the selection of auditors
among listed industrial businesses in Nigeria. Primary data for the study were gathered using
a structured questionnaire administered as part of a survey research methodology. Both
descriptive and inferential statistics were used to analyze the data. The hypothesis was
examined using logistic regression. The findings indicated that international coverage and a
company's history of working with its present auditors are the two most crucial criteria that
affect the choice of auditors. Al Ani and Mohamed (2015) investigated how auditor quality—
both big four and non-big four—affected the financial and marketing performance of firms in
the Sultanate of Oman's industrial, financial, and service sectors. The annual reports for 112
businesses listed on the Muscat Securities Market (MSM) between 2009 and 2013 were
examined for the study. The results of statistical study show that there are positive correlations
and regressions between the Big/non-Big four, ROE, and Market fair value of shares at a 5%
level of significance (MFV). The Big/Non-Big Four has a substantial impact only on MFV in
the Industrial sector, according to the MANOVA test. The other dependent variables are
unaffected by Big/Non-Big Four. In the United Kingdom, Randal, Suzanne and Reck (2015)
investigated the link between audit firm rotation data and audit quality using regression tool.
Findings of the study showed that rotation policies are indirectly linked with higher audit
quality. Farouk and Hassan (2014) looked at the influence of audit quality on the financial
performance of quoted enterprises in Nigeria. Data were gathered from the four companies
that make up the study's sample's published annual reports, accounts, and notes to the financial
statements. The results demonstrated that the financial performance of listed cement
manufacturers in Nigeria is significantly impacted by the auditor size and auditor
independence. However, auditor independence has a greater impact on financial success than
auditor size.
Methodology
The purposive sampling technique was employed in selecting the numbers of firms from the
manufacturing sector in Nigeria; bearing in mind the data requirements needed for the analysis.
Thus, any firms whose required data are incomplete or unavailable were eliminated from the
sample. Seventy-five (75) firms in Nigeria were selected.
The data were extracted from the annual reports and accounts of the selected firms. The
statement of financial position and comprehensive incomes provided data used in computing
the selected ratios. The data obtained encompassed auditor switch decisions (measured using
Big-4 and non-Big-4 audit firms), corporate performance (Tobin’s Q) and control variables audit fee Data were sourced during the period 2012-2020.
5
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Model Specification
The following models were estimated to investigate the association between auditor switch
decisions and company performance in Nigeria. Using the Hair, Black, Babin, Anderson, and
Tatham (2006) model, which is stated in equations as below:
TOBIN Qit = ɳ0 + ɳ1BIG4it + ɳ2ADFIt + ∑t
Where:
TOBINQ
BIG4 =
ADF =
t
=
ɳ0
=
ɳ 1-2 =
…………………..…i
=
Tobin’s Q;
Big-4 and non-Big4 audit firm;
Audit fee;
Time dimension of the variables;
Constant or intercept;
Coefficients to be estimated or the coefficients of slope parameters.
Methods of Data Analysis
The study employed several techniques to analyse the data. First, descriptive statistics were
computed such as mean, median, standard deviation, minimum, maximum values, skewness,
kurtosis and correlation matrix, and inferential statistics such as Regression analysis test was
performed.
Decision rule
Using SPSS, 5% is considered a normal significance level. The accept/reject criterion was
based on the p-value, alternative hypothesis will be accepted. If p-value > 0.05 otherwise reject
and accept the null hypothesis.
Results and Discussion of Findings
Table 1: Descriptive Analysis
Mean
Median
Maximum
Minimum
Std. Dev.
Skewness
Kurtosis
Jarque-Bera
Probability
Sum
Sum Sq. Dev.
Observations
TOBIN_Q
1.520811
1.617200
2.146000
0.717900
0.415448
-0.613543
2.898153
0.568541
0.752563
13.68730
1.380777
9
BIG4
0.555556
1.000000
1.000000
0.000000
0.527046
-0.223607
1.050000
1.500938
0.472145
5.000000
2.222222
9
ADF
0.025156
0.024200
0.036500
0.012800
0.008904
0.048296
1.481229
0.868498
0.647751
0.226400
0.000634
9
Table 1 shows the mean (average) for each of the variables, their maximum values, minimum
values, standard deviation and Jarque-Bera (JB) statistics (normality test).The result in Table
1 provided some insight into the nature of the selected Nigeria quoted banks that were used in
this study.
6
EFFECT OF AUDITOR SWITCH DECISIONS ON FINANCIAL PERFORMANCE OF QUOTED FIRMS IN NIGERIA
Okerekeoti, Chinedu U & Ezeiofor, Raymond A.
It was observed that on the average over the nine (9) year period (2012-2020), the sampled
quoted firms in Nigeria were characterized by positive average TOBIN Q (1.52). It was also
observed that the average audit switch decision (BIG4) value over the period was 0.56; the
maximum value was 1.000 while the minimum stood at 0.00. While the audit fee (ADF) has
an average of 0.03 with maximum value of 0.04 and minimum value of 0.01. In Table 1, the
Jarque-Bera (JB) which test for normality or the existence of outlier or extreme values among
the variables shows that all our variables are normally distributed. This also implies that a least
square regression can be used to estimate the pooled regression models.
Table 2: Pearson Correlation Matrix
TOBIN_Q
BIG4
ADF
TOBIN_Q
1
0.76426
0.17373
BIG4
ADF
1
0.68779
1
Source: Researcher’s Computation via E-View 9.0, 2022
Table 4.2 showed the Pearson correlation matrix for auditor switching decisions measures
(ADF, BIG4) and corporate performance measure of TOBIN Q. The results revealed that the
correlation between auditors switching decision and corporate performance is positive. This
implies that during the studied period, TOBIN Q moved together in similar direction
(negatively) with auditors switching decision, particularly there is a positive correlation
between TOBIN Q and auditor switching decision.
Test of Hypothesis
H0:
Auditor switch decisions have no significant effect on Tobin’s Q of manufacturing
firms in Nigeria.
Table 3: Regression Results for Auditor Switching Decision and Tobin’s Q
Dependent Variable: TOBIN_Q
Method: Least Squares
Date: 06/23/22 Time: 22:54
Sample: 2012 2020
Included observations: 9
Variable
Coefficient
Std. Error
t-Statistic
Prob.
C
BIG4
ADF
1.768831
0.964523
-31.16075
0.232280
0.188535
11.15950
7.615069
5.115879
-2.792307
0.0003
0.0022
0.0315
R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)
0.819133
0.758844
0.204017
0.249737
3.360118
13.58675
0.005917
Mean dependent var
S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat
7
1.520811
0.415448
-0.080026
-0.014285
-0.221896
1.536891
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
In table 3, a ordinary least square regression analysis was conducted to test the effect between
audit switch decision (BIG4) and financial performance (TOBIN Q). Adjusted R squared is
coefficient of determination which tells us the variation in the dependent variable due to
changes in the independent variable. From the findings in the table 3, the value of adjusted R
squared was 0.759, an indication that there was variation of 76% on TOBIN Q due to changes
in BIG4. This implies that only 76% changes in TOBIN Q of the companies could be
accounted for by audit switch decision, while 24% was explained by unknown variables that
were not included in the model.
The probability of the slope coefficients indicate that; P-value =0.002<0.05). The co-efficient
value of; β1= 0.964523; t = 5.115879 for BIG4, implies that audit switch has a positive
statistically significant effect on financial performance of the firms. Also, P-value
=0.032<0.05); co-efficient value of β1= -31.16075; t = -2.792307 for audit fee (ADF), the
control variable implies that audit switch has a negative statistically significant effect on
financial performance of Nigerian firms
The implication is that, for there to be a unit increase in BIG4 there will be 0.965 multiplying
effect increase of TOBIN Q.
The Durbin-Watson Statistic of 1.536891 suggests that the model does not contain serial
correlation. The Akaike info criterion of the BIG4 regression is equal to -0.080026 and the
associated Schwarz criterion is equal to -0.014285, so the null hypothesis was rejected and the
alternative hypothesis was accepted.
Decision
Since the P-value is less than the critical value of 5% (0.05), then, it would be upheld that audit
switch decision is significantly affect financial performance of firms in Nigeria.at 5% level of
significance, thus, H1 is preferred over Ho.
Conclusion and Recommendation
Conclusion
This study investigated how certain dynamics influences corporate performance of quoted
non-finance companies in Nigeria from 2012-2020. As auditors are the direct users of
accounting information, the question of whether and how these dynamics (big-4 and non big4 audit firms, audit fee) affect firm’s performance. The results suggest that corporate
performance variable of Tobin’s Q increases significantly as a result of the switch to big-4
audit firms, or perhaps due to the audit fee paid by management to the auditors.
Recommendation
On the basis of the finding, the study recommended that auditor switch decisions do not
significantly affect Tobin’s Q Thus, Nigerian firms should evaluate the quality of the auditor
before switching so that the market share (Tobin’s Q) of their firms will significantly boost
further.
8
EFFECT OF AUDITOR SWITCH DECISIONS ON FINANCIAL PERFORMANCE OF QUOTED FIRMS IN NIGERIA
Okerekeoti, Chinedu U & Ezeiofor, Raymond A.
References
Addams, H.L., and Davis, B. (1994). Privately held companies report reasons for selecting and
switching auditors. The CPA Journal, 64(8), 38-42.
Al-Ani, M.K., and Mohammed, Z.O. (2015). Auditor quality and firm performance: Omani
experience. European Journal of Economics, Finance and Administrative Sciences, 74,
13-23.
Cassell, C. A., Giroux, G. A., Myers, L. A., and Omer, T. C. (2012). The effect of corporate
governance on auditor-client realignments. Auditing: A Journal of Practice &
Theory, 31(2), 167-188.
Chadegani, A. A., Mohamed, Z. M., and Jari, A. (2011). The determinant factors of auditor
switch among companies listed on Tehran Stock Exchange. International Research
Journal of Finance and Economics, 80(1), 158-169.
Chen, J., Rong-Ruey, D., Cheng-Ta, W. and Lin-Hui, Y. (2019). Macroeconomic uncertainty
and audit pricing. Accounting Horizon, 33(2), 75-97.
Choi, J. H., and Wong, T. J. (2007). Auditors' governance functions and legal environments:
An international investigation. Contemporary Accounting Research, 24(1), 13-46.
Choi, J., Lim, H., and Mali, D. (2017). Mandatory audit firm rotation and big4 effect on audit
quality: evidence from South Korea. Asian Academy of Management Journal of
Accounting and Finance 13(1), 1–40.
Collis, J., Jarvis, R., and Skerratt, L. (2004). The demand for the audit in small companies in
the U.K. Accounting & Business Research, 34(2), 87-100.
Datar, S. M., Feltham, G. A., and Hughes, J. S. (1991). The role of audits and audit quality in
valuing new issues. Journal of Accounting and Economics, 14(1), 3-49.
DeAngelo, L. E. (1981) Auditor size and audit quality. Journal of Accounting and Economics,
3(3), 183–199.
Farouk, M. A., and Hassan, S. U. (2014). Impact of audit quality and financial performance of
quoted cement firms in Nigeria. International Journal of Accounting and Taxation, 2(2),
01-22.
Gharibi, A. K., and Geraeely, M. S. (2016). Investigating the effective factors on changing
auditor: evidences of Iranian firms. Problems and Perspectives in Management, 14(3),
401-406. doi:10.21511/ppm. 14(3-si).2016.14.
Gray, G. L., and Ratzinger, N. V. (2010). Perceptions of preparers, users and auditors
regarding financial statement audits conducted by Big 4 accounting firms. International
Journal of Disclosure and Governance, 7(4), 344-363.
Gwizu, K., Waeni, G., Chimanga, D., Saidi, E. And Karasa, N. (2017). Mandatory audit firm
rotation and audit quality in Zimbabwe. Research Journal of Finance and Accounting,
8(6), 34-41.
Hamza, K.Q., Wan, A.E., Norfadzilah, R., Razana, J.J. Nadiah, A.H. and Zarinah, A.R. (2018).
Auditor tenure, audit firm rotation and audit quality: A literature review. International
Journal of Academic Research in Business and Social Sciences, 8(12), 1314-1324.
Herly, M. and Sisnuhadi. S. (2011). Corporate governance and firm performance in Indonesia.
International Journal of Governance, 1(1), 1–20.
Hussein, K. (2018). An empirical investigation into the pricing of audit services in Bahraini
listed companies. International Journal of Accounting and Taxation,6(1), 92-101.
9
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
International Accounting Standards Board [IASB], (2005). Framework for the preparation
and presentation of financial statements (Framework). In: International Financial
Reporting Standards (IFRSs), United Kingdom: IASCF.
Ismail, S., Aliahmed, H. J., Nassir, A. M., and Hamid, M. A. A. (2008). Why Malaysian second
board companies switch auditors: evidence of Bursa Malaysia. International Research
Journal of Finance and Economics, 13(13), 123-130.
Jubb, C. A. (2000). Choosing an auditor: Corporate governance, interpersonal associations
and investor confidence (Unpublished doctoral dissertation).
Department of
Accounting, University of Melbourne.
Kusrina, B. L., and Yulivani, P. (2016). Analysis of factors affecting auditor switching.
Advances in Global Business Research, 13(1), 2463-2470.
Lin, Z. J., and Liu, M. (2009). The determinants of auditor switching from the perspective of
corporate governance in China. Corporate Governance: An International Review, 17(4),
476-491.
Nzomo, N. (2002). Basic Accounting: Fundamental Principles and Procedures. Nairobi
University Press.
Okere, W., Ogundipe, U. L., Oyedeji, L. Q., Eluyela, D. F., and Ogundipe, K. E. (2018).
Auditors’ choice and financing decision of selected quoted firms in
Nigeria. International Journal of Management, Accounting and Economics, 5(2), 66-77.
Olowookere, J. K., and Inneh, G. E. (2016). Determinants of external auditors choice in
Nigerian quoted manufacturing companies. Kuwait Chapter of the Arabian Journal of
Business and Management Review, 5(9), 10-22.
Quick, R. (2012). EC green paper proposals and audit quality. Accounting in Europe, 9(1), 1738.
Randal, J.E., Suzanne, L. and Reck, J.L. (2015). Audit firm rotation, auditor specialization,
and audit quality in the municipal audit context. Journal of Governmental and Nonprofit
Accounting, 5(2015), 73-100.
Sook, M.K, Seon, M.K, Dong, H.L and Seung W.Y. (2019). How investors perceive
mandatory audit firm rotation in Korea. Sustainability, 11:2-17.
Stergiou, E. (2013). Determinants of auditor choice in the European market (Unpublished
Master’s Thesis).School of Economics and Business Administration, International
Hellenic University.
Utomo, D., Zaky, M. and Imang, D.P. (2019). The effect of auditor switching and managerial
ownership on fraudulent financial statement. WSEAS Transactions on Business and
Economics, 16(1), 306-315.
Wahla, K.U.R., Shah, S.Z.A., and Hussain, Z. (2012). Impact of ownership structure on firm
performance evidence from non-financial listed companies at Karachi Stock Exchange.
International Research Journal of Finance and Economics,84, 6-13.
World Bank (2011). Nigeria - Report on the observance of standards and codes (ROSC).
Washington, DC: World Bank. Available online at http://documents.wo
rldbank.org/curated/en/440581468099577387/Nigeria-Report-on-the-observance-ofstandards-and-codes-ROSC [Accessed 18 January, 2019].
10
Journal of Accounting
Vol. 11 (1) January - June 2022
HUMAN RESOURCE MANAGEMENT AND SUSTAINABLE
DEVELOPMENT
Musa, Success Jibrin
Department of Accounting, Faculty of Management Sciences, Veritas University, Abuja.
musas@veritas.edu.ng
Abstract
Measuring and equating sustainability in an uncontrollable environment both in a short or long term
performance is important issues globally especially from business perspective. The study sought to find
out some important issues concerning “organizational or company “sustainability and the role Human
Resources is playing”. The study adopted the survey research design. It was conducted using information
gathered from five viable companies in Nigerian. The population of the study was made up of 100
Human Resource managers from target manufacturing companies. The hypothesis was tested using the
spearman’s rank correlation coefficient that was subject to significant test using student t- test. the study
established that a sustainable Human Resource Management involves developing employees, managing
Human Resource issues, strategically taking employees on capacity building, conducive work life,
incentives, cooperation, job promotion and employment in the work environment is also considered very
crucial.
KEYWORDS:
Sustainable Development, Human Resources
Environment and Managing Personnel.
Management,
Work
Introduction
Human resources are widely acknowledged as the most significant of the resources required
for the creation of products and services, as well as the key to quick socioeconomic
development and effective service delivery. In other words, if human resources are
underutilized, goods and services will never be available. If human resources are not present,
other factors of production are rendered useless and ineffective. This emphasizes the
importance of human capital. Researchers in the twenty-first century have identified
"sustainability as a critical issue for business and the global community" (Anderson 2014).
Sustainability" means different things to different individuals, but in essence it means
"fulfilling people's needs today without jeopardizing future generations' ability to meet their
own needs" (World Business Council for Sustainable Development, 2005). Sustainability has
been characterized as "a Company's capacity to fulfil its business goals and increase long-term
shareholder value by incorporating economic, environmental, and social potential into its
business plans" from a business perspective (Hammond, 2012).
Human capital is an important aspect in the production of goods and services, so when it is
given its proper place, various aspects of people management, such as a pleasant working
environment, safety, health, and diversity, among others, can be used as a criterion to
determine if a company is following a sustainable business model.
In the light of the above, the following hypotheses stated in their null form have been
formulated for testing:
11
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
i.
ii.
iii.
There is no significant relationship between human resource management and
sustainable development.
The company does not explicitly emphasized in the social, environmental aspect of
sustainability.
Human resource manager and function does not play any sustainability in our company
Review of Related Literature
Human Resource Management
Human resource management is concerned with finding the best possible employees for a
company and then caring for them so that they will want to stay and do their tasks to the best
of their abilities (Cuming 2018). This means that finding the proper personnel through the
recruitment process to satisfy the organization's needs isn't enough. It is necessary to establish
conditions that will encourage people to stay on the job, be happy on the job, and cope with
the responsibilities of the job.
Human resource management, according to Mathis and Jackson (1997) in Onah, is the
establishment of formal procedures in an organization to assure the effective and efficient use
of human abilities to achieve organizational goals. Human resource management, according
to Griffin (1997), is a set of organizational actions aimed at attracting, developing, and
sustaining an effective workforce.
Sustainability
The word "sustainable" conjures up a plethora of images in the minds of academics, business
leaders, and others. It focuses primarily on resource depletion; however, others argue that
sustainability also includes irreversible pollution, environmental conservation, and other
environmental and ecological issues. Aspects of human life and human well-being are among
them.
From so many definitions given above, though might differ in scope, it is now widely accepted
that sustainability comprises of three elements as
Use human beings
The environment, the ecosystem in which we live
The economy, which enables us to do what we do
To attain sustainability, the overall value of actual human, environmental, and economic wellbeing must at least be constant. As a result, trade-offs between the three are tolerated as long
as the entire amount remains stable. In contrast to strong sustainability, this strategy is known
as weak sustainability. Only when all three elements have reached the degree of sustainability
can sustainability be accomplished. Not all three aspects of personal and environmental wellbeing can be accomplished. Economic well-being is a means of achieving and maintaining
long-term sustainability.
The sustainable society is a creature that lives within the environment's self-perpetuating
boundaries. That civilization is not one of "no growth." Rather, it is a civilization that
12
HUMAN RESOURCE MANAGEMENT AND SUSTAINABLE DEVELOPMENT
MUSA, SUCCESS JIBRIN
understands the limits of expansion and seeks out new methods to expand. (2016, Silly).
Development that is expected to meet long-term human requirements and increase the quality
of life is known as sustainable development (Allen, 2014)
The Importance of Sustainable Human Resource Management
The necessity of managing people and the concept of sustainability can both be considered
when considering sustainability in human resource management methods. Human capital has
been acknowledged as a vital component of corporate performance. A large number of studies
on human resource management and organizational performance or development have been
conducted. The competencies and knowledge contained in an organization's human resources,
according to Brewster (2012), are critical to success. Highly qualified employees, on the other
hand, appear to be dealing with more work-related stress, work-life conflict, health issues, new
employment relationships, or a lack of employability.
The lens of sustainability has been chosen to examine the implications of these developments
on human resource management. Recruitment and retention of top people, development of
vital competencies, motivation, rewards for exceptional performance, employability, lifelong
learning, demographic trends, aging workforces, employee health, safety, and quality of life
are all possible subjects. (According to Boudreau and Ramstad (2015), sustainability is not an
afterthought. Shell, British Petroleum (BP), the United Nations (UN), and the International
Labour Organization (ILO) are all committed to long-term human resource management.
According to research, effective employee involvement is required to successfully incorporate
the economic, environmental, and social obligations of sustainability into every business
operation (Psilou, 2011). Finding the impulses that push individuals to be more devoted to a
company, their supervisor, and the team as a whole is the difficulty. When aiming to have a
corporation perform responsibly in all three sustainability dimensions: environmental, social,
and economic, sustainability specialists must ensure employee engagement (Pojasek, 2010).
Approaches to Sustainable Human Resource Management
"Those long-term oriented conceptual approaches and activities aiming at a socially
responsible and economically adequate recruiting and selection, development, deployment,
and release of personnel," according to a sustainable human resource management scheme.
Individuals and companies are viewed as equal participants in their sustainable human
resources management strategy (Mosev & Saxer, 2014). The creation, development, and
preservation of future-oriented abilities that contribute to the firm's increased value, individual
employee employability, and consideration of societal values are at the heart of sustainable
resource management. Participatory flexibility, value added-oriented, challenging grouporiented, and strategically competence-oriented human resource management are all required
for long-term success.
In Weve, (2013) highlighted three key pillars in the management of people with reference to
sustainability: work-life balance, personal autonomy in professional development, and worker
13
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
employability. If these three pillars are included as fundamental objectives in a model of
sustainable human resource management, the author believes that they will improve selfawareness and identification, develop abilities and potential, and increase human capital in a
business. They also discovered the preferences of present employers. As a result, having
sustainable resource management methods has three effects: a long-term supply of talented
and motivated employees for businesses, a prolonged competitive edge, and economic value
generated.
Methodology
The survey method was used in this investigation. According to the researchers, this research
method was superior because it attempted to determine the relationship between existing
variables, human resources, and long-term development. Using spearman's rank correlation
coefficient, the study's population consisted of 223 human resources managers or senior
management employees from ninety (90) successful registered companies in Nigeria. to
significance test using student t-test.
Spearman’s rank (r) = 1 - 6£d2
M(n2 – 1)
Table 1 Variable and their possible measuring instrument
Variables
Human Resource Management
Sustainable Development
Measuring Instrument
Employee satisfaction, motivation, loyalty,
retention
Market value, market share, customer
satisfaction, investment sales
Data Presentation, Analysis and Finding
Hypothesis One
HO: There is no positive significant relationship between human resource management and
sustainable development
14
HUMAN RESOURCE MANAGEMENT AND SUSTAINABLE DEVELOPMENT
MUSA, SUCCESS JIBRIN
Table 2: Collected Data for Test of Hypothesis One
Question 1
2
3
Total 4
table
(1-3)
1
4.1.1
13
18
30
61
0
2
4.1.2
11
20
25
56
34
3
4.1.3
18
22
30
71
13
4
4.1.4
8
15
12
35
76
5
4.1.5
13
34
20
67
8
6
4.1.6
9
19
15
43
42
7
4.1.7
13
19
30
62
4
8
4.1.8
10
16
25
51
81
9
4.1.9
9
16
28
53
10
4.1.10
8
12
19
39
95
Y
61
56
71
35
67
43
62
51
53
39
X
162
133
139
112
148
138
142
91
116
89
Rank Y
7
6
10
1
9
3
8
4
5
2
5
6
7
42
38
37
41
58
47
59
19
42
31
54
49
49
36
51
51
48
39
50
35
66
46
53
35
39
40
50
33
24
23
Rank X
10
5
7
3
9
6
8
2
4
1
D
-3
1
3
-2
0
-3
0
2
1
1
1
2
3
4
5
6
7
8
9
10
Total
Source: Computed from the responses of the human resources managers
rs = 1 - 6£d2
n(n2-1)
rs = 1 – 6(38)
n(102-1)
rs = 1 – 228
990
rs = 1 – 0.220
rs = 0.770
t = r √n – 2
1 – r2
t = 0.770 √10 – 2
1 – 0.7702
t = 0770 √8
1 – 0.593
15
Total
(5-7)
162
133
139
112
148
138
157
91
116
89
D2
9
1
9
4
0
9
0
4
1
1
38
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
T = 0.770 √ 8
0.407
T = 0.770 √19.66
T = 0.770 x 4.434
= 3.415
Therefore,
tc = 3.415
Df = n – 2
Df = 10 – 2 = 8
Tt = 2.326
Interpreting the Spearman Rank correlation coefficient and student t-test for hypothesis one.
In the test of hypothesis one, the result exposed that human resource management was
positively related to sustainable development. The correlation coefficient of 0.770 was a far
positive correlation (0.5 ≤ r ≤ 0.8). Obviously human resource management were directly
related to sustainable development at 8 degree of freedom and 0.05 level of significance, the
t-table value (tt = 2.306) was compared with the obtained values of t calculated (tc = 3.415).
Thus the obtained valued reviewed that tc> tt, the researchers hereby reject null hypothesis and
accept alternative hypothesis indicating that the degree or strength of the relationship or
association between human resources management and sustainable development was
positively and significantly related.
Hypothesis Two
Ho: The Company does not explicitly emphasized in the social environmental aspect of
sustainability
Table 2: Collected data for Test of Hypothesis Two
Question 1
2
3
Total
table
(1-3)
1
4.1.11
13
17
20
50
2
4.1.12
2
5
7
14
3
4.1.13
4
7
10
21
4
4.11.4
16
24
31
71
5
4.1.15
14
19
26
59
6
4.1.16
11
22
30
63
7
4.1.17
3
7
9
19
8
4.1.18
10
16
20
46
9
4.1.19
6
11
15
32
10
4.1.20
9
12
18
39
16
4
5
6
7
50
81
86
12
56
14
96
40
61
50
35
45
51
54
32
47
31
42
53
58
47
48
37
38
36
53
47
46
44
39
41
35
28
48
40
46
30
49
33
37
Total
(5-7)
123
128
116
140
108
146
108
137
130
134
HUMAN RESOURCE MANAGEMENT AND SUSTAINABLE DEVELOPMENT
MUSA, SUCCESS JIBRIN
Y
50
14
21
71
59
63
19
46
32
39
X
123
128
116
140
108
146
108
137
130
134
Rank Y
7
1
3
10
8
9
2
6
4
5
Rank X
4
5
3
9
1.5
10
1.5
8
6
7
D
3
4
0
1
6.5
-1
0.5
-2
-2
-2
1
2
3
4
5
6
7
8
9
10
Total
Source: Computed from the responses of the human resources managers
rs = 1 - 6£d2
n(n2-1)
rs = 1 – 6(81.5)
n(102-1)
rs = 1 – 489
990
rs = 1 – 0.4949
rs = 0.506
t = r √n – 2
1 – r2
t = 0.506 √10 – 2
1 – 0.5062
t = 0.506 √ 8
1 – 0.256
T = 0.506 √ 8
0.744
T = 0.506 √10.753
T = 0.506 x 3.279
= 1.659
Therefore,
tc = 1.659
df = n – 2
df = 10 – 2 = 8
tt = 2.306
17
D2
9
16
0
1
42.25
1
0.25
4
4
4
81.5
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Interpreting the spearman rank correlation coefficient and student t-test for hypothesis two
The result obtained from the test of hypothesis two revealed that the company does not
explicitly emphasize in the social, environmental aspect of sustainability. The correlation
coefficient of 0.506 however was a fair positive correlation (0.5 ≤ r ≤ 0.8). Hence the company
explicitly emphasize in the social, environmental aspect of sustainability at 8 degree of
freedom and 0.05 level of significance, the t-table value (tt = 2.306) was compared with the
obtained values of t calculated (tc = 1.659).
Conclusion
Human resource managers and top executive managers are now aware of the need of
sustainability, which has given management a new dimension. The introduction of
sustainability in the workplace is based on social, economic, and environmental
considerations. This paper has analyzed sustainable human resource management as an
important tool that can drive organizational goal both in long and short term.
Most companies in Nigeria looked at sustainable human resources management as that which
involves building people, managing human resource issues strategically, innovating and
considering employee welfare, they also consider that companies embrace innovative concept
of sustainable human resources management and in the image of the company value
proposition, work-life and health related issues
References
Anderson RC& Jickt (2000)’The study and practice of sustainability Development”,
Management Journal 9(1): 41-48.
Hammond A., (2002) “Serving the world’s poor, profitability”, Harvard Business Review,
September: 48-57
Sully, M.F (2005). The complexity of managing human resource: Journal of human resource
management 4 (2) 110-122
Silly, J. (2006) Sustainability Issue in Human Resource management: Linkages, theoretical
approaches, and outlines for an emerging field 21st LASM SHRM Workshop, Aston
Birminghani.
Boudreau, J.& Rainsatd, S. (2005) Sustainability and the Talentship Paradigin: Strategic
Human Resource Management Beyond the Bottom Line. Journal of Human Resource
Management 6 (3) 146-158
Pojasek, R.B. (2010). The Three Responsibilities. Environmental Quality Management. Vol.
19, Pp 87-94
Psilou A. (2011) Incentive for Effective Employee Engagement in Corporate Sustainability.
(online) http”//www.sustainabilityconsulting.com
Weve., M. (2003) Multiple Levels of Corporate Sustainability. Journal of Business Ethics.
Vol. 44 (6) Pp 96-110.
Ehnert, I.P. (2009) Sustainable Human Resource Management: A Conceptual and Exploratory
Analysis from a Paradox Perspective. Bremen.
Mosev R. & Saxer A. (2004). Retention-Management for High Potential. Journal of Human
Resource. Vol. 5 (3) 112-125
Onah, F.O. (2008). Human Resource Management. 2nd edition, John Jacob’s Classic Publisher
Ltd. Plot 7 Fmr ESUT Road by Nkpokiti Junction, Enugu.
18
Journal of Accounting
Vol. 11 (1) January - June 2022
EFFECT OF OWNERSHIP STRUCTURE ON SUSTAINABILITY
REPORTING ASSURANCE PRACTICE: EVIDENCE FROM QUOTED OIL
AND GAS FIRMS IN NIGERIA
Okoye, Pius Vincent Chukwubuikem1, Amahalu, Nestor Ndubuisi 1 Okoye, JaneFrances Nwamaka2, Obi, Juliet Chinyere3
1
Department of Accountancy, Nnamdi Azikiwe University Awka, Anambra State, Nigeria.
Department of Entrepreneurship, Nnamdi Azikiwe University Awka, Anambra State, Nigeria
3
Department of Accountancy, University of Nigeria, Enugu Campus, Enugu
2
Corresponding Author:
Amahalu, Nestor Ndubuisi, nn.amahalu@unizik.edu.ng
Abstract
This study ascertained the effect of Ownership Structure on Sustainability Reporting Assurance Practice
of quoted Oil and Gas firms in Nigeria from 2010-2019. Ex-post facto research design was used for this
study. Secondary data were sourced from the published financial statements of sample firms. Inferential
statistics of the hypotheses were carried out with the aid of E-view 10.0 statistical software using Pearson
correlation coefficient and Binary Prohibit Regression models. Findings of this study showed that
institutional ownership and majority ownership have a significant positive effect on at 5% level of
significance respectively. It was recommended that firms should develop a strong corporate governance
structure which would help the firms to foster their sustainability reporting practices.
Keywords: Ownership Structure, Institutional Ownership, Majority Ownership, Foreign
Ownership, Sustainability Reporting,
Introduction
Sustainability reporting has become a global standard practice among many companies, and a
main driving force is identified as increased legislation, requiring companies to publish nonfinancial information in addition to the financial statements. Investors and other stakeholders
are increasingly urging companies to become more responsible and accountable for the
impacts of their decisions and activities on the environment and society, and to publish
information on sustainability performance in sustainability or corporate social responsibility
reports. At the same time, however, they also question the credibility and reliability of the
performance information disclosed in these sustainability reports. In response to concerns
relating to the credibility of the sustainability information disclosed, there has been a growing
tendency for companies to have their sustainability reports voluntarily assured by an
independent third party (Amahalu, Okoye & Obi, 2018). Voluntary independent third-party
assurance on corporate sustainability reports can help improve stakeholders’ confidence in the
credibility of the sustainability information provided and thus enhance the corporate
reputation. In addition, the process of independent assurance may induce companies to
improve their risk management and accounting information systems to produce and disclose
more reliable and accurate sustainability information, and strengthen companies’ commitment
to sustainability (Pobbi Atta & Quarm, 2020). Furthermore, improved reporting processes and
19
JOURNAL OF ACCOUNTING VOL 11 NUMBER, 2022
the disclosure of higher quality sustainability information may drive sustainable value
creation, which might positively influence companies’ competitive position (Al-Shaer, 2020).
However, in the absence of regulation of sustainability reporting and assurance on
sustainability reports, managers voluntarily decide whether or not to employ independent third
parties to provide assurance on their companies’ sustainability reports. Firms may use thirdparty assurance as a risk management tool to actively manage investors’ and other
stakeholders’ perceptions of the credibility of the corporate sustainability performance
information disclosed. Thus, independent third-party assurance helps to deflect attention from
bad sustainability performance, reduce legitimacy risks, confer greater confidence among
stakeholders, and prevent interventions (Amahalu & Obi, 2020).
Ownership structure is considered as an important corporate governance mechanism to resolve
the conflict arising between the managers and shareholders. How ownership structure affects
the firm performance is one of the major issue of concern for the policymakers, economists
and that of a company as well. The corporate governance field addresses a variety of subjects
with environmental and financial performance. Now, corporate financial and non-financial
irregularities and failed environmental performance have led to the introduction of new rules
and standards for corporate accountability and transparency, such as environmental
committees and reporting, and an environmental expert’s inclusion in a company’s board
(Mahmood, Kouser & Masud, 2019). Therefore, a corporate governance structure play active
role to change ownership, and board structure has refocused the scene to add social and
ecological issues to the corporate management plan. The current business world is vulnerable
in terms of climate issues, such as global warming; thus, strong and creative corporate
governance structures and applications are crucial to solve the prevailing environmental
challenges.
The socio-economic and political realities of emerging and developing economies are different
from those of the developed economies. According to the IMF (2019), emerging and
developing economies are the most rapidly expanding, and hence the most lucrative growth
markets for business. However, it is in these countries where the social and environmental
crises are usually most acutely felt in the world. However, third-party assurance is a costly
process (Amahalu, Ezechukwu & Obi, 2017). According to economics-based theory,
companies will trade off the relative costs and benefits of assurance on sustainability reports
and employ third parties only if the expected benefits outweigh the costs. Independent thirdparty assurance aims to ensure that the corporate sustainability performance (CSP) information
disclosed in sustainability reports is, in all material respects, reliable and accurate, and in
compliance with reporting standards. For this reason, the information disclosed must be
verifiable. For superior performers, third-party assurance is an effective signal to positively
differentiate themselves. At the same time, the management of companies with a superior
CSP, on average, might be more experienced with the process of sustainability reporting and
more confident in their reporting quality (e.g. data quality, accuracy) relative to those from
companies with an inferior performance. For the management of companies that lag behind,
the process of external assurance might be more time consuming and costly, but it might also
20
EFFECT OF OWNERSHIP STRUCTURE ON SUSTAINABILITY REPORTING ASSURANCE PRACTICE:
EVIDENCE FROM QUOTED OIL AND GAS FIRMS IN NIGERIA
OKOYE, PIUS VINCENT CHUKWUBUIKEM; AMAHALU, NESTOR NDUBUISI; OKOYE, JANE-FRANCES
NWAMAKA
be more uncertain whether they would survive the assurance process without issues. In
addition, monitoring compliance with reporting standards makes it more difficult to manage
and mask bad CSP. CSP disclosure in compliance with standards may increase the likelihood
that stakeholders detect that the company’s CSP is inferior, which may reduce the company’s
legitimacy and stakeholder trust, damage the company’s reputation, and increase the
likelihood of outside intervention.
Previous studies have attempted to identify the relationship between ownership structure and
sustainability reporting assurance practice, yet no consensus has been reached to that effect by
extant strands of literatures. One strand of literatures (Festus, Rufus & Janet, 2020;
Kilincarslan, Elmagrhi & Li, 2020) reported a positive relationship between ownership
structure and sustainability reporting. Another strand of literatures (Amahalu, Okoye, Obi &
Iliemena, 2019; Ouvrard, Jasimuddin & Spiga, 2020) evidenced the existence of a negative
relationship between ownership structure and sustainability reporting, while a third strand of
literatures (Puni & Anlesinya, 2020).) found no significant relationship between ownership
structure and sustainability reporting, thus, causing a lacuna which this study tends to fill.
More so, the predominant focus of prior studies has been on ownership structure and
sustainability reporting, but the primary concentration of this present study is ownership
structure and sustainability reporting assurance practice, thereby resolving the variable, hence,
the need for this study.
Considering the above issues, the researchers formulated the below hypothesis in its null form
to guide the investigation:
Ho1: Ownership structure has no significant effect on stand-alone sustainability report of
quoted oil and gas firms in Nigeria.
Review of Related Literature
Ownership Structure
Ownership structure is the relative amounts of ownership claims held by insiders
(management) and outsiders (investors with no direct role in the management of the firm
(Villalonga, 2019). Ownership structure is the internal organization of a firm that defines the
rights and duties of the people that have legal interest or stake in it. Ownership structure is the
structure that define how the ownership and control of a company is distributed (Amahalu &
Obi, 2020).
Institutional ownership
Institutional ownership refers to the ownership stake in a company that is held by large
financial organizations, pension funds or endowments. Institutions generally purchase large
blocks of a company's outstanding shares and can exert considerable influence upon its
management (Will, 2020). Institutional ownership is the amount of a company’s available
stock owned by mutual or pension funds, insurance companies, investment firms, private
21
JOURNAL OF ACCOUNTING VOL 11 NUMBER, 2022
foundations, endowments or other large entities that manage funds on behalf of others. Large
institutional investors can exert pressure on a company's management given the voting power
their shares hold (Kenton, 2020).
Institutional ownership = Number of shares held by active institutional investors / total number
of shares outstanding in the firm.
Majority Ownership
A majority shareholder is a person or entity that owns and controls more than 50% of a
company's outstanding shares (Cory, 2020). As a majority shareholder, a person or operating
entity has a significant amount of influence over the company, especially if their shares are
voting shares. Voting shares give a shareholder permission to vote on different corporate
decisions, such as who should be on the company’s board of directors. When a majority
shareholder is in possession of voting shares, the person or entity may hold significant sway
over the direction of the company (Mitchell, 2020).
Majority Ownership = 1 if the largest shareholder owns more than 50% of the votes, 0
otherwise
Sustainability Reporting
A sustainability report is a report published by a company or organization about the economic,
environmental and social impacts caused by its everyday activities (Okudo & Ndubuisi, 2021).
Sustainability reporting enables organizations to consider their impacts on a wide range of
sustainability issues. This enables them to be more transparent about the risks and
opportunities they face. Sustainability reporting is the key platform for communicating
sustainability performance and impacts. A sustainability report in its basic form is a report
about an organization’s environmental and social performance (Oshiole, Elamah & Ndubuisi,
2020). To make this reporting be as useful as possible for managers, executives, analysts,
shareholders and stakeholders. A unified standard that allows reports to be quickly assessed,
fairly judged and simply compared is a critical asset. As firms worldwide have embraced
sustainability reporting, the most widely adopted framework has been the Global Reporting
Initiative (GRI) Sustainability Reporting Framework. It can be considered as synonymous with
other terms for non-financial reporting; triple bottom line reporting and corporate social
responsibility (CSR) reporting (GRI, 2016). The value of the sustainability reporting process
is that it ensures organizations consider their impacts on these sustainability issues, and enables
them to be transparent about the risks and opportunities they face. Stakeholders also play a
crucial role in identifying these risks and opportunities for organizations, particularly those
that are non-financial. This increased transparency leads to better decision making, which
helps build and maintain trust in businesses and governments.
Sustainability Reporting Assurance
As a further step to reduce information asymmetry, third-party assurance practices are
becoming more common. An assurance of the report implies that an independent external party
accepts to verify that the report’s disclosures follow the reporting standard that the company
22
EFFECT OF OWNERSHIP STRUCTURE ON SUSTAINABILITY REPORTING ASSURANCE PRACTICE:
EVIDENCE FROM QUOTED OIL AND GAS FIRMS IN NIGERIA
OKOYE, PIUS VINCENT CHUKWUBUIKEM; AMAHALU, NESTOR NDUBUISI; OKOYE, JANE-FRANCES
NWAMAKA
has applied and that the information is trustworthy (Global Reporting Initiative 2016).The
assurance process requires supporting evidences for statements presented in the corporate
sustainability report (CSR) report. Sustainability reporting assurance (SRA) is an assurance in
which a practitioner expresses a conclusion designed to enhance the degree of confidence of
the intended users other than the responsible party about the outcome of the evaluation or
measurement of a subject matter against criteria (Internal Auditing and Assurance Standards
Board 2012).
Stand-Alone Sustainability Report
Stand-alone financial statements represent the financial position and the performance of the
company as a single entity without taking into account the financial position and the
performance of its subsidiaries (Asawa, 2017). Standalone financial statements show the
financial position of the company alone (and no other legal entity) (Ezeokafor & Amahalu,
2019).
Theoretical Exposition
Ownership Structure and Sustainability Reporting Assurance Practice
The issue of corporate governance has received considerable attention after plethora of
corporate scandals and scams of the major giants across the world. The failure of several
leading companies in Nigeria and abroad emphasized the importance of corporate governance
issues in last two decades. Corporate governance mechanisms include board parameters and
ownership structure. Ownership structure is considered as an important corporate governance
mechanism to resolve the conflict arising between the managers and shareholders. Scholars
advocate a positive impact of working with CSR argue that by including sustainability in the
operations, companies assume a more long-term focus where a sustainable growth and
development is desirable, and where interest is shown to all stakeholders (Knox, 2019; Yang
& Yan, 2020; Nosratabadi, Pinter, Mosavi & Semperger, 2020). According to Grigorescu,
Maer-Matei, Mocanu and Zamfir (2020), a failure to address sustainability issues can
potentially lead to long-term investment risks that are harmful for the company’s both present
and potential future investors. Therefore, reporting that address the way the firm is managing
its CSR activities can be argued to provide information regarding how the firm responds to its
long-term risks, and thus be of importance for, not only the firm’s shareholders, but also other
stakeholders. In contrast to these perceived benefits of sustainability reporting, other scholars
(Hu, Du & Zhang, 2020; Zou, Zeng, Xie & Zeng, 2020; Oshiole, Elamah & Amahalu, 2020)
argue instead that there is no clear connection between ownership structure and CSR.
According to these opinions, working with sustainability constitutes only an additional
expense, without corresponding added value for the firm or its shareholders (Amahalu,
Egolum & Obi, 2019; Munteanu, Grigorescu, Condrea & Pelinescu, 2020).
23
JOURNAL OF ACCOUNTING VOL 11 NUMBER, 2022
Theoretical Review
Agency Theory
Agency theory was developed by Jensen and Meckling (1976). They suggested a theory of
how the governance of a company is based on the conflicts of interest between the company's
owners (shareholders), its managers and major providers of debt finance. Each of these groups
has different interests and objective. Agency theory is a principle that is used to explain and
resolve issues in the relationship between business principals and their agents. Most
commonly, that relationship is the one between shareholders, as principals, and company
executives, as agents. Principals delegate decision-making authority to agents. Because many
decisions that affect the principal financially are made by the agent, differences of opinion,
and even differences in priorities and interests, can arise. Agency theory assumes that the
interests of a principal and an agent are not always in alignment. This is sometimes referred to
as the principal-agent problem. Corporate governance can be used to change the rules under
which the agent operates and restore the principal's interests. The principal, by employing the
agent to represent the principal's interests, must overcome a lack of information about the
agent's performance of the task. Agents must have incentives encouraging them to act in unison
with the principal's interests. Agency theory may be used to design these incentives
appropriately by considering what interests motivate the agent to act. Incentives encouraging
the wrong behavior must be removed, and rules discouraging moral hazard must be in place.
Understanding the mechanisms that create problems helps businesses develop better corporate
policy.
Empirical Studies
Mohammad, Mohamad and Ahmad (2016) examined the impact of board characteristics on
the level of corporate social responsibility disclosure (CSRD) in the Jordanian banking
sector for a sample of 147 banks/years during a period of 10 years (2004-2013). A checklist
consisting of 100 items was developed to measure the disclosure level and the result
indicated a relatively low level of disclosure in Jordanian banks. Multiple regression analysis
was employed to examine the developed hypotheses. The results indicated that the larger
board size and higher level of disclosure are correlated. However, low level of disclosure
was associated to higher proportion of independent directors and institutional directors. In
addition, female director was found to negatively affect the level of disclosure.
Kamwana and Ombati (2018) investigated the effect of selected board characteristics on
financial voluntary disclosure among manufacturing firms listed in Nairobi securities in
Exchange. Exploratory research was adopted. Correlation and regression analysis were used
to analyse the data. Results of the study revealed positive and significant relationship between
board size, independent directorship, audit committee size, gender board diversity board
ownership and financial voluntary disclosure. It was concluded that there is need to incorporate
independent board membership, match board size with company size, have fully functional
audit committee.
24
EFFECT OF OWNERSHIP STRUCTURE ON SUSTAINABILITY REPORTING ASSURANCE PRACTICE:
EVIDENCE FROM QUOTED OIL AND GAS FIRMS IN NIGERIA
OKOYE, PIUS VINCENT CHUKWUBUIKEM; AMAHALU, NESTOR NDUBUISI; OKOYE, JANE-FRANCES
NWAMAKA
Dante and Crisóstomo (2020) analyzed the effects of voting ownership concentration on the
social and environmental disclosure of Brazilian companies in their Annual Financial
Statements. Econometric models were estimated considering a sample of 1,252 annual
observations of 252 companies in the period 2010-2014, and the social and environmental
disclosure was measured through a lexical analysis performed by counting 75 words and key
expressions related to social and environmental practices. The findings suggested that the
social and environmental disclosure of Brazilian companies is positively correlated with their
voting ownership concentration. In addition, if the company is listed in the Corporate
Sustainability Index or if it is in a potentially aggressive industry with respect to the
environment, this also positively contributed to a higher degree of social and environmental
disclosure.
Methodology
Research Design
The research design employed in this study is the ex-post facto research design.
Population of the Study
The population of this study entails all the twelve (12) quoted oil and gas firms in Nigeria.
They include: 11 Plc (formerly Mobil Oil Plc); Anino International Plc; Capital Oil Plc; Conoil
Plc; Eterna Plc; Forte Oil Plc; Japaul Oil & Maritime Services; MRS Oil Nigeria Plc; Oando
Plc; Rak Unity Petroleum Company Plc; Seplat Petroleum Development Company Plc; Total
Nigeria Plc.
Sample Size and Sampling Method
Ten (10) Oil and Gas companies were selected as the sample size of this study with the
utilization of purposive sampling method. The sample firms are: Capital Oil Plc; Conoil Plc;
Eterna Plc; Forte Oil Plc; Japaul Oil & Maritime Services; MRS Oil Nigeria Plc; Oando Plc;
Rak Unity Petroleum Company Plc; Seplat Petroleum Development Company Plc; Total
Nigeria Plc. This study covers a ten (10) year period ranging from 2011-2020.
Source of Data
Primarily, this study made use of secondary data. The data were sourced from publications of
the Nigerian stock exchange (NSE), fact books, annual report and accounts, stand alone
sustainability report and websites of the sample quoted oil and gas companies. The hypothesis
was tested using Probit regression models.
25
JOURNAL OF ACCOUNTING VOL 11 NUMBER, 2022
Variable Description
Table 1: Operationalization of Dependent and Independent Variables
Variables
Proxy
Operational Defintion
Dependent Variable
Sustainability Reporting
Assurance Practice
SRAP is a dummy variable that is equal to 1
if a company’s sustainability report was
assured by an independent third party, and
0 otherwise.
SRAP
Independent Variable (Ownership Structure)
Institutional Ownership
INSOWN
Number of shares held by active institutional
investors/ total number of shares outstanding
in the firm
Majority Ownership
MAJOWN
1 if the largest shareholder owns more than 50%
of the votes, 0 otherwise
Model Specification
Sustainability Reporting Assurance Practice is a function of Ownership Structure
Y=
SRAPίt =
ƒ(X) + µ
β0 + β1INSOWNίt + β2MAJOWNίt + µίt
-
-
Where:
β0 = Constant term (intercept)
β1- β2 = Coefficient of Ownership Structure
µίt = Error term (Stochastic Term) of firm ί in period t
SRAPίt = Sustainability Reporting Assurance Practice of firm ί in period t
INSOWNίt
= Institutional Ownership of firm ί in period t
MAJOWNίt
= Majority Ownership of firm ί in period t
Data Presentation ana Analysis
Table 2: Pearson Correlation Coefficients
SRAP
INSOWN
MAJOWN
SRAP
1.0000
0.1748
0.2701
INSOWN
0.1748
1.0000
0.6255
MAJOWN
0.2701
0.6255
1.0000
Source: E-Views 10.0 Correlation Output, 2021
26
-
Model 1
EFFECT OF OWNERSHIP STRUCTURE ON SUSTAINABILITY REPORTING ASSURANCE PRACTICE:
EVIDENCE FROM QUOTED OIL AND GAS FIRMS IN NIGERIA
OKOYE, PIUS VINCENT CHUKWUBUIKEM; AMAHALU, NESTOR NDUBUISI; OKOYE, JANE-FRANCES
NWAMAKA
The Pearson correlation coefficients results provided in table 2 revealed that SRAP has
positive linear associations with INSOWN (0.1748) and MAJOWN (0.2701). The results also
showed that there were no high correlations among the independent variables, which revealed
that there is no multicollinearity issue.
Test of Hypothesis
Ho1: Ownership structure has no significant effect on stand-alone sustainability report of
quoted oil and gas firms in Nigeria.
H1: Ownership structure has significant effect on stand-alone sustainability report of quoted
oil and gas firms in Nigeria.
Table 3: Probit regression analysis (dependent variable: SRAP=1 if a firm separate
sustainability report was assured by an independent third party)
Dependent Variable: SRAP
Method: ML - Binary Probit (Newton-Raphson / Marquardt steps)
Date: 09/27/21 Time: 13:35
Sample: 2011 2020
Included observations: 10
Convergence achieved after 6 iterations
Coefficient covariance computed using observed Hessian
Variable
Coefficient
Std. Error
z-Statistic
Prob.
C
0.259287
1.230998
7.210631
0.0000
INSOWN
4.106632
34.61443
6.118639
0.0000
MAJOWN
15.34803
45.42930
6.337844
0.0000
McFadden R-squared
0.579724
Mean dependent var
0.900000
S.D. dependent var
0.316228
S.E. of regression
0.350438
Akaike info criterion
1.133316
Sum squared resid
0.859645
Schwarz criterion
1.224091
Log likelihood
Hannan-Quinn criter.
1.033735
Deviance
Restr. Deviance
6.501659
Restr. log likelihood
-3.250830
LR statistic
31.68504
Avg. log likelihood
-0.266658
Prob(LR statistic)
0.000000
Obs with Dep=0
1
Obs with Dep=1
9
Total obs
Source: E-Views 10.0 Probit Regression Output, 2021
27
-2.666578
5.333156
10
JOURNAL OF ACCOUNTING VOL 11 NUMBER, 2022
Interpretation
Table 3 shows the results of the Probit regression analysis that examined the relation between
institutional ownership, majority ownership and SRAP. The reported beta coefficients for the
respective decomposed explanatory variables are: INSOWN (4.106632); MAJOWN
(15.34803). The associated z-Statistics and P-values are: INSOWN (6.118639; 0.0000<0.05);
MAJOWN (6.337844; 0.0000<0.05).
SRAP = 0.259287 + 4.106632INSOWN + 15.34803MAJOWN
Holding other factors constant, a unit increase in INSOWN and MAJOWN will respectively
exert a corresponding increase in SRAP. Moreover, the results also revealed that there is a
positive and significant relationship between INSOWN, MAJOWN and SRAP (β1 = 4.106632,
p<0.05); (β2 = 15.34803, p<0.05). The achieved McFadden R2 is 0.577724 which infers that
on the average, 57.8% variations on the binary dependent variable (SRAP) was influenced by
INSOWN and MAJOWN.
Decision
H1 is accepted, suggesting that companies with institutional shareholdings and majority
shareholdings are more likely to produce stand-alone sustainability reports assured by an
independent third party. Hence, the alternative hypothesis and the submits that ownership
structure has a significant positive effect on stand-alone sustainability report of quoted oil and
gas firms in Nigeria at 5% level of significance.
Summary of Finding, Conclusion and Recommendation
Summary of Finding
i.
Ownership structure has a significant positive effect on stand-alone sustainability
report of quoted oil and gas firms in Nigeria at 5% level of significance.
Conclusion
This study examined the effect of ownership structure on sustainability reporting assurance
practice of quoted oil and gas firms in Nigeria.
Using a sample composed of ten quoted oil and gas firms for a ten year period spanning from
2011 to 2020, employing Pearson coefficient analysis and Probit regression analysis to test
whether sustainability reporting assurance practice are correlated with ownership structure
components, which are; institutional ownership and majority ownership. Empirical findings
revealed that that institutional ownership and majority ownership have a significant positive
effect on sustainability reporting assurance practice at 5% level of significance respectively.
Recommendation
i.
Firms should develop a strong corporate governance structure which would help the
firms to foster their sustainability reporting practices.
28
EFFECT OF OWNERSHIP STRUCTURE ON SUSTAINABILITY REPORTING ASSURANCE PRACTICE:
EVIDENCE FROM QUOTED OIL AND GAS FIRMS IN NIGERIA
OKOYE, PIUS VINCENT CHUKWUBUIKEM; AMAHALU, NESTOR NDUBUISI; OKOYE, JANE-FRANCES
NWAMAKA
References
Al-Shaer, H. (2020). Sustainability reporting quality and post‐audit financial reporting quality:
Empirical
evidence
from
the
UK.
https://onlinelibrary.wiley.com/doi/full/10.1002/bse.2507. Accesses 14/08/2020.
Amahalu, N.N., Ezechukwu, B.O., & Obi, J.C. (2017).Corporate social responsibility and
financial performance of quoted deposit money banks in Nigeria. Asian Journal of
Science and Technology, 08(12), 7183-7191.
Amahalu, N.N., & Obi, J.C. (2020).Effect of audit quality on financial performance of quoted
conglomerates in Nigeria. International Journal of Management Studies and Social
Science Research, 2(4), 87-98.
Amahalu, N.N., & Obi, J.C. (2020).Effect of financial statement quality on investment
decisions of quoted deposit money banks in Nigeria. International Journal of
Management Studies and Social Science Research, 2(4), 99-109.
Amahalu, N.N., Egolum, P.U., & Obi, J.C. (2019). Effect of auditors’ rotation on audit quality
of quoted deposit money banks in Nigeria. Faculty of Management Sciences, 2019
International Conference Proceedings, Nnamdi Azikiwe University, Awka, Anambra
State, Nigeria, 467-479.
Amahalu, N.N., Okoye, P.V., & Obi, J.C. (2018). Effect of sustainability reporting on
economic value added of quoted brewery firms in Nigeria. Journal of Accounting, 7(1),
1-20.
Asawa, P. (2017). What is the difference between consolidated and standalone financial
statements? Retrieved 05/09/2020
Cory,
M.
(2020).
Majority
shareholder.
https://www.investopedia.com/terms/m/majorityshareholder.asp. Accessed 04/09/2020.
Dante, B.C., & Crisóstomo, V.L. (2020). The effects of voting ownership concentration on
social and environmental disclosure: Empirical Evidence from Brazil. Rev. Bras. Gest.
Neg.
21(4).
https://www.scielo.br/scielo.php?pid=S180648922019000400906&script=sci_arttext
Ezeokafor, F.C., & Amahalu, N.N. (2019). Effect of sustainability reporting on corporate
performance of quoted oil and gas firms in Nigeria. Journal of Global Accounting, 6(2),
217-228.
Festus, A.F., Rufus, A.I., & Janet, T.O. (2020). Sustainability reporting: Imperative for
turnover growth. Asian Journal of Economics, Business and Accounting, 16(1), 8-18.
GRI. (2016). GRI sustainability reporting 2016 sustainability performance. CRODA GRI
Report Achive. https://www.croda.com/en-gb/sustainability/gri-report/gri-reportarchive. Accessed03/09/2020
Grigorescu, A., Maer-Matei, M.M., Mocanu, C., & Zamfir, A.M. (2020). Key drivers and
skills needed for innovative companies focused on sustainability. Sustainability, 12, 102.
29
JOURNAL OF ACCOUNTING VOL 11 NUMBER, 2022
Hu, W., Du, J., & Zhang, W. (2020). Corporate social responsibility information disclosure
and innovation sustainability: Evidence from China. Sustainability, 12, 409.
IMF (2019) The rising resilience of emerging market and developing economies.
https://www.imf.org/external/pubs/ft/wp/2019/wp12300.pdf. Accessed 16 Jul 2020.
Internal Auditing and Assurance Standards Board (2012). Handbook of International Quality
Control, Auditing, Review, Other Assurance, and Related Services Pronouncements,
International Federation of Accountants (IFAC), New York.
Kamwana, M.K., & Ombati, R. (2018).Effect of selected board characteristics on financial
voluntary disclosure among manufacturing firms listed in Nairobi Securities Exchange.
International Journal of Business and Social Science, 9(12), 141-148.
Kenton,
W.
(2020).
Institutional
https://www.investopedia.com/terms/i/institutional-ownership.asp.
03/09/2020.
ownership.
Accessed
Kilincarslan, E., Elmagrhi, M.H., & Li, Z. (2020). Impact of governance structures on
environmental disclosures in the Middle East and Africa. Corp. Gov., 20, 739–763.
Knox, J.H. (2019). The global pact for the environment: At the crossroads of human rights and
the environment. Rev. Eur. Comp. Int. Law, 28, 40–47.
Mahmood, M., Kouser, R., & Masud, M.K. (2019). An emerging economy perspective on
corporate sustainability reporting – Main actors’ views on the current state of affairs in
Pakistan. Asian Journal of Sustainability and Social Responsibilityvolume 4(8).
https://doi.org/10.1186/s41180-019-0027-5. Accessed 02/09/2020.
Mitchell,
C.
(2020).
Majority
shareholder.
https://www.investopedia.com/terms/m/majorityshareholder.asp. Accessed 04/09/2020.
Mohammad, A.G., Mohamad, N.R., & Ahmad. N. (2016). Board characteristics and corporate
social responsibility disclosure in the Jordanian banks. Corporate Board: Role, Duties
& Composition, 12(1), 84-100.
Munteanu, I., Grigorescu, A., Condrea, E., & Pelinescu, E. (2020). Convergent insights for
sustainable development and ethical cohesion: An empirical study on corporate
governance in Romanian public entities. Sustainability, 12, 2990.
Nosratabadi, S., Pinter, G., Mosavi, A., & Semperger, S. (2020). Sustainable banking;
Evaluation of the European business models. Sustainability, 12, 2314.
Okudo, A.G., & Ndubuisi, A.N. (2021). Corporate governance and carbon disclosure practices
of quoted manufacturing firms in Nigeria. International Journal of Contemporary
Research and Review, 12 (07), 20409
Oshiole, S., Elamah, A.F., & Ndubuisi, A.N. (2020). Effect of environmental cost disclosure
on profitability of listed oil and gas firms in Nigeria. International Journal of Academic
Research in Accounting, Finance and Management Sciences 10(2), 157-1611.
Ouvrard, S., Jasimuddin, S.M., & Spiga, A. (2020). Does sustainability push to reshape
business models? Evidence from the European wine industry. Sustainability, 12, 2561.
30
EFFECT OF OWNERSHIP STRUCTURE ON SUSTAINABILITY REPORTING ASSURANCE PRACTICE:
EVIDENCE FROM QUOTED OIL AND GAS FIRMS IN NIGERIA
OKOYE, PIUS VINCENT CHUKWUBUIKEM; AMAHALU, NESTOR NDUBUISI; OKOYE, JANE-FRANCES
NWAMAKA
Pobbi, M., & Atta, A.E., & Quarm, S. (2020). Corporate sustainability reporting: Empirical
evidence from Ghana. Journal of Economics and Business, 3(2020). Available at SSRN:
https://ssrn.com/abstract=3649396 . Accessed 01/09/2020.
Puni, A., & Anlesinya, A. (2020). Corporate governance mechanisms and firm performance
in a developing country. Int. J. Law Manag.62, 147-169.
Villalonga, B. (2019). Ownership structure and corporate performance: Looking back and
looking forward. Journal of Corporate Finance, 58, 64-67.
Will, K. (2020). Institutional ownership. https://www.investopedia.com/terms/i/institutionalownership.asp. Accessed 03/09/2020.
Yang, T.K., & Yan, M.R. (2020). The corporate shared value for sustainable development: An
Ecosystem Perspective. Sustainability, 12, 2348.
Zou, H.L., Zeng, S.X., Xie, L.N., & Zeng, R.C. (2020). Are top executives rewarded for
environmental performance? The role of the board of directors in the context of China.
Hum. Ecol. Risk Assess. Int. J., 21, 1542–1565.
31
Journal of Accounting
Vol. 11 (1) January - June 2022
EFFECTS OF FISCAL AND MONETARY POLICIES ON PRIVATE
SECTOR INVESTMENT IN NIGERIA
Okwuchukwu Odili 1, Paul Ede Ugwu 1, Nwaeze, Chinweoke 2
1
Department of Banking and Finance, Michael Okpara University of Agriculture, Umudike, Abia
State.
2
Department of Banking and Finance, Abia State Polytechnic Aba, Abia State, Nigeria.
* Corresponding author: palmereck@gmail.com
Abstract
The study investigated the effects of fiscal and monetary policies on private sector investment in Nigeria
from 2000 to 2020. Data were sourced from Central Bank of Nigeria Statistical Bulletin and National
Bureau of Statistics. The explanatory variables include monetary policy rate, real exchange rate, broad
money supply, outstanding balance of certificates of deposit, taxes, and government expenditure, while, the
explained variable is private sector investment in Nigeria. he study employed ordinary least squares
multiple regression analysis and error correction mechanism in its data estimation. The findings of the
study revealed that monetary policy rate, real exchange rate and outstanding balance of certificates of
deposit have negative and significant effect on private sector investment in Nigeria. Taxes had negative
but insignificant effect on private sector investment in Nigeria, while, broad money supply and
government expenditure had positive and significant effect on private sector investment in Nigeria, The study
recommends adopting persuasive monetary policy measures to direct banks to provide funds at
controlled or subsidized interest rate for private sector investment. The study further recommends that
the federal government of Nigeria should cut down on her recurrent expenditure profile.
Keywords: Money supply, monetary policy rate, private sector investment, certificates of
deposit
Introduction
Fiscal policy involves the use of parameters such as taxation, budget and quotas that will
influence government revenue and expenditure with a view to achieving macroeconomic
objectives. Government can use fiscal policy to stimulate the economy through manipulation
of taxes and expenditure. Monetary policy on the other hand is a deliberate effort by the
monetary authority to control the money supply and the credit conditions for the purpose of
achieving certain macroeconomic objectives which might be mutually exclusive. The
objectives of monetary policy include price stability, maintenance of balance of payments
equilibrium, promotion of employment and output growth, and sustainable development.
These monetary policy objectives are necessary for the attainment of internal and external
balance, and to increase output (Gertler & Gilchrist, 1994; Thuy, Anhand Diem, 2020;
Kenechukwu, Chidi-Okeke, Chris-Ejiogu & Awe, 2021). Discussing the impact of monetary
policy on private sector investment Kahn, 2010; Brima, & Brima, (2017) observed that
monetary policy objectives are concerned with the management of multiple monetary targets
among them price stability, promotion of growth, achieving full employment, smoothening
the business cycle, preventing financial crises, stabilizing long-term interest rates and the real
32
EFFECTS OF FISCAL AND MONETARY POLICIES ON PRIVATE SECTOR INVESTMENT IN NIGERIA
OKWUCHUKWU ODILI, PAUL EDE UGWU & NWAEZE, CHINWEOKE
exchange rate. The effectiveness of monetary policy on the real economy is still an issue under
intense debate particularly related to the efficacy of the transmission mechanism. Following
years of declining economic growth particularly in Africa, consensus has emerged on the
importance of firstly increasing total investment as well as promoting private-sector
development and increasing its share of total investment for long-term growth (Oshikoya,
1994; Zaagha, (2020).
Previous researches have dealt separately with the effect of monetary policy and fiscal policy
on private sector investment. Kenechukwu, Chidi-Okeke, Chris-Ejiogu & Awe (2021)
investigated the causal relationship between fiscal policy and private investment in Nigeria
(1986-2019) and found that fiscal policy instruments granger causes private investment in
Nigeria within the period of the study. Zaagha (2020) analyzed the effect of money supply on
private sector funding in Nigeria. The purpose of the study was to examine the extent to which
monetary policy affect private sector funding in Nigeria. The empirical findings revealed that
money supply explains 82.1 percent variation on credit to core private sector, 85.2 percent and
23.4 percent of the variation in credit to private sector and credit to small and medium scale
enterprises sector. The study conclude that money supply has significant relationship with
credit to private sector, credit to core private sector and credit to small and medium scale
enterprises sector. Thuy, Anh& Diem (2020) looked at the relationship between monetary
policy and private investment using Vietnam’s provincial data and a system generalized
method of moment (GMM) framework. The study revealed that private investment is
positively affected by respective monetary policies through broad money, domestic credit and
interest rate channels, while, no credible evidence regarding the exchange rate’s effect was
observed. They also found a co-movement between real interest rate and private investment in
the economy over the two development stages (pre- and post-2012).
In a similar research, Osazee, & Mayowa (2019) examined the effect of fiscal policy on publicprivate investment in Nigeria from 1981 to 2016 using the ARDL technique. The results
showed that expenditures tend to exert positive impact on investment in both the short-run and
long-run with a weak negative influence. Studies such as Abbas & Christensen (2007), focused
on how various monetary and fiscal components crowd out private sector using panel data
from several countries. Unlike studies that focus on one aspect of either monetary or fiscal
policy effects on private sector investment, this study takes a dynamic approach to study the
effect of fiscal and monetary policies on private sector investment in Nigeria. Based on this
understanding, there exists a gap in literature with regard to understanding the dynamics of
monetary and fiscal policy effects on private sector investment. The issue of appropriate mix
of the two policy options is still controversial especially in developing countries like Nigeria.
This study therefore fills this gap by determining the appropriate policy mix of monetary and
fiscal policy instruments that will stimulate private sector investment and expand output in
Nigeria.
33
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
However, in a more specific manner the following set objectives were examined:
1. To examine the effect of Monetary policy rate on private sector investment in Nigeria.
2. To assess the effect of Real exchange rate on private sector investment in Nigeria.
3.
To evaluate the effect of Money supply on private sector investment in Nigeria.
4. To ascertain the effect of outstanding balance of certificates of deposit on private sector
investment.
5. To investigate the effect of taxes on private sector investment in Nigeria.
6. To determine the effect of Government expenditure on private sector investment in
Nigeria.
Review of Related Literature
Conceptual Review
Fiscal Policy and Private Sector Investment: Fiscal policy is the use of government
expenditure and taxes to influence macroeconomic variables. Increased government
expenditure is an incentive and stimulant for profit maximizing investors, which prompts them
to expand their establishment (Barro & Martin, 1992; Trotman, 1997). On the other hand,
public expenditure can crowd-out investment if it is financed by increasing taxes or through
borrowing. Heavy tax burden reduces the disposable income for individuals, which results to
a reduction in consumption, lower savings and hence lower investment. Borrowing to finance
government expenditure has a crowding-out effect on investment. When the public and private
sectors compete for funds in the financial market, cost of borrowing increases, which is a
disincentive to the private sector. Public expenditure financed through borrowing implies that
more taxes will be levied in the future to repay the debt, which is a disincentive to investors
(Ahmed, 1999). Taxes have negative effect on cost of production and on profitability. This is
because most of the resources available for private sector investment are diverted and
channeled to public use, thereby crowding-out private investment. Import taxes can also be
used to protect local infant industries from unhealthy competition posed by cheap imports.
This promotes private investment in the industries that produce import substitutes. However,
if import taxes are imposed on inputs and capital used by local producers, it will increase cost
of production, which discourages private investment (Bhatia, 1998). Taxes can also be used in
promoting investment in certain economic zones initially not very popular to investors. This
is applicable in Nigeria where the government extends tax holidays, tax exemptions,
remissions and other tax benefits to the investors in specified or preferred sectors of the
economy.
Monetary Policy and Private Sector Investment: Monetary policy is seen as influencing
private sector investment via three routes; namely the interest rate channel, the demand for
money and the credit channel. In less developed countries Kahn (2010) posits that
underdeveloped financial systems and weak interest rate responsiveness inhibit the use of the
interest rate and demand for money channels due to limited applicability, while he argues that
monetary policy is effective on the asset side of financial intermediary balance sheet (the credit
34
EFFECTS OF FISCAL AND MONETARY POLICIES ON PRIVATE SECTOR INVESTMENT IN NIGERIA
OKWUCHUKWU ODILI, PAUL EDE UGWU & NWAEZE, CHINWEOKE
channel view) where it tends to have greater impact. Bernanke & Gertler (1995) classify three
channels of monetary policy as the balance sheet channel, the bank-lending channel and the
credit channel. The balance sheet channel focuses on monetary policy effects on the liability
side of the borrowers' balance sheets and income statements, including variables such as
borrowers' net worth, cash flow and liquid assets whilst the bank lending channel centers on
the possible effect of monetary policy actions on the supply of loans by depository institutions.
Through the control of monetary policy targets such as the price of money, the quantity of
money and reserve money amongst others; monetary authorities directly and indirectly control
the demand for money, money supply, and hence affect output and private sector investment.
This view is supported by Kahn (2010) who argues that monetary policy objectives can affect
the real sector through the injection and absorption of liquidity, or by affecting the level of
reserve money, or through the money multiplier, which is used to manipulate the liquidity
position of the economy. Hare & Fofie (2009) posits that countries who only invest 5- 10
percent of their GDP are unlikely to grow very rapidly as the more successful economies have
usually achieved investment rates of at least 25 percent of GDP sometimes considerably
higher.
Theoretical Underpinning
This study relied on two theoretical constructs or paradigms - Credit Channel Theory and
Keynesian Approach.
Credit Channel Theory: Analysis of the relationship between monetary policy and output
reveals that credit plays a significant role. Kahn (2010) explains that conventionally changes
in short-term interest rates brought about by the central bank, through open-market operations
may change the cost of capital, and hence, the rate of fixed investment. According to Bernanke
& Gertler (1995); Kahn (2010), the effects of monetary policy on GDP is weak and this led to
the development of the credit channel theory, whose basic premise is that market frictions
create a spread between a firms’ internal and external sources of fund. They argued that
changes in “external finance premium” can better explain movements in investment than can
interest rates and, hence, overall output. Kahn (2010) also posits that the credit transmission
channel affects the supply or relative pricing of loans by banks. As tighter monetary policy
causes banks to lose the use of some funds which cannot be replaced with other sources of
funds such as certificates of deposit or equity, then the relative cost of funds will increase,
decreasing the supply of loans to bank-dependent borrowers who are squeezed out, due to an
increase in the external finance premium Tobias & Mambo (2012). In developed financial
markets generally, firms have access to other sources of financing, unlike Nigeria where
financial markets are not as well developed and only large corporate firms can borrow from
external markets while the smaller firms have access only to internally generated funds and
bank borrowing if they meet their requirements.
Keynesian Approach: Keynes (1936) first theorized the existence of an independent
investment function in the economy. The study observed that, although savings and investment
35
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
must be equal at equilibrium, savings and investment decisions were made by different people.
The implication of this position was that there was no reason why ex-ante savings should equal
ex-ante investments. Keynesian approach further proposed that firms ranked various
investment projects depending on their internal rate of return. Thus, given a rate of interest or
cost of capital, an investor would choose a project whose internal rate of return exceeded the
rate of interest. The Keynesian economists also formulated the accelerator theory, which made
investment a linear proportion of changes in output. In the accelerator model, expectations,
profitability and capital costs played no role. A more general form of the accelerator model
was the flexible accelerator model. The basic notion behind this model was that, the spread
between the existing capital stock and the desired capital stock, the greater would be the firm’s
rate of investment. Within the framework of the flexible accelerator model, output, internal
funds, cost of external financing and other variables may be the determinants of desired capital
stock. Under the Keynesian approach, fiscal policy could influence investment by either its
implication on interest rates or by determining the speed of adjustment between actual and
desired investment (Blejer & Khan, 1984).
Empirical Reviews
Several studies have been conducted to explain issues on fiscal and monetary policy
theoretically, but none took the construction of statistical model that explains their effects and
analyse it with respect to private sector investment in Nigeria.
Kenechukwu, Chidi-Okeke, Chris-Ejiogu & Awe (2021) investigated the causal relationship
between fiscal policy and private investment in Nigeria (1986-2019) using secondary data
from Statistical bulletin of Central Bank of Nigeria. Granger Causality techniques was
employed to test the causal relationship between the independent variables (Tax Revenue, Oil
Revenue, Total Expenditure and Public Debts) on the dependent variable (Private Investment)
while VAR was used to test the short run relationship. The study revealed that fiscal policy
instruments granger causes private investment in Nigeria within the period of the study. The
study recommends that Government should liberalize or privatize NNPC and the Power sector
as these critical sectors will help the growth of the private sectors and reduce unemployment
in the country. The study further recommends provision of tax incentives to private sectors
by the government to help the growth of private investment in the country.
Zaagha (2020) analysed the effect of money supply on private sector funding in Nigeria. The
purpose of the study was to examine the extent to which monetary policy affect private sector
funding in Nigeria. Time series data was sourced from Central Bank of Nigeria Statistical
Bulletin from 1985-2018. Credit to private sector, credit to core private sector and credit to
small and medium scale enterprises sector was used as dependent variables while narrow
money supply, broad money supply, private sector demand deposit was used as independent
variables. The empirical findings revealed that money supply explains 82.1 percent variation
on credit to core private sector, 85.2 percent and 23.4 percent of the variation in credit to
private sector and credit to small and medium scale enterprises sector. The study conclude that
money supply has significant relationship with credit to private sector, credit to core private
36
EFFECTS OF FISCAL AND MONETARY POLICIES ON PRIVATE SECTOR INVESTMENT IN NIGERIA
OKWUCHUKWU ODILI, PAUL EDE UGWU & NWAEZE, CHINWEOKE
sector and credit to small and medium scale enterprises sector. From the findings, the study
recommends that Central Bank of Nigeria should induce the variations of the amount of money
changes through the nominal interest rates. That the monetary authorities should ensure
adequate quantity of money supply that positively affect private sector funding in Nigeria.
Thuy, Anhand Diem (2020) looked at the relationship between monetary policy and private
investment using Vietnam’s provincial data and a system generalized method of moment
(GMM) framework. To capture monetary policy’s effect on private investment, the study used
money supply, domestic credit to the private sector, interest rate and exchange rate as proxies.
The study found that private investment is positively affected by respective monetary policies
through broad money, domestic credit and interest rate channels, while, no credible evidence
regarding the exchange rate’s effect was observed. They also found a co-movement between
real interest rate and private investment in the economy over the two development stages (preand post-2012). Another notable finding is that economic development prospects of localities,
which attract great attention and cause an intense competition between domestic and foreign
investors, appear to be a major barrier to investment decisions of private firms.
In a similar research, Osazee, & Mayowa (2019) examined the effect of fiscal policy on publicprivate investment in Nigeria from 1981 to 2016 using the ARDL technique. The results
showed that expenditures tend to exert positive impact on investment in both the short-run and
long-run with a weak negative influence. The policy implication of the findings is that fiscal
policy needs to look more inwards in terms of a long-term expansion of investment in the
country. Continued focus on external financing for long-run investments can create intertemporal instability in investment in Nigeria.
Brima, & Brima, (2017) examined the rate at which changes in monetary policy in Sierra
Leone has affected the behavior of private sector investments for the period 1980-2014. Using
recent econometric techniques, the results suggested that money supply and gross domestic
saving exert positive and statistically significant effect on private sector investments whereas
treasury bills rate, inflation and gross domestic debt exert a negative effect on private sector
investment in Sierra Leone.
Employing time series econometric techniques such as, co-integration and error correction
techniques within an ARDL framework, Hailu, & Debele, (2015) examined the effect of
monetary policy on private sector investment in Ethiopia using annual data for the period
1975-2011. Results suggested that private investment is positively and significantly influenced
in the short-run by public investment, money supply, and a real output but negatively and
significantly by real exchange rate while, real interest rate is found to have insignificant and
negative sign in line with macro-economic theory. Moreover, in the long run, the result shows
a positive and significant effect of public investment, real GDP and broad money supply while
real exchange rate negatively and significantly influenced private investment. However, real
interest rate is found to have a positive but insignificant effect in the long run well. The
conclusion is that monetary policy measures are more influential than fiscal policy in
37
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
promoting private investment in Ethiopia via improving financial resource availability for
investment.
Tobias & Mambo (2012) investigated the impacts of monetary policy on private sector
investment in Kenya from (1996-2009) by tracing the impacts of monetary policy through the
transmission mechanism to explain how investment responded to changes in monetary policy. They
found that government domestic debt and Treasury bills rate are inversely related to private
sector investment, while broad money supply and domestic savings have positive effect on private
sector investment consistent with the IS and LM models.
Baum & Gerrit (2011) looked at the impact of fiscal policy on economic activity over the
business cycle–evidencefromathresholdvectorautoregressions(VAR)framework,thestudy
analyzed the quarterly German data from (1976–2009) in a threshold SVAR, they found
that hiking spending yields for a short-term ,fiscal multiplier of around 0.70, while the fiscal
multiplier resulting from an increase in taxes and social security contribution is-0.66, in
addition they found important implications for the optimal fiscal policy mix over different
stages of the business cycle.
Methodology
Model Specification
The study adapted a modified version of Tobias and Mambo (2012) model in which they
researched on the effects of monetary policy on private sector investment in Kenya. In their
study, private sector investment is the dependent variable, while the explanatory variables are:
GDD (Government Gross Domestic Debt), GDS (Gross Domestic Savings), MS (Money
Supply), T-bills are the 91-day Treasury bills rate. To ensure that appropriate explanatory
variables are captured in the model, it was modified and presented as follows:
PSI=f (MPR, EXC, M2, OBC, TAX, GEP) --------------------------------------------- (3.1)
Where: PSI: The private sector investment in Nigeria; MPR: The monetary policy rate by the
Central Bank of Nigeria; EXC: Real exchange rate; M2: Broad money supply; OBC: The
outstanding balance of certificates of deposit; TAX: Taxes; GEP: Government expenditure;
The model is therefore stated as follows:
PSI =a0 + b1 MPR + b2 EXC + b3M2 + b4OBC + b5TAX + b6GEP + µi ..............(3.2)
Where: a0=Intercept of the regression line; b1 - b6=Coefficients to be estimated; µi =error
term
Equation 3.2 stated in logarithm form as follows:
LogPSI =a0 + b1logMPR + b2logEXC + b3logM2 + b4OBC + b5logTAX + b6logGEP + µi-------------- (3.3)
a prior expectation for the study is as follows:
B1, b2,b4, and b5< 0 while b3, and b6> 0
38
EFFECTS OF FISCAL AND MONETARY POLICIES ON PRIVATE SECTOR INVESTMENT IN NIGERIA
OKWUCHUKWU ODILI, PAUL EDE UGWU & NWAEZE, CHINWEOKE
All annual data in equation (3.3) were gathered mainly from Statistical Bulletin of the Central
Bank of Nigeria and National Bureau of Statistics (NBS) from 2000 to 2020 and are
measured in natural logarithmic form.
Data Analysis Techniques
The study made use of ordinary least squares multiple regression analysis in its data estimation.
In order to avoid spurious results, unit root tests were first carried out on each series in equation
(3.3) using both the Augmented Dickey-Fuller (ADF) and Philip-Perron (PP) tests. Cointegration tests were examined through Johansen co-integration techniques and these were
followed by the estimation of equation (3.3) using error correction modelling ECM)
techniques. The results of the unit root tests; co-integration and ECM are reported and
discussed in section four.
Results and Discussion
Unit Root Tests
Table 1: ADF Unit Root Test Result
Variable
ADF Values
D(LNPSI)
D(LNMPR)
D(LNEXC)
D(LNM2)
D(LNOBC)
D(LNTAX)
D(LNGEP)
Level
-0.026471
-2.848183
-1.411715
-2.574928
-1.168033
-2.038659
-2.336534
Critical Values @ 5%
1st Diff.
-5.089294
-6.607050
-6.115307
-6.053073
-4.756366
-4.841456
-5.162384
Level
-2.954021
-2.954021
-2.954021
-2.954021
-2.954021
-2.954021
-2.954021
1st Diff.
-2.957110
-2.957110
-2.957110
-2.957110
-2.957110
-2.957110
-2.957110
Order
of
Integration
1(1)
1(1)
1(1)
1(1)
1(1)
1(1)
1(1)
Source: E-view statistical package, version 8.0
A careful review of the result in table 4.1 shows that when the unit root test was conducted
at level, all the variables are non-stationary because they have their Augmented Dickey
Fuller (ADF) statistic less than Mackinnon critical value. This led to the testing for
stationarity at first difference. All the variables are stationary at first difference because
they have their respective ADF statistics greater than Mackinnon critical value at 5% and
are integrated of order 1 (i.e. I(1)).
The unit root test was also conducted using Phillips–Perron test. From the output
table 4.2 below, the study recorded a mixed bag scenario. While some variables
turned stationary at ‘first difference’, others did at ‘second difference’, meaning that
the data sets are not spuriously related.
39
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Table 2- Summary of Unit Root Test
T-Statistics.
CriticalValue@5% Order of
Integration
-6.12
-2.97
2nd Diff
PSI
-5.41
-2.97
1st Diff
MPR
-3.98
-2.97
1st Diff
EXC
-9.35
-2.97
2nd Diff
M2
-8.75
-2.97
2nd Diff
OBC
-7.02
-2.97
2nd Diff
TAX
-7.29
-2.97
1st Diff
GEP
Source: E-view statistical package, version 8.0
Sig.
**
**
**
**
**
**
*
Co-integration
The essence of co-integration test is to ascertain if a long-run equilibrium relationship
exist among variables of the model. Tables 4.3 and 4.4 show the summary of result from
analysis conducted on the specified model.
Table 3: Johansen Co-integration Test Result (trace statistic)
Hypothesized No. of CE(s)
Trace Statistic
0.05 Critical value
None *
178.2886
125.6154
At Most 1*
97.23572
91.73366
At Most 2
65.55673
69.81889
At Most 3
41.10830
47.85613
At Most 4
22.05030
29.79707
At Most 5
9.813748
15.49471
At Most 6
2.205028
3.841466
Prob.
0.0000
0.0363
0.1224
0.2187
0.3545
0.2953
0.1376
Source: E-view statistical package, version 8.0
Trace statistic test indicates 2 co-integrating equations at 5% level.
*Indicates significance
Table 4: Johansen Co-integration test result (Max – Eigen value)
Hypothesized No. of CE(s)
Max-Eigen Statistic
None *
At Most 1⃰
At Most 2
At Most 3
At Most 4
At Most 5
At Most 6
81.05302
41.67897
24.44843
19.05800
11.23656
7.608721
2.205028
5% Critical value
46.23142
40.07757
33.87687
27.58434
21.13162
14.26460
3.841466
Prob.
0.0000
0.0409
0.4233
0.4101
0.6237
0.4199
0.1376
Source: E-view statistical package, version 8.0
Max-Eigen statistic indicates 2 co-integrating equation at 5% level
*indicates significance
Based on the co-integration test results in tables 4.3 and 4.4, the trace statistic indicates
that there exist two co-integrating equations at five percent level of significance. The cointegration test based on the Max-Eigen value also indicated the existence of two co-
40
EFFECTS OF FISCAL AND MONETARY POLICIES ON PRIVATE SECTOR INVESTMENT IN NIGERIA
OKWUCHUKWU ODILI, PAUL EDE UGWU & NWAEZE, CHINWEOKE
integrating equation at five percent level of significance. This implies that there exists a
long run equilibrium relationship amongst the variables adopted in the study.
Error Correction Model (ECM)
Given that co-integration exists, the study estimated an ECM of the form in Equation 4.1. The
attractiveness of the ECM is that it provides a framework for establishing links between the
short-run and long-run approaches to econometric modelling.
∆log(PSI)t = αo +∑𝑛𝑖=0 Ѳ1∆ log(PSI) t − 1 + ∑𝑛𝑖=0 𝑎1∆ log(MPR) t − 1 +
∑𝑛𝑖=0
𝑎2∆ log(EXC) t − 1 +
∑𝑛𝑖=0 𝑎3∆ log(M2) t − 1 ∑𝑛𝑖=0 𝑎4∆ log(OBC) t − 1 +
∑𝑛𝑖=0 𝑎5∆ log(TAX)t − 1 + ∑𝑛𝑖=0 𝑎6∆ log(GEP) t − 1 + λECM + et
(4.1)
The error correction mechanism involves developing two models: the over-parameterized
model which involves leading and lagging of the variables and the parsimonious model
that introduces short-run dynamism into the long-run equilibrium.
Table 5:Over – Parameterized error correction mechanism
Dependent Variable: D(PSI)
Variable
Coefficient Std. Error
t-Statistic
Prob.
D(LNMPR)
D(LNMPR(-1))
D(LNEXC)
D(LEXC(-1))
D(LNM2)
D(LNM2(-1))
D(LNOBC)
D(LNOBC(-1))
D(LNTAX)
D(LNTAX(-1))
D(LNGEP)
D(LNGEP(-1))
ECM(-1)
C
0.344912
-0.035101
-0.087782
-0.182565
-0.097608
0.174941
0.276643
-0.466237
0.047018
0.286778
-0.681389
-0.390829
-0.239782
0.261870
1.094349
-2.720047
-2.050230
-1.898741
-2.194864
1.099828
1.865768
-3.333592
1.939359
1.283123
-3.570336
-1.841300
-2.152090
5.742384
0.3882
0.0450
0.0481
0.0637
0.0483
0.2759
0.0785
0.0037
0.0980
0.2357
0.0022
0.0921
0.0486
0.0000
R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)
0.786257
0.642442
0.185916
0.496505
24.28062
3.892277
0.009264
0.233806
0.009228
0.037695
0.096150
0.005471
0.168154
0.148273
0.129980
0.024242
0.145565
0.180847
0.212257
0.124358
0.043862
Mean dependent var
S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat
Source: E-view statistical package, version 8.0
41
0.259319
0.242199
-0.455039
0.186221
-0.342479
1.657444
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Table 6: Parsimonious Result for the Model
Dependent Variable: LNPSI
Variable
Coefficient
D(LNMPR (-1))
-0.201995
D(LNEXC)
-0.189088
D(LNM2)
0.267168
D(LNOBC(-1))
-0.244571
D(LNTAX)
-0.092174
D(LNGEP)
0.186351
ECM (-1)
- 0.864662
C
0.382641
R – Squared = 0.952634
F – Statistic = 23.509837
DW – Statistic = 2.00324
Std error
0.049031
0.068234
0.049235
0.067373
0.109023
0.036158
0.201069
0.052653
t-statistic
-4.1198
-2.7712
5.4264
-3.6301
-0.8455
5.1538
-4.3004
7.2673
Prob.
0.0305
0.0415
0.0046
0.0343
0.3575
0.0079
0.0243
0.0000
Source: E-view statistical package, version 8.0
Critical values: (a) t – statistic, t0.05 = 2.042; (b) F – statistic, f0.05 (6,27) = 2.42
The parsimonious result shown in table 4.6 is summarized in model equation 4.2.
D(LNPSI) = 0.383 – 0.20LNMPR (-1) – 0.19 LNEXC + 0.27LNM2 – 0.24LNOBC(-1) 0.09LNTAX +
(0.0490)
(0.0682)
(0.0492)
(0.0673)
(0.1090)
0.19LNGEP ………………………………………………………(4.2)
(0.03616)
The standard error statistics are in parenthesis. The parsimonious result for the model adopted
in this study is appraised based on the statistical and econometric criteria. The study reveals
that the constant term (intercept) term has a positive sign which is consistent with economic a
priori expectation. This implies that if all the explanatory variables are held constant, PSI will
increase by 38%. The computed t-statistic for constant term (7.26) exceeds the tabulated
(critical) t-statistic (2.04) at five percent level of significance. Thus, we conclude that the
constant term is statistically significant at five percent level. The coefficient of the error
correction term appeared with the expected negative sign and it is significant. The coefficient
of the error correction mechanism (ECM) is -0.864662. The implication is that, private sector
investment in Nigeria has an automatic mechanism and responds to deviations from
equilibrium in a balancing manner in the long run. This result indicates that private sector
investment in Nigeria responds to deviations from equilibrium arising from fiscal and monetary
policy at the speed of 87 percent. Thus, in each year, it takes a speed of 87 percent for the
fiscal and monetary policy to restore distortions in private sector investment in Nigeria back to
its equilibrium position. The coefficient of determination (R – squared) showed that 95 percent
of the variations in private sector investment are caused by changes in monetary policy rate,
real exchange rate, broad money supply, outstanding balance of certificates of deposit, taxes
and government expenditure in Nigeria. Therefore, the remaining 5 percent variations in
private sector investment are due to other factors not included in the model. The computed Fstatistics (23.51) exceeds the tabulated (critical) F – statistics (2.42) and this indicates that the
42
EFFECTS OF FISCAL AND MONETARY POLICIES ON PRIVATE SECTOR INVESTMENT IN NIGERIA
OKWUCHUKWU ODILI, PAUL EDE UGWU & NWAEZE, CHINWEOKE
entire model adopted in the study is significant and reliable for policy making. The Durbin –
Watson statistics (2.00324) showed that there is no evidence of serial autocorrelation.
Discussion of Results
The result shows that there is a negative and significant relationship between lagged one year
monetary policy rate and private sector investment in Nigeria. From the result, one percent
rise in monetary policy rate leads to 10 percent reduction in private sector investment in
Nigeria in the short run. The computed t-statistic for lagged one year monetary policy rate
(4.1198) in absolute terms is greater than the critical value (2.04) at five percent level of
significance. The probability value of MPR (0.0305) shows that it is less than the test
significant level (0.05) (i.e P<0.05). This result is in line with the empirical result provided
by Greene (2000) in which interest rate seems to work against private sector investment.
However, it is insignificant in influencing the sector.
The result on real exchange rate showed that it has a negative and significant effect on private
sector investment in Nigeria. From the result, one percent increase in real exchange rate leads
to 18.9% decrease in private sector investment in Nigeria. The computed t-statistic (2.7712)
in absolute terms is less than the critical (tabulated) t-statistic (2.04) at five percent level of
significance. The probability value of real exchange rate (0.0415) is less than the test
significant level (i.e. P>0.05). Devaluation or falling value of the naira might cause the cost
of imported capital to increase, thus reducing private sector investment. This contradicts the
theoretical argument which states that depreciation and devaluation of domestic currency
have positive impact on private investment by boosting sectors investing on export and
import substitution industries. For instance, Magnus (2010) found that real exchange rate
have a positive impact on private sector investment. However, the result of this research
work is supported by empirical findings of Maganga (2012) as devaluation seems to decrease
private sector investment. . It also contradicted the empirical investigation of Chichi (2011)
showing positive impact of real exchange rate on private investment. But it is in agreement
with the empirical analysis of Acosta (2000) in which a devaluation seems to decrease
investment substantially. Thus, real exchange rate change seemed to have had an adverse
effect on short term investment, affecting mainly the sectors most exposed to foreign
competition (non-exportable) and increases cost of production. The result is also in contrast
with Tarek (2005) in which the study found that depreciation would have a positive effect on
private sector investment.
The result on broad money supply reveals that it has a positive and significant effect on private
sector investment in Nigeria. From the result, one percent rise in the M2 leads to 27% increase
in private sector investment in Nigeria. The computed t – statistic for M2 (5.4264) in absolute
terms is less than the tabulated (critical) t-statistic (2.04) at five percent level of significance.
The probability value of M2 (0.0046) is less than the test significant level (i.e. P>0.05). It is
evidenced that the result validates the hypothesis of positive impact of money supply on
private sector investment. When money supply increases, with extra money circulating within
43
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
the economy, the purchasing power of all sectors of the economy- households, business and
government- is enhanced. Thus, consumption expenditures, investment expenditures,
government purchases all increases, resulting in an increase in aggregate demand and hence
investment.
The impact of the outstanding balance of certificates of deposit on the private sector
investment in Nigeria was negative. From the result, one percent increase in outstanding
balance of certificates of deposit leads to 25% decrease in private sector investment in Nigeria.
The computed t-statistic for outstanding balance of certificates of deposit (3.6301) in absolute
terms is greater than the critical (tabulated) t statistics (2.04) at five percent level of
significance. The probability value of outstanding balance of certificates of deposit (0.0343)
is less than the test significant level (i.e. P < 0.05). This result is supported by empirical study
of Khan (2010) that confirmed direct relationship between private sector investment and
monetary policy. The credit views of monetary policy suggest that the tightening of monetary
policy will force banks to reduce their loans and securities. A change in the outstanding
balance of certificates of deposit impacts on the interest rate at which credit is provided which
in turn affects the growth of deposits held with commercial banks.
The impact of taxes on the private sector investment in Nigeria was. Based on T-test, the
computed t – statistic for tax (0.8455) is less than the critical (tabulated) t – statistic (2.04) at
five percent level of significance. The probability value of tax (0.3575) is greater than the test
significant level (i.e. p>0.05). The negative impact of Tax revenue on private sector
investment is in line with the findings of past works including Hermes & Lensink (2001);
Alesina et al (2002); Vergara (2010). However, it is in contrast with the works of Soli et al
(2008) who identified that taxes on internal products and services as well as direct taxes on
income and wealth have positive effects on domestic private investment.
The analysis of the impact of government expenditure on private sector investment revealed that
it has positive and significant effect on private sector investment in Nigeria. Based on T-test,
the value (5.1538) in absolute terms is greater than the critical (tabulated) t – statistics (2.04)
at five percent level of significance. The probability value of government expenditure (0.0079)
is less than the significant p-value (0.05) (i.e. p<0.05). The findings of this study showed that
there exists a crowding in effect of government expenditure on private sector investment in
Nigeria. This is consistent with the results of Outtara (2004); Vergara (2010); Marattin &
Salotti (2010). It is also consistent with the Keynesian argument that government fiscal
operations stimulate aggregate demand and this in turn, leads to a boost in private sector
investment. This is in contrast with that of Acosta (2000) that confirms the crowding-out effect
of public investment and suggests that there is a sort of competition for resources between the
public and the private sectors, at least in the short run.
Summary of Findings, Conclusion and Recommendations
Summary of Findings
Based on the results of the analysis, the major findings of the study are summarized below:
1. Monetary policy rate has negative and significant effect on private sector investment in
44
EFFECTS OF FISCAL AND MONETARY POLICIES ON PRIVATE SECTOR INVESTMENT IN NIGERIA
OKWUCHUKWU ODILI, PAUL EDE UGWU & NWAEZE, CHINWEOKE
2.
3.
4.
5.
6.
Nigeria.
Real exchange rate also had negative and significant impact on private sector
investment in Nigeria.
Money supply has positive and significant effect on private sector Investment in Nigeria.
There is a significant negative relationship between outstanding balance of certificates
of deposit and private sector investment.
The study found that taxes have negative and insignificant effect on private sector
investment in Nigeria.
Government expenditure had positive and statistically significant effect on private sector
investment in Nigeria.
Conclusion
This study examined the effect of monetary policy rate, real exchange rate, and broad money
supply, outstanding balance of certificates of deposit, taxes and government expenditure on
private sector investment in Nigeria. Data set from 2000 to 2020 were sourced from Central
Bank of Nigeria, Statistical Bulletin and National Bureau of Statistics respectively. The study
employed ordinary least squares multiple regression analysis in its data estimation. This study
therefore concludes that fiscal and monetary policies have direct effect on private sector
investment in Nigeria.
Recommendation
The study recommended adopting persuasive monetary policy measures to direct banks to
strengthen their role in providing funds for private sector investment, as well as the need for
fiscal policy in Nigeria to make provision for granting tax exemptions on private investments
to encourage private sector investment. The federal government of Nigeria should cut down
on her recurrent expenditure profile. Obviously, there is need for a policy shift from the present
protective-sectors - dominance to productive- sectors policy framework to enhance
productivity. Macroeconomic projections should guide the overall level of expenditure and as
such, government projections need to be more realistic, internally consistent and based on more
accurate and timely information. Fiscal and monetary policies formulators in Nigeria need to
enact investor friendly policies that will encourage, promote, and provide a conducive and
enabling environment for private sector investment.
References
Abbas, S. M. A. & Christensen, E. J. (2007). The Role of Domestic Debt Markets in Economic
Growth: An Empirical Investigation for Low-income Countries and Emerging Markets,
IMF working papers, 07/127
Acosta P. (2000). Short and Long run Determinants of Private Investment in Argentina,
Journal of Applied Economics, 8(2), 132-149.
Ahmed, H. (1999), Crowding-Out and Crowding-In Effects of the Components of
Government Expenditure, Economics Working Papers, Paper199902.
Alesina, A., Ardagna, R. P., Perotti, R., & Schiantarelli, F. (2002), Fiscal Policy, Profits and
Investment. The American Economic Review, 92, 571–589.
Barro, R.J. & Sala-I-Martin, X. (1992). Public Finance in Models of Economic Growth,
Review of Economic Studies, 59, 645-661.
45
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Baum,A.&Koester,G. B. (2011), The Impact of Fiscal Policy on Economic Activity over the
Business Cycle: Evidence from a threshold VAR Analysis, Deutsche Bundes bank, WilhelmEpstein-StraBe14,60431 Frankfurt am Main, Post fach100602,60006 Frankfurt am Main.
Bernanke, B.S. & Gertler, M. (1995). Inside the Black Box: The Credit Channel or Kishan and
Opiela 2000, Monetary Policy Transmission. Journal of Economic Perspectives, p (Fall),
27-48.
Bhatia, H. L. (1998). Public finance. 9th edition. New Delhi, Vikas Publishing House.
Blejer, M. S. & Khan, M. S. (1984) Government Policy and Private Investment in Developing
Countries. IMF Staff Papers, 31(2), 379-403.
Brima, S. & Brima, A. S. (2017). Monetary Policy Effects on Private Sector Investment:
Evidence from Sierra Leone, International Journal of Economics and Financial Issues,
7 (1), 476-488.
Chichi, A. (2011), Long run Relationship between Private Investment and Monetary Policy in
Nigeria, Journal of Finance and Accounting, Vol. 2, No.6, 82-103.
Gertler, M. & Gilchrist S. (1994). Monetary Policy Business Cycle and the Behaviour Of
Small Manufacturing Firms, Quarterly Journal of Economics, Vol. 109, (May), Pp. 309340.
Greene, J., (2000). Private Investment in Developing Countries: An Empirical Analysis. IMF
Staff Papers, 38(1)
Hailu, D. B. & Debele, F. (2015). The Effect of Monetary Policy on the Private Sector
Investment in Ethiopia: ARDL Co-integration Approach. Economics, Vol.4, No.2, 2233.
Hare G. P. & Fofie, F. O. (2009). Investment Behaviour in a Difficult Institutional
Environment, Herriot-Watt University.
Hermes, N. & Lensink, R. (2001). Fiscal Policy and Private Investment in Less Developed
Countries, World Intitute for Development Economics research., 32.
Kenechukwu, O. C., Chidi-Okeke, C. N., Chris-Ejiogu, U. G., & Awe, S. K. (2021). Causal
Relationship between Fiscal Policy and Private Investment in Nigeria for the period
1986-2019, Asian Research Journal of Arts & Social Sciences, 14(2): 33-46.
DOI:10.9734/ARJASS/2021/v14i230234
Keynes, J.M. (1936). The General Theory of Employment Interest and Money. London:
Macmillan. 357. (1964 ed. Harvest/HBJ).
Khan, S.M.(2010).The Design and Effects of Monetary Policy in Sub- Saharan African
Countries, Series Peterson Institute for International Economics Working Paper. 10
(11),1-18.
Maganga, A. (2012). Selected Macro Economic Variables affecting Private Investment in
Malawi, Munich Personal RPEC archive (MPRA).
Magnus J. (2010). The Determinants of Private Sector Investment in Ghana: An ARDL
Approach, European Journal of Social Sciences, 15(2), Accra, Ghana.
Marattin, L., & Salotti, S. (2010). On the Usefulness of Government Spending in the EU Area.
MPRA Paper No. 24906.
Osazee, G. O. & Mayowa, G. A. (2019). Fiscal Policy and Public-Private Investment in
Nigeria, Amity Journal of Finance, 4 (1), 16-29.
Oshikoya, W. T. (1994), Macroeconomic Determinants of Domestic Private Investment in
Africa: An Empirical Analysis, Economic Development and Cultural Change, 42(3),
573-596. The University of Chicago: http://www.jstor.org/stable/1154483
46
EFFECTS OF FISCAL AND MONETARY POLICIES ON PRIVATE SECTOR INVESTMENT IN NIGERIA
OKWUCHUKWU ODILI, PAUL EDE UGWU & NWAEZE, CHINWEOKE
Ouattara, B. (2004). Modelling the Long Run Determinants of Private Investement in Senegal,
CREDIT Research Papers, 19-20.
Soli, V., Harvey, S. K., & Hagan, E. (2008). Fiscal Policy, Private Investment and Economic
Growth: The Case of Ghana. Studies in Economics and Finance,25(2), 112-130.
Tarek H. (2005). The Effects of the Exchange Rate on Investment: Evidence from Canadian
Manufacturing Industries, Bank of Canada Working Paper
Thuy T. D., Anh, D. P.& Diem, N. T. (2020). Impact of Monetary Policy on Private
Investment: Evidence from Vietnam’s Provincial Data, Economies, 8(70), 1-15.
Tobias, O.& Mambo, C.(2012).The Effect of Monetary Policy on Private Sector Investment
in Kenya, Journal of Applied Finance & Banking, Vol.2,No.2,239-287.
Trotman, D.T. (1997). Economics of the Public Sector, London: Macmillan Press. Vergara, R.
(2010). Taxation and Private Investment: Evidence for Chile. Applied Economics, 42,
717–725.
Zaagha, A. S. (2020). Money Supply and Private Sector Funding in Nigeria: A Multi-Variant
Study, Asian Finance & Banking Review, 4(1), 24-41.
47
Journal of Accounting
Vol. 11 (1) January - June 2022
RESTRUCTURING OF THE ASSETS OF MICROFINANCE BANKS
AFFECTED BY COVID 19 PANDEMIC IN NIGERIA
Nwadighoha Chinedum E 1, Ogungbangbe Bashir Muyiwa 2, Ogbonna Chikodi
Ferdinand 2
1
Department of Accounting, College of Management Sciences, Michael Okpara University of
Agriculture, Umudike Abia State.
2
Michael Okpara (UniAgric) Microfinance Bank (Nigeria) Limited
Corresponding Author: chinedumnwadighoha@gmail.com
Abstract
The study is an empirical survey aimed at examining the restructuring of the assets of Microfinance
Banks affected by COVID 19 Pandemic in Nigeria. The area of study, population and sample size are
all current status of Microfinance Banks in Nigeria.The research design is centred on the empirical
survey of 10 National Microfinance Banks, 135 State MFBs and 766 Unit MFBs in the country. Some
of the findings revealed that there is the need for extension of the mandatory restructuring of MFBs as
directed by the CBN, that merger and acquisition processes take a long time exercise and may require
the engagement of experts and some indices that are critical for the survival and growth of MFBs are not
yet put in place by the operators of MFBs in Nigeria and it is recommended that assets revaluation, assets
equity swap, new capital injection, private placement of shares and introduction of attractive products
by the MFBs to their customers and potential investors are also recommended.
Keywords: Assets Restructuring, Microfinance banks, COVID 19 Pandemic
Introduction
The restructuring of the assets of Microfinance Banks affected by the COVID 19 Pandemic
which incapacitated the operations of the MFBs for more than one year and led to the
stagnation and economic recession of the Nigerian economy appears o be widely accepted.
However, the adverse effect of this phenomenon did not only affect the economic activities of
the country but financial operations of all microfinance banks in the country. The assets of the
MFBs severely affected are Loans and advances, placements, etc.
The level of non-performing loans in which the Prudential Guideline requires that provisions
must be made against such loans which obviously would dilute the capital of such Banks so
affected is becoming alarming Nwadighoha (2020). When provisions are made on these nonperforming loans by way of such loans being categorized as either pass or watch, substandard,
doubtful or lost, profitability would be adversely affected and obviously impairs the
shareholders fund (equity capital) of the microfinance bank which reduces the value placed on
the MFB. The adverse consequences are that the (NDIC) will charge premium on each of the
non-performing resulting to double tragedy. (Sir, please reconsider this statement as I think
that it may not be true)
The CBN as the major regulatory body of the MFBs in her wisdom considered the option
among others, merger and acquisition, relocation to more viable sites, scaling down from
48
RESTRUCTURING OF THE ASSETS OF MICROFINANCE BANKS AFFECTED BY COVID 19 PANDEMIC IN NIGERIA
NWADIGHOHA CHINEDUM E, OGUNGBANGBE BASHIR MUYIWA & OGBONNA CHIKODI FERDINAND
national MFBs to State from State to Unit MFBs as the case may be. The Committee of
Microfinance banks in Nigeria (COMBIN) also requested for the last optional outright
liquidation where circumstances warrant such occasion (CBN, 2021).
There are other assets of the MFBs that may have been affected by the COVID 19 Pandemic
but attention is given to the most liquid and risky assets which are the engine that galvanize
the operations of the Banks and all other financial institutions in Nigeria globally. Predicated
on these, the researchers evaluated the following specific objectives:
i)
ii)
iii)
iv)
Examine of the possibility of reducing the initial capitalization tier 1 MFBs from
N35million to below N20million and the extension of the deadline from 2021 to
2023;
Determine the need for realistic merger and acquisition process which should not be
adhoc in nature but which could meet the test of time when properly done;
Exploring other options available in the injection through capital increase, giving
attention to other option such as assets valuation asset equity swap and private
placement;
The possibility of diversifying the product of MFBs, and incorporating best business
practices, financial integrity/corporate governance, risk management and other
marketing strategies to enhance customers attractions to the MFBs.
Review of Related Literature
Microfinance Bank
Microfinance is described as the banking for the less privilege, underserved and unbanked in
both rural and urban areas. They are different from commercial banks or Deposit Money Banks
(DMBs) because they provide limited banking services tailored towards primarily to
designated catchment areas or various groups of active poor persons. Consequently, Micro
financing could be said to be provision of financial services to the less privileged or low
income households without access to formal financial institutions Conroy (2003).
The major purpose of Micro Finance Banks is to direct attention of purveying credit to small
scale Enterprises. In Nigeria, the micro finance Banking concept is an extension of the old
community banking system. Lerno (2007) described Microfinance banking as one of the prime
strategies for achieving Millennium Development Goals (MDGs), particularly targets that
relate to poverty reduction, gender equity and the empowerment of the disadvantaged groups
Abubakar (2009).
Theoretical Review
Bank Capital Theory
This theory implies that lending behaviour of banks to small and medium Enterprises (SMEs)
is heavily dependent on capital adequacy requirement. Anyanwu (2004) showed that a charge
in interest rate can influence bank’s lending to SMEs through banks’ external
49
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
The tending is for the microfinance banks to reduce supply of loan if the capital constraint
becomes binding. On the other hand, the banks could also become more willing to lend during
situations when the interest rate is favourable Adam (2007).
Empirical Review
Irobi (2005) investigated the impact of microfinance on entrepreneurial development of small scale
enterprises that are craving for growth and development in a stiffened economy like Nigeria. The
study reveals that there is significant difference in the number of entrepreneurs who use
microfinance institutions and those who do not use them. It also added that there is significant
effect of microfinance institution’s activities in predicting entrepreneurial development. The
researcher concludes that microfinance institutions globally and especially in Nigeria are identified
to be one of the key players in the financial industry that have positively affected individuals,
business organizations, other financial institutions, government and the economy at large through
the services they offer and the functions they perform in the economy Henri (2011).
Methodology
The methodology used in this study is presented in this section under the following sub-headings;
Research design, area of the study, population of the study, sample size and sampling techniques,
data collection, sources of data, statistical instrument used in data collection and analysis of data.
Research Design
This study is an empirical survey which aims at the restructuring of microfinance banks assets
affected by COVID 19 Pandemic in Nigeria.
Area of the Study/Population and Sample Size
The study was carried out based on the current status of MFBs as at December 31-2019 considering
National Microfinance banks that are 10 in number, State Microfinance banks 135 in Number and
Unit Microfinance banks numbering 766 totalling 911 microfinance Banks in Nigeria.
Method of Data Analysis
The main objective was analysed using descriptive statistical such as frequency distribution and
percentages using mean per capita cost of the assets affected by COVID 19 (MPCSAA) into
severely and moderately (MPCMAA) among the 911 microfinance Banks in Nigeria
Severely < 2/3 MPCSAA
Moderating > 2/3 MPCMAA
50
RESTRUCTURING OF THE ASSETS OF MICROFINANCE BANKS AFFECTED BY COVID 19 PANDEMIC IN NIGERIA
NWADIGHOHA CHINEDUM E, OGUNGBANGBE BASHIR MUYIWA & OGBONNA CHIKODI FERDINAND
Table 1: Empirical Indices of Microfinance banks Assets affected by COVID 19
National Microfinance
Banks
States Microfinance
Banks
Cash in vault
CBN cash Reserve
Treasury Bills
Loans and Advances
Other Financial
Instruments
Severely Affected
Severely Affected
Severely Affected
Severely Affected
Severely Affected
Severely Affected
Severely Affected
Severely Affected
Unit
Microfinance
Banks
Severely Affected
Severely Affected
Severely Affected
Severely Affected
Severely Affected
Severely Affected
Severely Affected
Land & Building
Moderately Affected
Moderately Affected
Equipment & Furniture
Moderately Affected
Moderately Affected
Motor Vehicles
Moderately Affected
Moderately Affected
Types of Assets
Moderately
Affected
Moderately
Affected
Moderately
Affected
Source: Field Survey 2021
Discussion of Findings
(i) The minimum capital requirement of MFBs stood as reported in the CBN circular dated
March 7, 2019 at N35million; this was communicated to the Department of Financial
Policy and Regulation (FPRD) of CBN to all MFBs to show faith and strive to meet
deadline and the window created for the restructuring of MFBs Assets affected by the
COVID 19 Pandemic to enhance their capital to be better positioned for the challenges
ahead. In addition, attention must be given to such assets that are perceived to be
severely affected and risk mitigation should also be applied to reduce their overall
adverse consequences on the equity capital of the MFBs.
(ii) The CBN also advised the MFBs to consider mergers and acquisitions between or
among banks of the same categories carrying out their business seamlessly within the
period of extension of the boundaries of operations granted by the CBN. This was
another window opening for Tier 1 Unit MFBs which are located in the rural area and
may be interested for re-categorization either upwards or downwards.
(iii) The MFBs are very slow to embrace the opportunity created by the CBN to cushion
the effect of the COVID 19 Pandemic and if the need be to seek for more clarification
on the adoption of assets revaluation, asset equity swap and cash payment for purpose
of meeting the capital regime is to inject fresh capital.
(iv) It was also found that investors were reluctant to invest in the MFBs because of little
or no returns and an appeal has to be made to CBN to enlighten prospective investors
on the need to invest in MFBs. The MFBs at this point need to improve their business
operations, corporate governance, risk management and marketing strategies to attract
investors.
Conclusion
In order to avoid sudden closure of MFBs in Nigeria the CBN advised that MFBs could engage
in the revaluation and capitalization of assets affected adversely by the COVID-19 Pandemic
51
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
to avoid contagious effect. This will also afford the MFBs the opportunity of orderly exit
should the need arise. The Period for the restructuring of the MFBs was to be at the end of
December, 2021 but was extended to 2022 to enable some of the FMBs who were not ready
to meet up the CBN guidelines and directives.
Recommendations
Consequent upon the findings; the following recommendations are made:
(i) The capital requirement for Tier I Unit Microfinance Bank in Nigeria could be reduced
further to ≤N35million and the period given for such assets that are severely affected
to be restructured should also be extended by one year from 2022;
(ii) The process of merger and acquisition takes a little longer period, in some complicated
situations consultants should be engaged and professional fees must be paid, the period
could also be extended to enable MFBs that are financially weak to cope with the
situation;
(iii) If the good intention of the CBN is to inject fresh capital into the MFBs in Nigeria, the
options of assets valuation, asset equity swap and cash payments may not be enough
but private placement and others may also be necessary;
(iv) Microfinance Banks in Nigeria, should be encouraged to diversify their products,
according to the need of their customers based on their environment, exploring
digitalization in banking to serve customers outside their catchment areas. Whilst some
may prefer trading on Treasury Bills, others on loans and advances, some in
agriculture, many may also explore payment services just like fintech companies. In
addition improvement in MFBs business operations, financial integrity and prudence,
corporate governance, risk management and marketing strategies would attract
customers, prospective investors and encourage sustainability.
References
Abubukar, H.H; (2009) Role of Micro Financial Policy in the Development of small scale
business, NUBMAF Journal, Zaria.
Acha, I.A. (2012) “Microfinance Banking in Nigeria a problems and Prospects” International
Journal of Finance and Accounting I (5); 106-111001:10.5923/j.ijfa. 2012 0105 104.
Adam; G. (2007) Impact of Microfinance on Poverty Alleviation in Nigeria. An Empirical
Investigation European Journal of Humanities and Social Sciences, Vol. 2(1); 7-15.
Anyanwu, C.M. (2004) Microfinance Institutions in Nigeria paper presented at the G4
workshop on constraints to growth in sub-Saharan Africa Pretoria, South Africa, Nov,
29th -30th.
CBN (2021) Microfinance Policy and Supervisory Framework for Nigeria Abuja: CBN
Conroy, J.D. (2003). The Challenges of Microfinancing in South East Asia. Singapore:
Institute of Southeast Asian studies.
Dahiru, M.A. and H. Zubair (2008) Microfinance in Nigeria and the prospects of introducing
its Islamic version in the light of the selected Muslim countries experiences Muriah
Personal REPEC Archive.
Irobi, N.C. (2008) Microfinance and poverty Alleviation: A case study of Obazu Progressive
Woman Association Mbieri Imo State, Nigeria.
52
RESTRUCTURING OF THE ASSETS OF MICROFINANCE BANKS AFFECTED BY COVID 19 PANDEMIC IN NIGERIA
NWADIGHOHA CHINEDUM E, OGUNGBANGBE BASHIR MUYIWA & OGBONNA CHIKODI FERDINAND
Jamil, B. (2008) microfinance as a tool for poverty alleviation in Nigeria paper presented at
sensitization workshop on Microfinance Banks in Kano State.
Ledger word, J. (2020) Microfinance Handbook: An Institutional and Financial Perspective
on Sustainable Banking with Banking with the poor Washington D.C. World Bank.
Nwadighoha (2020) Impact of Risk Management and Mitigation in Microfinance Banks in
Nigeria, ESUT Journal of Accounting Enugu State University of Science & Technology
Vol. 2(1) pages (13-21)
53
Journal of Accounting
Vol. 11 (1) January - June 2022
COMPANY INCOME TAX REFORM AND INTERNALLY GENERATED
REVENUE IN NIGERIA.
John-Akamelu, Chitom Racheal
Department of Accountancy, Faculty of Management Sciences Nnamdi Azikiwe University, Awka.
Anambra State, Nigeria.
Abstract
The study is set out to evaluate the effects of Company Income Tax (CIT) reforms on internally generated
revenue in Nigeria from 2004 to 2019. Data were extracted from Central Bank Statistical Bulletin. The
study employed regression analysis to test the formulated hypothesis with aid of E-View 9.0. Based on
the data analyzed, the study revealed that Company Income Tax (CIT) has a significant effect on
internally generated revenues in Nigeria. Consequently, the researchers recommended that there should
be continuous review and reforms in the Nigeria company income tax to reflect the current realities of
the modern economy since tax reform was found to have significant effect on revenue performance.
Keywords: CIT, Reforms, Internally Generated, Revenue, Economy, Nigeria
Introduction
Nigeria's government is based on a federal structure, and its operations are governed by
specific principles. In all of its operations, these principles are said to be the same (Odusola,
2016). Nigeria has three levels of government, with the federal, state, and local governments
sharing the country's fiscal power. These multiple levels of government are said to have
various tax sources, administrations, and jurisdictions. In 2002, different taxes and levies were
split among these three tiers of government, according to Odusola (2016). The political,
economic, and social goals and objectives of a country are entirely dependent on the income
earned in order to deliver a variety of services. Economic development and sustainability of
states and local government areas in Nigeria depend on the ability of the states and local
government to generate revenue internally to support the revenue allocation from federation
account.
The various tax reforms were intended to increase the tax base, lower tax burdens on taxpayers,
restore taxpayer confidence in the tax system, and encourage voluntary compliance on the part
of taxpayers. The ultimate purpose of tax reform, in general, is to increase public internal
revenue production." As a result, the expectation is to increase revenue generation by enacting
appropriate legislation to close loopholes in the existing tax structure by establishing efficient,
effective, resilient, and responsive fiscal institutions to improve administration, assessment,
and collection, make them more accountable, and encourage tax payers to pay their taxes
voluntarily. The more robust the tax reforms, the more efficient the tax system and its structure,
and the better the yield from tax revenue generation (Ebieri & Ekwueme, 2016).
Tax reforms are deliberate and continuous actions by government and its agencies to alter the
existing tax laws and policies to positively impact on the tax administration and collection
process with minimal cost. Oriakhi and Ahuru (2014) opined that “tax reform is simply the
54
COMPANY INCOME TAX REFORM AND INTERNALLY GENERATED REVENUE IN NIGERIA.
JOHN-AKAMELU, CHITOM RACHEAL
series of actions taken by Nigerian government to promote the tax system. It is not novel as
Nigeria has embarked on series of tax reforms.
Prior to tax reforms, tax administration was characterized by inefficiencies, such as flaws in
the tax administration and collection system, complex legislation, and apathy on the part of
individuals outside the tax nets. The empirical literature reflects the difference of theoretical
opinions on the relationship between tax reforms and productivity. According to Udeozo and
Onuora 2021; Adum 2018 whose works assessed the effects of tax reforms on revenue
performance in Nigeria and found out that there is a poor association between tax reforms and
production. Relatedly Ebieri and Ekwueme, 2016; Ebi and Ayodele, 2017 in their works
examined the impact of tax reforms on economic growth in Nigeria and tax reforms and tax
yield in Nigeria and their results showed that tax reforms had a positive impact on tax yield. It
is on this backdrop, the current study determine the effect of Company Income Tax reforms
on Internally Generated Revenue in Nigeria. It is on this note that researchers formulated
hypothesis stated in their null form to navigate the study thus:
HO: Company Income Tax reform has no significant effect on internally generated revenues
in Nigeria.
Review of Related Literature
Conceptual Review.
Concept of Taxation
Taxation is described as a mandatory levy imposed by the government on the residents of a
country in order to produce revenue for general administration (Anyanwu, 2017). Whether or
not it is named a tax, a tax is any mandatory payment to the government imposed by law
without direct benefit or return of value or a service (National tax policy, 2012). Tax is a
mandatory fee levied by a country's government on individuals and business organizations in
exchange for the government's expected return of service. Appah (2014) tax is a compulsory
levy imposed on a subject or upon his property by the government to provide security, social
amenities, and create conditions for the economic well-being of the society. Tax can be said
to be imposed to regulate the production of certain goods and services, protection of infant
industries, control business and curb inflation, reduce income inequalities, etc (Anyanwu,
2017). Odusola (2016), tax reforms are necessary to address specific demands, such as the
necessity for the country to diversify its revenue portfolio to protect against crude oil price
volatility and to enhance fiscal sustainability and economic viability at lower levels of
government. Another rationale for tax reform, according to Odusola, is that Nigeria runs a cash
budget system, in which expenditure plans are made and implemented based on income
earned. This makes it easier to determine the best tax rate for a particular level of spending.
Company Income Tax
Company income tax is a government-imposed tax on the earnings and profits of businesses
functioning in the country. The Companies Income Tax Act is the law that governs the
administration of Companies Income Tax. The law which was first passed in 1971, has been
55
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
amended numerous times, the most recent being in Feb. of 2017. The Companies Income Tax
(CIT) is a tax imposed in Nigeria on the profits of registered businesses. It also covers the tax
on earnings made by international corporations doing business in Nigeria. Limited liability
firms, including public limited liability companies, pay the tax. As a result, it's often referred
to as the corporate tax (Onyeyiri, 2019). The rate is 30% of total profit for income tax and 2%
of assessable profit for education tax. Total profit is profit after deducting previous year losses
carried forward and capital allowances. Assessable profit is obtained prior to deducting capital
allowances. Resident companies are incorporated under the Companies and Allied Matters Act
(CAMA) 2004. The administration of the Companies Income Tax is vested on the Federal
Inland Revenue Service which used to be known as the Federal Board of Inland Revenue
(FBIR) until the enactment of the Federal Inland Revenue Establishment Act in April, 2007
which scrapped the FBIR and replaced it with Federal Inland Revenue Service (Pwc, 2019).
In Nigeria, the current tax rate for a firm in any year of assessment is 30%. Profits accruing in,
derived from, imported into, or received in Nigeria are subject to taxation. These earnings are
derived from the following activities: Rent or any premium originating from a privilege
granted to anybody for the use or possession of any property; Dividends, interest, discounts,
royalties, charges, or annuities; etc. Any source of annual income that does not fall within one
of the preceding categories; For services done, fees, dues, and allowances; Any profit or gain
derived from the purchase or sale of short-term money instruments such as federal government
securities, Treasury Bills and Savings Certificates, Debenture Certificates and Treasury
Bonds. Any amount deemed to be income or profit with respect to any benefit arising from a
pension or provident fund under the Personal income tax act (Olumuyiwa, 2019).
The federal Inland Revenue service is charged with the responsibility to administer tax. The
CITA policy regime is divided into two phases; the pre-1992 phase, and the post-1992 phase.
The pre-1992 phase involves the increase in tax rate and overburdening of taxpayers that
resulted to negative effect on saving and investment. However, the post-1992 took measures
and addressed the structural problems such as excess profit which was eliminated in 1991, the
capital transfer tax scrapped in 1996, the reduction of tax rates on company profits payable on
trade profits from 45% in 1986 to 40% in 1987 to 1991, then it was further reduced to 35%
from 1992 to 1995, and then to 30% from 1996 to date. There’s a 20% concession (limited to
five years of operation) for agricultural companies, mining companies with a turnover of
#0.5million, and manufacturing companies or exporting companies with a turnover not
exceeding #1 million. And 30% has been the approved tax rate for corporate organizations.
Company Income Tax (Amendment) 2017
The companies income tax and companies income tax Act. Cap. 20th February, 2017 for
related matters 60 LFN, 1990 and among other things make it more responsive to the tax
reform policies of the Federal Government and enhance its implementation and effectiveness.
The National Assembly may on the proposal by the president by a resolution of each of the
House of the National Assembly impose, increase, reduce, withdraw or cancel any rate of tax,
56
COMPANY INCOME TAX REFORM AND INTERNALLY GENERATED REVENUE IN NIGERIA.
JOHN-AKAMELU, CHITOM RACHEAL
duty or fee changeable specified in section 29 and second schedule to the Act in accordance
with section 5a (2) of the constitution of the federal republic of Nigeria 1999.
Theoretical Reviews
Keynesian theory of income.
The study is anchored on Keynesian theory of income as propounded by John Maynard Keynes
in 1945. This theory is based on the premise when firms are faced with the problem or issue
of generating income or revenue. The theorist states that due to working of free market forces
(wages and price being flexible) this made total employment and output in the economy to
fully employment ones without much loss of funds. Involuntary unemployment is a situation
where people are willing to work at a prevailing wage rate but fails to find work level of
national income and so employment is determined by aggregate demand and supply in the
country. The equilibrium of national income occurs where aggregate decimal is equal to
aggregate supply.
Empirical Review
Udezo and Onuora (2021) investigated the effect of tax reforms on revenue performance in
Nigeria using time series data from 1991 to 2018. Augmented Dickey Fuller (ADF) statistics,
co integration test and multiple regression model analysis were employed to test hypotheses
with E-view 8. Ex-post facto research design was adopted and data for the study were obtained
from the National Bureau of Statistics, Central Bank of Nigeria (CBN) statistical Bulletin and
Federal Inland Revenue Service (FIRS) database. The regression result showed that reforms
in Value Added Tax (VAT), Personal Income Tax (PIT) and Petroleum Profit Tax (PPT) have
significant positive effect on revenue performance while reform in Company Income Tax
(CIT) has positive but insignificant effect on revenue performance in Nigeria with data
spanning from 1991-2018 at 0.05 level of significance.
Asaolu, Olabisi, Akinbode and Alebiosu (2018) examined the relationship between tax income
and financial growth in Nigeria. The study adopted a descriptive and historical lookup design;
secondary information for twenty-two years (1994 -2015). Data were collected from a variety
of issues of the Central Bank of Nigeria (CBN) statistical bulletin and annual reports. Tax
income as an unbiased variable used to be measured with Value Added Tax (VAT); Petroleum
Profit Tax (PPT); Company Income Tax (CIT) and Custom and Excise Duties (CED) while
the based variable was Economic Growth (EG) proxied by way of the Gross Domestic Product
(GDP). Analysis was carried out on information collected using Auto Regressive Distributed
Lag (ARDL) Regression and other put up estimations (Jarque-Bera test; Breusch-Godfrey LM
and Ramsey Reset Test) to decide the existence of relationship between the variables. The
consequences of the study showed that VAT and CED had a considerable relationships with
financial increase (p<0.05), whilst CIT has bad substantial relationship with financial growth
(P<0.05). However, PPT had no massive relationship with economic growth. Adum, (2018)
examined the burning issues in the Nigeria tax system, tax reforms, and how they affect
revenue generation in River State, Nigeria. Data were generated through primary sources and
57
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
the use of multiple regression analysis was employed. The t-test was used to establish
sufficient evidence that the correlation coefficient is not zero. The F-statistic was also used in
terms of testing for the model’s overall significance. The result indicated that tax reforms have
positive relationship with and influence revenue generation very significantly as better reforms
will lead to increase in total revenue. It was revealed that tax evasion and avoidance are
negatively related with revenue generation because increase in such practices brings about
very significant reduction in total revenue.
Yahaya and Bakare (2018) evaluated the effect of petroleum earnings tax and business
enterprise income tax on Nigerian financial system growth. Fully Modified Least Square
(FMOLS) Regression Technique was used to estimate the mannequin over 34 years period
(1981-2014) while Augmented Dickey Fuller Unit Root Test and Single Equation Cointegration Test were carried out. It was located that petroleum profit tax (PPT) and
organization income tax (CIT) have superb considerable effect on gross domestic product
(GDP) in Nigeria with the Adjusted R² of 87.6% which without delay enhanced growth in
Nigeria. The study concluded that PPT and CIT served as the principal source of income to
the Nigeria economy, and make contributions to the increase of Nigeria economy.
Arowoshegbe, Uniamikogbo and Aigienohuwa (2017) explored the effect of tax income on
the financial growth of Nigeria, proxied through Gross Domestic Product (GDP). Data had
been accumulated from secondary sources, that was, the Statistical Bulletins of Federal Inland
Revenue Service and the Central Bank of Nigeria respectively for the length 1995 to 2015.
Econometric Model of Multiple Linear Regressions and Ordinary Least Square (OLS)
technique have been adopted to discover the relationship between GDP (the structured
variable) and a set of government earnings tax income had over the length of 1995 to 2015.
Findings showed that tax revenues that decide government financial boom are Petroleum Profit
Tax and Company Income Tax.
Gbegi, Adebisi and Bodunde (2017) examined the effect of petroleum profit tax (PPT) on
Profitability of oil and fuel companies in Nigeria, in line with the objectives of the study,
secondary facts were obtained from economic announcement of ten (10) selected oil and fuel
company protecting the duration of 2011 to 2015. Panel statistics have been deployed and both
descriptive records and multiple regressions method employed to establish the effect of PPT
rate on profitability oil and gasoline firms. Petroleum profit tax used to be determined to have
good results on the Profitability of oil and gasoline companies with the adjusted R2of 95%.
The study revealed that taxes paid through oil and gasoline industries have a downward impact
on profitability of oil and gas industries.
Yahaya and Bakarie (2018) carried out a longitudinal assessment of tax reforms and national
income in Nigeria using time series data from 1971 to 2014. The study employed gross
domestic product as the dependent variable while Company Income Tax (CIT), Personal
Income Tax (PIT), Value Added Tax (VAT), Petroleum Profit Tax (PPT) and Custom and
Excise Duties (CED) were employed as the independent variable. Ordinary least square
regression was employed as the analytical technique. Diagnostic tests (F statistics, Adjusted
R-Square and Durbin-Watson) were carried out to ascertain the robustness of the parameter
58
COMPANY INCOME TAX REFORM AND INTERNALLY GENERATED REVENUE IN NIGERIA.
JOHN-AKAMELU, CHITOM RACHEAL
estimates. The study found that tax reforms significantly improved national income and
economic growth during the period of study, especially growth rates of Value Added Tax
(VAT) and Personal Income Tax (PIT). The results show that growth rate of Personal Income
Tax (PIT) has a positive significant effect on the national income and economic growth. Ebieri
and Ekwueme (2016) carried out an assessment of the impact of tax reforms on economic
growth in Nigeria. Time series data were extracted from the Central Bank of Nigeria statistical
bulletin, Federal Inland Revenue Service and Federal Ministry of Finance from the period
1985 to 2011. The ordinary least squares based multiple regression was adopted to analyze the
data. The study found that the adjusted R-square of 0.99 implies that 99% of the total variation
in gross domestic product, that is economic growth, is as a result of variation in Petroleum
Profit Tax (PPT), Company Income Tax (CIT), customs and excise duties, Value Added Tax
(VAT), Personal Income Tax (PIT) and education tax and tax reforms in Nigeria. Customs and
excise duties, Value Added Tax (VAT), Personal Income Tax (PIT) and education tax have
no statistical significant impact on economic growth at 5% level of significance. However,
Petroleum Profit Tax (PPT) and Company Income Tax (CIT) each has positive significant
impact on economic growth at 0.35% and 2.87% level of significance respectively.
Asaolu, Dopemu, and Monday (2015) examined the impact of tax reforms on revenue
generation in Lagos state using a time series quarterly data between the period of 1999 and
2012. The data generated were analyzed using ordinary least square regression techniques
(OLS). In this study, total revenue generated was employed as the dependent variable while
tax payers and education and programmes were employed as the independent variable. The
study showed that Lagos state tax reforms had positive and significant effect on the revenue
structure of the State.
Taiwo, Samson, and Monday, (2015) investigated the impact of tax reforms on revenue generation
in Lagos State of Nigeria using Time Series quarterly data between the period of 1999 and 2012,
obtained from the records of Tax Payer Statistics and the Revenue Status Report of Lagos State
Internal Revenue Service (LIRS). Data collected were analyzed using ordinary least square
regression techniques (OLS). The study showed that Lagos State captured more people into the
tax net as there was a continuous increase in taxpayers’ cumulative growth (more than 20% each
year); and found that the primary source of revenue generation in Lagos State was the internally
generated revenue (IGR) in which tax revenue constituted about 80%. The result revealed that
between 1999 and 2005, there was no noticeable increase in revenue generated from tax; but from
2006, there was a sharp, steady and noticeable increase in the tax revenue generated. The study
concluded that tax reforms had significantly contributed to revenue generation in Lagos State,
which had enabled the state to carry her responsibilities to the citizenry with less reliance on the
Federal Government.
Oriakhi and Ahuru (2014) investigated the impact of tax reform on Federal internal revenue
generation in Nigeria. The study employed annual time series data spanning the years (19812011). In this study, Federally Collected Revenue (FCR) was employed as the dependent
variable while Value Added Tax (VAT), Company Income Tax (CIT), Petroleum Profit Tax
59
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
(PPT) and Custom and Excise Duties (CED) were employed as the independent variable.
Augmented Dickey fuller test, Johansson’s co-integration test, Granger Causality test, Partial
Stock Adjustment Model and error correction model were employed in analyzing the data
generated. The Johansson’s co-integration test shows that long-run relationship exists between
tax reform and federally collected revenue in Nigeria. The Granger causality shows that
custom and excise Duties and value-added Tax granger causes federally collected revenue.
The Partial Stock Adjustment Model shows that the various income taxes were statistically
significant and have positive relationship with federally collected revenue. The coefficient of
the error correction model showed that 66.2940 percent of the deviation of federally collected
revenue from its long-run equilibrium value can be reconciled yearly.
Methodology
Research Design
This study adopted an ex-post factor research design based on the fact that the study seeks to
examine the impact of past factor(s) on the present happening or event, and its strengths as the
most appropriate design to use when it is not always possible to select, control and manipulate
all or any of the independent variables. The data for this study were collected from secondary
source. These sources include The Central Bank of Nigeria Annual Report and Central Bank
of Nigeria Statistical Bullion, Journal from the Nigerian Stock Exchange, and Nigerian Bureau
of Statistics.
Model Specification
The model that was adopted in this study is that of Mayandy (2012) in the study of the
Wagner’s Law in Sri Lanka. The model can be represented as:
IGR = f (a + xCIT + xPPT +xVAT +ut-1) ……………………………….. (1)
This model for simplicity sake was presented in mathematical terms as depicted below
IGR = β0 + β1CIT + μ
Where:
IGR = Internally Generated Revenue,
CIT = Company Income Tax.
Β0 – β1 = coefficient of estimates
μ - Stochastic variable
F - Functional notation
Methods of Data Analysis
Regression statistical tool was employed for the analysis of the hypothesis formulated in this
research work with use of E-views version 9.0 statistical packages. E-views provide a lot of
useful statistical tools for evaluating data in testing the study hypothesis.
Decision rule
Accept the null hypothesis if the P-Value is greater than 0.05 and then the alternate hypothesis
will be rejected.
60
COMPANY INCOME TAX REFORM AND INTERNALLY GENERATED REVENUE IN NIGERIA.
JOHN-AKAMELU, CHITOM RACHEAL
Data Analysis
Table 1: Descriptive Statistics
IGR
Mean
Median
Maximum
Minimum
Std. Dev.
Skewness
Kurtosis
Jarque-Bera
Probability
Sum
Sum Sq. Dev.
Observations
2881201.
2905500.
5320001.
433000.9
1733870.
-0.018169
1.578770
1.684345
0.430774
57624013
5.71E+13
16
CIT
552493.9
603819.4
1408434.
55474.14
400513.1
0.409121
2.247254
1.030122
0.597464
11049879
3.05E+12
16
Interpretation
Table 1 presents the descriptive statistics for the dependent variable (IGR) and the independent
variable (CIT). The mean serves as a tool for setting benchmark. The median re-ranks and
takes the central tendency. While the maximum and minimum values help in detecting
problem in a data. The standard deviation shows the deviation/dispersion/variation from the
mean. It is a measure of risk. The standard deviation is a measure that summarizes the amount
by which every value within a dataset varies from the mean. It is the most robust and widely
used measure of dispersion. The standard deviation in the tax revenues for the period 20042019 is 1733870 and 400513 for IGR and CIT respectively. Skewness and Kurtosis are
contained in Jarque-Bera. Positively skewed is an indication of a rise in profit while negatively
skewed is an indication of loss or backwardness. Jarque-bera is used to test for normality; to
know whether the data are normally distributed.
Hypothesis Testing
HO: Company Income Tax reform has no significant effect on internally generated revenues
in Nigeria.
HI: Company Income Tax reform has a significant effect on internally generated revenues
in Nigeria.
61
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Table 2: Ordinary Least Square analysis between IGR and CIT
Dependent Variable: IGR
Method: Least Squares
Date: 08/15/21 Time: 11:20
Sample: 2004- 2019
Included observations: 16
Variable
C
CIT
R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)
Coefficient
Std. Error
t-Statistic
Prob.
898647.5
3.588371
386149.8
0.570813
2.327199
6.286421
0.0318
0.0000
0.687060
0.669675
996523.3
1.79E+13
-303.5657
39.51909
0.000006
Mean dependent var
S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat
2881201.
1733870.
30.55657
30.65615
30.57601
0.937369
In table 2, a panel least square regression analysis was conducted to test the relationship
between company income tax (CIT) and internal generated revenue (IGR). Adjusted R squared
is coefficient of determination which tells us the variation in the dependent variable due to
changes in the independent variable. From the findings in the table 4.4, the value of adjusted
R squared was 0.669, an indication that there was variation of 67% on IGR due to changes in
CIT. This implies that only 67% changes in IGR of the economy could be accounted for by
CIT, while 33% was explained by unknown variables that were not included in the model. The
probability of the slope coefficients indicate that; P (0.00<0.05). The co-efficient value of; β1=
3.588 implies that CIT is positively related to IGR, and this is statistically significant at 5%.
The Durbin-Watson Statistic of 0.937369 suggests that the model does not contain serial
correlation. The F-statistic of the IGR regression is equal to 39.519 and the associated Fstatistic probability is equal to 0.0000, so the null hypothesis was rejected and the alternative
hypothesis was accepted.
Decision Rule:
Accept H0 if the P-value of the test is greater than 0.05, otherwise reject.
Decision
Since the Probability (F-statistic) of 0.000006 is less than the critical value of 5% (0.05), then,
it would be upheld that Company Income Tax (CIT) has a significant effect on internally
generated revenues in Nigeria at 5% level of significance, thus, H1 is preferred over Ho.
Discussion of Finding
In the hypothesis, the Prob (F-statistic) of 0.000006 is less than the critical value of 5% (0.05),
then, it would be upheld that Company Income Tax (CIT) has a significant effect on internally
generated revenues in Nigeria at 5% level of significance. This result is in line with the finding
62
COMPANY INCOME TAX REFORM AND INTERNALLY GENERATED REVENUE IN NIGERIA.
JOHN-AKAMELU, CHITOM RACHEAL
of Ebieri and Ekwueme (2016) shows that Company Income Tax (CIT) has positive significant
impact on economic growth at 2.87% level of significance and negate the finding of Udezo
and Onuora (2021) who reported that (CIT) has positive but insignificant effect on revenue
performance in Nigeria with data spanning from 1991-2018 at 0.05 level of significance.
This study examines the impact of tax reforms on Nigeria's internally generated revenue,
taking into account the limitations found in prior research. The regression result revealed that,
at a 5% level of significance, CIT reform had a considerable impact on internally produced
revenues in Nigeria. Based on the aforementioned, the study indicates that tax reform has a
major impact on internally generated revenue, increasing the Nigerian economy's revenue
performance. According to the findings of the study, the researchers urge that the Nigerian
business income tax be reviewed and reformed on a regular basis to reflect the current realities
of the modern economy, as tax reform has been shown to have a major impact on revenue
performance.
Summary of Findings, Conclusion and Recommendations
Summary of Findings
1. There is significant effect of company income tax reform on revenue performance in
Nigerian firms.
2. Company income tax reform has a positive influence on revenue generation in Nigerian
corporate firms.
Conclusion
The study concludes that on the basis of effective use of company income tax reform
directives, firms perform better in terms of internally generated revenue. It was found that a
viable company income tax reform promotes revenue performance, revenue generation,
increase gross domestic income (GDI) of Nigerian. The study also asserts that good CIT
promotes and support Nigerian political, cultural and socio- economic development. It also
gives raise to massive employment generation.
Recommendations
Based on our findings above, the following recommendations were made by this study:
1. Investors, business managers should access the CIT reform gazette to find out how to
improve on internally generated funds of their firms.
2. Tax authority should use the result of this CIT reform to determine the extent of firm’s
tax aggressiveness strategy, which can lead to maximum revenue generation.
3. There should be continuous tax review and reforms in Nigerian corporate companies as
to reflect current realities of the modern economy since tax reform was found to have
significant effect in revenue performance.
References
Adum S. O., (2018). Burning Issues in the Nigeria Tax System and Tax Reforms on Revenue
Generation: Evidence from Rivers State, International Journal of Finance and
Accounting, Vol. 7 No. 2, 2018, pp. 36-48.doi: 10.5923/j.ijfa.20180702.03.
63
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Anyanwu, A. (2017). Tax Policy Reforms in Nigeria- Research Paper No 2006/3, United
Nations University-World Institute for Development Economics Research.
Appah, T.M (2014): Impact of Tax Reform on Revenue Generation In Lagos State: A Time
Series Approach. Research Journal of finance and Accounting. ISSN 2222-1697 (paper);
2222-2847 (online), Vol. 6, no.8 2015.
Arowoshegbe A.O., Uniamikogbo, E., & Aigienohuwa, O.O. (2017). Tax Revenue and
Economic Growth of Nigeria. Scholars Journal of Economics, Business and
Management, 4(10), 696-702.
Asaolu, T. O., Dopemu, S. O., & Monday, J. U. (2015). Impact of tax reforms on revenue
generation in Lagos State: A time series approach. Research Journal of Finance and
Accounting, 6(8), 85 - 96.
Ebieri, J., & Ekwueme, D. C. (2016). Assessment of the impact of tax reforms on economic
growth in Nigeria. Journal of Accounting and Financial Management, 2(2), 15 - 28.
Ebi, M. O., & Ayodele, O. (2017). Tax reform and tax yield in Nigeria. International Journal
of Economic and Financial Issues, 7(3), 768-778.
Gbegi, D.O., Adebisi, J.F., & Bodunde, T. (2017). The effect of petroleum profit tax on the
profitability of listed oil and gas companies in Nigeria. American International Journal
of Social Science, 6(2), 40-46.
Kiabel B. D. (2014). Personal Income Tax in Nigeria. 3rd Edition, Springfield Publishers,
Owerri.
Odusola, A .F. (2016): Tax Policy Reforms in Nigeria. World Institute for Development.
Economics
Research.
Retrieved
From
https://www.econstor.eu/dspace/bitstream/10419/63285
Olumuyiwa, B. (2019). Company income tax. https://www.legit.ng/1179976-how-calculatecompany-income-tax-nigeria.html. retrieved 09/06/2019
Onyeyiri, U. (2019). Taxation of companies under Nigeria’s companies income tax Act
2011,http://www.qeeva.com/taxation-companies-nigerias-companies-income-tax-act2011/. Retrieved 29/06/2019.
Oriakhi, D. E. & Ahuru, R. R. (2014). the impact of tax reform on federal revenue generation
in Nigeria. Journal of Policy and Development Studies 9(1).ISSN: 157-9385
Pwc. (2019). Taxes on corporate income. http://taxsummaries.pwc.com/ID/NigeriaCorporate-Taxes-on-corporate-income. Retrieved 06/04/2019.
Taiwo O. A., Samson O. D., & Monday J. U., (2015). Impact of Tax Reforms on Revenue
Generation in Lagos State: A Time Series Approach. Research Journal of Finance and
Accounting 6(8):85-96 · January 2015
Udezo, N. O. & Onuora, J.K.J., (2021).Effect of tax reforms on revenue performance in
Nigeria. Journal of Innovative Finance and Economics Research 9(1):118-130, ISSN:
2360-896X; = www.seahipaj.org
Yahaya, K.A., & Bakare, T.O. (2018). Effect of petroleum profit tax and companies income
tax on economic growth in Nigeria. Journal of Public Administration, Finance and
Law, 1(3)100-121.
64
Journal of Accounting
Vol. 11 (1) January - June 2022
TAX PLANNING AND GROWTH OF BUSINESSES IN NORTH EASTERN
NIGERIA
Sani Ilemona1, Nwite Sunday2
1
2
Department of Accounting Federal University, Kashere, Gombe State, Nigeria
Department of Business Management Ebonyi State University, Abakaliki, Nigeria
Abstract
The aim of this study was to ascertain whether business owners and managers in Nigeria are aware of
tax planning schemes and its implementation strategy for the growth of their businesses using a sample
of thirty (30) Small and Medium Scale Enterprises (SMEs) across three states in Nigeria namely; Gombe,
Bauchi and Adamawa states. Questionnaires were used to gather data for the study and analysed using
mean, standard deviation, percentages, ranking and application of Central Limit Theorem (Z) and
correlation techniques with the aid of Statistical Package for Social Sciences (SPSS) version 16.
Findings indicated that a large proportion approximately 97% of the businesses do not take advantage
of tax planning to minimize their burden for reasons ranging from inability to interpret Nigerian laws
for tax planning purpose to insecurity that renders business activities unpredictable hence inability to
plan business income. This study provides new insight into how businesses in Nigeria can successfully
undertake and implement tax planning strategies to facilitate growth. It has allowed us to analyze the
benefits that can accrue to businesses undertaking and successfully implementing tax planning strategies
within the Nigerian context.
Keywords: Businesses, Lingering Insecurity, Tax Education, Tax Burden, Tax Planning.
Introduction
Business transactions are increasingly becoming complex in modern day society. The
complexity of transactions has given rise to growth of complexities relating to tax
computations. Rules/laws that guide business operation do change from time to time not only
within a particular country but also across nations therefore it behooves on businesses to
correctly asses the tax implication of the changes (Ogundare & Ayoola, 2017). The assessment
of ever changing tax laws is quite necessary for businesses (Tax payers) because tax liability
(burden) often times can impede growth/expansion and profitability (Hyes & Walter, 2014).
A key advantage of tax implication of assessment of laws relating to business taxation is that
it offers a lot of genuine opportunities for leverage where by a business can arrange its affairs
in such a manner as to reduce its tax burden. The objective of the arrangement of the affairs
(tax planning) is not to avoid payment of taxes (tax evasion) but, to explore loopholes or
opportunities in tax laws, interpret the loopholes correctly and applying it to differ, reduce or
outrightly eliminate business tax liability.
Basically, there are two types of tax planning namely: (i) purposive tax planning implemented
to attain a particular objective and (ii) permissive tax planning carried out under the provision
of a country’s taxation laws to attain certain goals. The overall essence of the implementation
of any or both types is reduction of tax burden and it is the right of tax payers to explore (Daltti
& Diallo 2016). It is in support of right that a judge of British court stated that a tax payer is
entitled to be astute to prevent so far as he honestly and lawfully can , the depletion of his/her
65
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
means by the revenue authority. The prevention is achieved through tax planning effort of a
tax payer (individual or business concern) with the assistance tax experts skilled in tax laws
operating in a particular jurisdiction (Frednard & Cole, 2014).
In Nigeria, tax planning is legally supported by law. For instance in Akinsete Syndicate V
Senior Inspector of Taxes Akure, it was held that a person or tax payer may use lawful means
to avoid tax against unlawful tax evasion. This decision followed that of English court in Duke
of West minister VCIR (4) where it was held that every tax payer is entitle if the payer can
order his/her affairs so that the tax attaching under the appropriate Act is less than it otherwise
would be. Similarly in JGC corporation VFIRS (2016) 22 TLRN 37, the Federal High Court
Lagos Division upheld the right of taxpayer to embark on tax planning
implementation/exercise to structure their transactions in such a manner as to lawfully reduce
to the barest but permissible minimum tax liability. These judicial decisions are affirmation of
unanimous legal position that once a tax planning is valid under an applicable law, courts
would uphold such scheme on the basis that tax payers are entitle to arrange their affairs in
such a manner as to lessen their tax burden.
The scheme requires detailed knowledge of tax legislation of a particular jurisdiction where a
tax payer operates and advisory services of tax experts who are in position to recommend
options for effective management of tax affairs without breaching the law especially in a
multilayer tax system like that of Nigeria (Tahir & Kulta, 2017; Onmen, 2018).
In Nigeria, tax planning is legally permitted and applicable under certain circumstances and
timing of certain transactions. Such circumstances and timing of transactions according to
Bonlale and Wasiu (2020) include timing of fixed assets acquisition and disposal, timing of
capital allowances claim and the right amount to claim, decision to hire assets against outright
purchase, making specific instead of general provisions and consideration of various tax
incentives available for investment decisions. Other matters for consideration in tax planning
permitted under the Nigerian tax law are critical dates for business transactions. These dates
according to Tahir and Kulta (2017) include, date of filing of returns, filing of notice of
objection, monthly remittances of withholding to revenue authority, value Added Tax returns
and remittances to revenue authority. The benefits of knowing these timing for making returns
is better decisions under certain circumstance(s), and exploring the loopholes in the relevant
tax legislation is to reduce the amount of taxes payable. The reduction is largely achieved
through maximization of deductibles and reinvestment of funds that would otherwise have
been can marked for tax back into the business for growth (Perchels & Harvey 2016). It is in
recognition of the potency of tax planning in growing businesses that Fakayode and Dare
(2018) stated that without Savvy Tax planning, many businesses in Nigeria would have been
losing millions of naira. But with tax planning, tax payers have been able to consciously and
honestly arrange their affairs, maximize deductibles and reinvest income saved for growth.
However, with the gamut of socio-economic challenges faced by businesses particularly in the
North Eastern part of the country in terms of insecurity, the comfort of knowing the intricacies
of tax planning and the associated benefit is quite in doubt (Bolanle & Wasiu, 2018). The
66
TAX PLANNING: AN INVESTIGATION OF THE RATE OF ITS IMPLEMENTATION FOR GROWTH OF
BUSINESSES IN NORTH EASTERN NIGERIA
Sani Ilemona & Nwite Sunday
starting points for a successful tax planning by any business is knowing the benefit of the tool,
identification of loopholes in applicable tax laws and engaging in tax planning schemes with
the advisory services of tax experts (Gibert & Mordecai, 2018). Considering these issues the
specific objectives of these study are formulated:


To investigate through the perception of varied business owners and managers
particularly those in North Eastern part of Nigeria whether they are aware or not of tax
planning schemes as a tool that can be employed in arranging their business affairs and
the benefits of such schemes
To ascertain whether they are conversant with relevant provisions of Nigerian tax to
apply in preparing their affairs for the purpose of tax planning schemes and reasons if
any for implementation or non-implementation of the schemes.
Review of Related Literature
Conceptual Review
Tax Planning
It is desirable for tax payers to engage in schemes legally in order to minimize their tax burden.
The schemes otherwise known as Tax Planning (TP) refers to measures by which tax payers
arrange their affairs and operations in lawful manner to attract the lowest tax burden (Fisher
& Donald, 2015). The schemes involves deliberate lawful efforts of tax payers to utilize all
legally permissible allowances, reliefs, deductions, concessions, exemptions, rebates,
incentives and so on available under tax laws of a jurisdiction to minimize tax liability. Thus,
Ken, Patrick, Patrick, Ornell and Dalus (2018) viewed TP as conscious legal efforts of a tax
payer to consider tax burden to be discharged at future date and engaging in schemes to
minimize it. Tax planning therefore is a legal right of a tax payer to devise means avoid tax
burden against tax evasion by paying minimum possible tax. Thus (Valmer & Pesch, 2015;
Taylor, 2016; Rashfa, 2018) opined that TP is an art of limiting the tax burden of a payer
without breaking that law using devices such as utilization of allowable allowances, deductable
expenses, careful of consideration and choice of accounting dates of a business and so on to
minimize tax liability. It entails detailed knowledge of tax legislation of a country its
application in particular transaction or circumstances, identification of available loopholes and
taking advantage of it for tax liability reduction for the purpose of profit maximization and
growth. TP is a deliberate activity and a careful arrangement of affairs and transactions that
involves skilled interpretation and application of tax laws by tax payers to defer, reduce and
sometimes out rightly eliminate tax liability to be borne in future (Ronald & Leo, 2017).
Identification of loopholes in tax laws and implementation of the applicable laws for TP
purpose is a skilled activity that requires advisory service of expert knowledgeable in tax
legislation. The skilled activity mainly demands profit planning, the time that the profit will
be earned, timing of payment of the applicable tax on such profit and taking available
incentives that can be of tremendous financial advantage for continuing a business (Ultcher &
67
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
McDonald, 2014). TP is therefore a profit boosting tool. The tool if properly deployed under
the guidance of tax experts, an enterprise can lessen/minimize its tax burden (Onmen, 2018).
Empirical Review
Andre and Antonio (2012) conducted a study on efficient tax planning: An analysis of its
relationship with market risk. The aim was to ascertain how firms’ tax efficiency achieved by
successful tax planning can reduce their risk in relation to capital market. Data for the study
were sourced from sample of 86 companies listed on the B&M Bovespa drawn from eight
economic sectors over a five year period. The analysis was done using panel-data regression
of the Ordinary Least Square (OLS) method with fixed effect estimators. Findings indicated a
negative and significant relationship between market risk and tax planning efficiency index of
firms that have good governance practice.
Jaron and Ryan (2018) did a study on perspectives on corporate tax planning: Observation
form past decade. The study was survey of literature on the development on corporate tax
planning. It was discovered that a combination of political, economic and technological factors
have fueled public awareness of corporate tax planning activity.
Tye and Nor (2018) studied the roles of tax planning in market valuation of corporate social
responsibilities. The study examined tax planning activities for their direct mediating and
moderating roles. The study used non-financial Malaysian listed companies for 8 years (20082015) as sample. The results of panel regression models indicated that tax planning moderate
companies’ markets valuation of corporate social responsibility positively suggesting that
shareholders increasingly value TP.
John, Michell, Terry and Nemit (2014) investigated incentives for tax planning: Evidence from
the field. The result of a survey of 600 corporate executives and managers engaged in tax
planning indicated that increase in earnings per share is an outcome from TP strategy.
Carisa (2017) did a study on comparative analysis of tax planning implementation to income
tax payment on company. The aim was to analyze how tax planning can make company is tax
liability less. Data for the study were collected from a company engaged in trading sector. The
analysis was done using paired T-test statistical model. The results showed that TP has reduced
company’s tax liability.
Mahfoudh and Kunor (2015) examined corporate tax planning activities: overview of
concepts, theories, restrictions, motivation and approaches. The aim was to review literature
on the concept of tax planning activities of companies. The result of the review revealed that
tax planning is a significant tool to reduce tax burden.
Jaewoo, Sean, Steven, and Ryan (2018) did a study on expected economic growth and
corporate tax planning. The study investigated whether expected economic growth is
associated with corporate TP or not. The results of series of cross- sectional and supplemental
analysis indicated that expected economic growth only influence firm’s investment strategies
that directly reduce tax expense.
68
TAX PLANNING: AN INVESTIGATION OF THE RATE OF ITS IMPLEMENTATION FOR GROWTH OF
BUSINESSES IN NORTH EASTERN NIGERIA
Sani Ilemona & Nwite Sunday
Ishul, Dorathy and Haruna (2020) conducted a study on the impact of TP and tax incentives
on profitability of companies in the free trade zones. The study employed ex-post facto
research where a simple sampling technique was adopted to draw a representative sample for
study. Multiple regression was used to analyze the relationship between TP, tax incentives and
profitability of companies. The results of the analysis showed that TP improves corporate
profitability.
Aza and Oloshu (2016) carried out a study on the need for corporate tax planning and
management in Nigerian economy. The objective was to explain how to plan for taxes in order
to minimize tax liability. It was a review of literature that made use of journals, articles,
periodicals and documentary evidence on tax planning. The review revealed ways in which
tax payers could legitimately carry out TP and the need for it.
Ishola, Folajimi and Chimeruo (2020) investigated tax planning strategies and profitability of
quoted manufacturing companies in Nigeria. The study focused on effects of tax planning
strategies on profit ability of manufacturing enterprises in Nigeria. Data for the study were
obtained from audited reports of a sample of 46 manufacturing companies quoted on the
Nigerian Stock Exchange (NSE) at December 2018. The result of descriptive and inferential
statistical analysis revealed that there is no significant effect of tax planning on Return on
Assets (ROA) of the companies.
Odunayo and John (2019) studied corporate tax planning and financial performance in
Nigerian non-financial quoted companies. The study aimed at investigating the relationship
between corporate tax planning and financial performances of quoted non-financial
companies. Data for the study were obtained from a sample of 47 non-financial companies
from 2007 to 2016. A panel vector autoregressive approach with structural analysis was used
to analyze the data. The results indicated that tax saving has a direct relationship with financial
performance while tax avoidance has an inverse relationship.
Dada (2017) did a study on tax planning and firm’s performance in Nigeria. The aim was to
examine the impact of tax planning of firms’ performance of listed companies in Nigeria. The
study adopted survey and expost-facto design to collect data from a sample of 15 companies
from manufacturing, banking and insurance sector. The results of multiple regression analysis
of the data revealed that TP exerts an insignificant positive effect on reported earnings of the
companies.
Bashir and Zachariah (2020) conducted a study on ownership structure and tax planning of
listed firms: Evidence from Nigeria. The aim was to ascertain whether ownership structure has
effect on tax planning or not. Data for the study were obtained from annual reports and
accounts of companies for ten years (2008-2017). The data were analysed using descriptive
statistics and multiple regressions. The results indicated that managerial and institutional
ownership has no significant positive effect on TP.
69
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Salawu and Adedeji (2017) studied corporate governance and tax planning among nonfinancial quoted companies in Nigeria. The aim was to examine the impact of corporate
governance on TP of non-financial quoted companies in Nigeria between 2004 and 2014.
Using stratified random sampling, a sample of 50 companies from 10 sectors were selected.
Data of the study were obtained from audited financial statements of the companies.
Generalized Method Moment (GMM) was used to analyze the data. Results showed that there
is positive and significant relationship between Effective Tax Rates (ETRs) and firm value.
Muhmud, Sule and Musa (2020) conducted a study on the impact of corporate governance
attributes on tax planning of listed Nigerian conglomerate companies. The objective was to
determine the relationship between corporate governance attributes TP. The study adopted expost facto research design and utilized panel data from annual reports and accounts of listed
companies for five years (2014-2018). The data were analysed using panel regression
technique. The results of random effect estimation indicated that a significant relationship
between firm size and effective tax rate exists.
Rafiu, Lawrence and Olufemi (2017) conducted a study on Granger causality between
corporate TP and firm value of non-financial quoted companies in Nigeria. A panel data of
financial characteristics of 50 non-financial quoted firms from 2004-20014 were collected
from audited firms financial reports of the sampled firms. The result of pair wise VAR Granger
causality test conducted between TP and value showed that there is no causality between TP
and value of firm within the period at 5% level of significance. This implies that TP did not
granger cause firm value and vice versa.
Ogugajo and Onakoya (2016) studied TP and financial performance of Nigerian
manufacturing companies. The aim was to examine the influence of corporate TP on the
financial performance of manufacturing firms quoted on NSE. Data obtained from the annual
reports and accounts of a sample of 10 out of 28 listed manufacturing companies were
analyzed. The study employed Generalized Least Square (GLS) method of regression for
analysis. It was found that aggressive TP such as thin capitalization, tax law incentives and
other benefits of loop holes in Nigerian tax laws have not been fully utilized by Nigerian firms.
Theoretical Framework
This study is anchored on general theory of tax avoidance propounded by Stiglitz in 1986. The
basic assumptions of the theory are that: (i) TP (tax avoidance) is a right of tax payers should
be leveraged to reduce/lessen tax burden with reference to applicable tax regulations (ii) any
burden without compliance with applicable tax regulation can only be considered as tax
evasion as against tax avoidance.
Knowledge of tax payers about tax laws, identifying loopholes and taking advantage of it to
minimize tax burden are the thrust of the assumptions. These therefore underscore the
relevance of the theory to this study as the research is about ascertaining the rate of utilization
of this growth stimulating tool in the North Eastern Nigeria in face of numerous challenges of
growth businesses face in that part of Nigeria.
70
TAX PLANNING: AN INVESTIGATION OF THE RATE OF ITS IMPLEMENTATION FOR GROWTH OF
BUSINESSES IN NORTH EASTERN NIGERIA
Sani Ilemona & Nwite Sunday
Methodology
Using random sampling technique thirty (30) Small and Medium Scale enterprises (SMEs)
were selected with it from three states in the North East namely, Gombe, Bauchi and Adamawa
with 10 from each state. Data for the study were obtained through questionnaires were
designed to reflect Multiple choices to ascertain whether they understand TP schemes for
implementation it if not give reasons for not implementing the scheme. Out of 600
questionnaires distributed, 363 of them were returned representing 60.5% response rate.
Reliability of the Instrument
The internal consistency of reliability of the questionnaire construct was checked using
Composite Reliability (CR) and Average Variance Extraction (AVE) with each of the
construct having a value of 0.7 and above. CR coefficient value above 0.70 is regarded as
satisfactory for an adequate model where as a value below 0.50 indicates inadequacy of the
model (Adulazeez, Issa & Yusuf, 2019)
Data Analysis
Responses obtained were analyzed using mean, standard deviation, ranking central limit
theorem of Z-score and correlation analysis using Statistical Package for Social Sciences
(SPSS) version 16 to show the relationship between reasons of business operators for not
implementing TP schemes to grow their enterprises.
Results
Table 1. Breakdown of Sample of Business by State and Response profile on Rate of
Implementation of TP
State
No of
busines
s
No of
questionnaire
distributed
No
returne
d
Response
rate %
TP
implementers
%
Non-TP
Implementers
%
Gombe
Bauchi
Adamaw
a
Total
10
10
10
200
200
200
143
130
90
71.5
65.0
45.0
1
0
0
10
0
0
9
10
10
90.0
100.0
100.0
30
600
363
-
1
0
29
290.0
Source: Author’s computation.
71
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Table 2. Analysis of Reasons for non-implementation of TP schemes
Items of the construct
Proliferation of taxes
Lack of enlightenment
campaign on the schemes
Inability to compute tax
Inability to hire tax experts
Inability to interpret tax laws
In accessibility of tax experts
Inability to forecast business
profit/loss
Inadequate knowledge of
business incentives
Inability to review business
activity
Inability to assess business
income
Total
No of Responses (X)
235
Mean (M)
211.7
X-M
23.3
(X-M)2
542.89
201
211.7
-10.7
114.49
220
230
214
218
211.7
211.7
211.7
211.7
8.3
18.3
2.3
6.3
68.89
334.89
5.29
39.69
203
211.7
-8.7
75.69
226
211.7
14.3
204.49
172
211.7
-39.7
1576.09
198
211.7
-13.7
187.69
2117
3150.1
Source: Author’s computation
Variance =
=
3150.1
10−1
=
∑(𝑋−𝑀)2
(1)
𝑛−1
3150.1
9
= 350
Standard Deviation (SD) = √350 = 18.71
Application of Central Limit Theorem (z) = 𝑍 =
Where X=363, M=211.7, SD=18.71
𝑍=
𝑋−𝑀
(2)
𝑆𝐷
363− 211.7
18.71
151.3
= 18.71 = 8.09
Applying cumulative normal distribution;
Pr (Z = 8.09) → 1 – Pr (Z = 8.09) = 1- (0.9993) = 0.00007
(3)
Table 3. Summary of Measurement Model-CR and AVE using Factor Loading for Ranking
Items of the construct
Factor Loading (FL)
Ranking
CR
AVE
Proliferation of taxes
0.679
8
0.731
0.713
Lack of enlightenment campaign
0.741
6
0.802
0.799
on TP schemes
Inability to compute tax
0.761
5
0.813
0.730
Inability to hire tax experts
0.834
2
0.721
0.801
Inability to interpret tax laws
0.893
1
0.751
0.762
Inaccessibility of tax experts
0.774
4
0.765
0.846
Inability to forecast business
0.635
10
0.711
0.753
profit/loss
Inadequate knowledge of
0.703
6
0.733
0.788
business incentives
Insecurity and inability to review
0.851
3
0.864
0.741
business activities
Inability to assess business
0.663
9
0.792
0.703
income
Source: Computation using SPSS version
72
TAX PLANNING: AN INVESTIGATION OF THE RATE OF ITS IMPLEMENTATION FOR GROWTH OF
BUSINESSES IN NORTH EASTERN NIGERIA
Sani Ilemona & Nwite Sunday
Table 4. Correlation Analysis of Reasons for non-implementation of TP Schemes
1
1.000
0.173
0.126
0.153
0.164
0.258
0.117
0.128
0.134
0.183
2
3
4
5
6
7
8
9
10
1.000
0.022
0.115
0.096
0.034
0.079
0.113
0.211
0.010
1.000
0.175
0.023
0.171
0.053
0.044
0.035
0.024
1.000
0.261
0.173
0.121
0.294
0.186
0.271
1.000
0.221
0.275
0.101
0.205
0.128
1.000
0.253
0.067
0.065
0.043
1.000
0.322
0.283
0.174
1.000
0.010
0.139
1.000
0.011
1.000
Source: Computation using SPSS
Findings and Discussion
Tax Planning (TP) has been a veritable managerial strategy implemented to reduce tax burden
for growth of enterprises. Empirical studies (Michell, Terry & Nemit, 2014; Mahfoudh &
Kunor, 2015; Aza & Olushu, 2016; Carisa, 2017; Jaewoo, Sean, Steven & Ryan, 2018; Tye &
Nor, 2018 and Ishul, Dorathy & Haruna, 2020). However, the starting point for successful TP
is knowing the benefits of the schemes identification of loopholes to be explored and
application of relevant tax laws with the aid of tax experts (Gibert & Mordecai, 2015) Not
taking the advantage of the schemes of TP a business could lose millions of the schemes of TP
a business could lose millions of Naira (Fakode & Dare, 2018). Unfortunately however, from
the breakdown of the sample of business and states in the North Eastern zone and the response
profile of the rate of implementation of TP, it was found that a large proportion approximately,
97% of the enterprises do not take advantage of the TP schemes to minimize their tax burden.
This finding is consistent with that of Ogugajo and Onakoya (2016) that discovered the
benefits of loopholes in Nigerian tax laws has not been fully utilized by Nigerian enterprises.
Three top reasons advanced for non-implementation of the schemes found on the base of the
FL ranking are (1) Inability to interpret Nigerian Tax laws to identify possible loopholes that
could be explored (2) inability to hire tax experts for advisory services on TP matters and (3)
Insecurity that render business activity and income unpredictable. Other reasons include
proliferation of taxes (Multiple taxation), lack of enlightenment campaign and sensitization on
TP, inadequate knowledge of tax computation for proper returns as they could unknowingly
pay more tax, inaccessibility to tax experts, business uncertainty, inadequate knowledge of
business incentives. These reasons are not in doubt as the positive Z value through normal
distribution of 0.00007 equal to zero (0) are the indications that there is a hundred percent
probability that all variables mention in favour of reasons for non-implementation of TP in the
studied area correct. This finding confirms the view of Bonlale and Wasuii (2018) doubting
the efficacy of TP in the North Eastern part of the country where various difficulties have
eroded businesses of the opportunity of implementing TP to reduce their tax liability for
growth.
73
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Further, the correlation analysis indicated a positive and significant relationship between the
different reasons for the implementation of TP at either 0.05 or 0.01 level of significance -2tailed test. This therefore means that the reasons are moving tandem – the same direction. The
implication of the movement is that the more of these reasons wedging the TP implementation
by businesses, the more it will be difficult for enterprises to lessen their tax burden given a
multiple tax system (Multiple taxation) in the Nigerian economy (Tahir & Kulta, 2017).
Unfortunately these TP implementation hindrances and other socio economic factors are still
business growth issues to contend with in the North Eastern part of Nigeria (Bonlale & Wasiu,
2020).
Conclusion and Recommendations
TP is one of the potent tools that can be used by businesses for growth via “smart” but
permissible arrangement of affairs to lessen tax burden. The planning can provide tremendous
insight into an enterprise’s operation allowing entrepreneur to assess business situation to
effect change or changes where necessary in view of any prevailing circumstance(s)
necessitated by law, get a sense of any potential profit areas untapped/ explored or
underexplored and decide how best to restructure operations in a manner that would minimize
tax burden. Implementation of TP is of interest to businesses particularly to those in the north
eastern part of Nigeria where entrepreneurs need to internally reposition to maximize the value
of their businesses in the face of the prevailing but ugly insecurity situation. The repositioning
is an exercise that can be actualized through internal and external efforts. One such internal
effort of businesses is TP implementation as savings from the schemes can be invested for
growth. It is on this note that the following are put forward by way of recommendation
 Enlightenment and tax education for entrepreneurs on tax avoidance schemes by tax
authorities. Information on the schemes that businesses can reduce their tax burden
without breaking laws, reinvest saving from the scheme into the business for expansion
(growth) is an encouragement to entrepreneurs. Reduction of tax burden with full
compliance to relevant tax laws (tax avoidance) is beneficial to both entrepreneurs and
government. One of the numerous benefits of tax compliance by tax payers to
government is improved/increased revenue.
 Government should deploy all her efforts at improving the prolonged security situation
in the country particularly in the North Eastern part of Nigeria. No endogenous policy of
entrepreneurs to grow businesses will work in any environment tensed with insecurity
References
Abdulazez, A.S, Issa, A & Yusuf, I.M (2019). Entrepreneurship and innovative capacity
among agribusiness clusters in North Central Nigeria. Al-Hikmah Management Review
4(1) pp1-22.
Andre, P.C.V & Antonio, L.M (2012). Efficient tax planning: An analysis of its relationship
with Market risk. Electronic Journal. doi:10.2139/SSrn/2140000
Aza K.T & Oloshu, O.O (2016). The need for corporate tax planning and management in
Nigeria. Journal of Entrepreneurship Studies 3(2), pp76-88.
Bashir, T & Zachariah, P (2020). Ownership structure and tax planning of listed firms:
Evidence from Nigeria. Journal of Accounting and Taxation 12(3), pp99-107.
74
TAX PLANNING: AN INVESTIGATION OF THE RATE OF ITS IMPLEMENTATION FOR GROWTH OF
BUSINESSES IN NORTH EASTERN NIGERIA
Sani Ilemona & Nwite Sunday
Bonlale, A.C & Wasiu, G.B (2020). Impact of financial planning on growth of enterprises in
Nigerian economy. Journal of Managerial Economics and entrepreneurship. 2(1) pp 2538.
Carisa, E.P.S.E (2017) Comparative analysis of tax planning implementation to income tax
payment on company. International Journal of Business, Economics and law. 113(1) pp
27-31.
Dada, S.O (2017). Tax planning and firms’ performance in Nigeria. International Journal of
Advanced Research 5(5) pp 1950-1956.
Daltti, K.O & Diallo, F.D (2016). Determinants of tax evasion in an economy: An empirical
analysis. Journal of Commerce, Finance and Political studies, 3(2) pp 98-112.
Fakayode, E.O & Dare, T. (2018). Tax planning and income planning efficiency in Nigeria.
Journal of political Science and Administration 5(3) pp 28-41.
Fisher, A.O & Donald, P. (2015). The role of tax planning on investment planning of firms.
Journal of Investment and Entrepreneurship 2(1) pp 17-31.
Frednard, W.O & Cole. D.T. (2014). Corporate tax planning and firm value. Journal of
Economic Policy and Politics 6(5) pp 42-55.
Gilbert, O.P & Mordecai, Y.W (2015). Tax planning: Determinants of tax avoidance and tax
evasion schemes. Journal of Economy and political Review 1(2) pp11-23
Hyes, P.B & Walter, S.R (2014). Tax evasion: A theoretical Perspective. Journal of Economic
Studies 4(1) pp 103-117.
Ishul. G.U, Doratty, C.A & Haruna, A (2020). Impact of tax planning and tax incentives on
the profitability of companies in the free trade zones. Journal of Business Management.
22(6) pp 26-38.
Isola, R.A, Folajimi, F.A & Chimero, V.O.I (2020). Tax planning strategies and profitability
of quoted manufacturing companies in Nigeria. Journal of Finance and Accounting 8(3)
pp 148-157.
Jaewoo, K, Sean, T.M, Steven, S & Ryan, W. (2018). Expected economic growth and
corporate tax planning. Mays Business School Research Paper 3132077. Available at:
http:dxdoi.org/10.2139/SSrn,3132077.
Jaron, H.W & Ryan, J.W (2018). Perspectives on corporate tax planning: observation from the
past decade. The Journal of the American Taxation Association 40(2) pp 63-81.
John, R.G, Michelle, H, Terry, S & Nemit, S (2014). Incentives for tax planning: Evidence
from the field. The Accounting Review 89(3) pp 991-1023
Kato, D.U & Sylvester, T.K. (2014). Tax planning and corporate social responsibility in
Nigeria. Journal of Tax Administration and Finance 3(1) pp 53-64.
Ken, A, Patrick, O, Ornell, T.W & Daltus, G.N (2018). Determination of tax planning
efficiency of firms. Journal of Social Sciences and Managerial Studies, 11(2) pp 36-47.
Mohfoudh, H.M & Kunor, I.K.I (2015). Corporate tax planning activities: overview of
concepts, theories, restrictions, motivation and approaches. Mediterranean Journal of
Social Sciences 6(654) pp 350- 358
Mohmud, B, Sule B & Musa,B (2020) Impact of corporate governance attributes on tax
planning of listed Nigerian Conglomerate companies. International Journal of Academic
Research in Business and Social Sciences 10(5) pp 229-238.
Odunayo, M.O & John, A.O (2019). Corporate tax planning and financial quoted companies.
African Development Review. https//doi.org/10.1111/1467-8268,12378
75
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Ogundajo, G.O & Onakoya, A.B (2016). Tax planning and financial performance of Nigerian
manufacturing companies. International Journal of Advanced Academic Research,
Social and Management Sciences. 2(7) pp 63-79.
Ogundare, O.O & Ayoola, M.T (2017) Tax planning and business growth: A nexus between
the two. Journal of Business, Finance and Entrepreneurs 7(2) pp 78-91.
Onmen, S.O (2018). The effects of tax incentives on growth and profitability of firms: A
survey of selected SMEs in Nigeria. Journal of Investment and Entrepreneurship 5(3)
pp 81-93.
Perchel, R.O & Harvey, S.M (2016). Impact of tax education on income planning. Journal of
Social Sciences and Managerial Studies 9(6) pp71-84.
Rafiu, O.S, Lawrence, O.O & Olufemi, Y (2017). Granger causality between corporate tax
planning and firm value on non-financial quoted companies in Nigeria. International
Journal of Business and Social Science 8(9) pp 91-103.
Ronald, O & Leo, F.T (2017). The impact of tax planning on income and value of firms.
Journal of Economics and Finance Review 6(3) pp52-67.
Salawu, R.O. & Adedeji, Z. A (2017). Corporate governance and tax planning among nonfinancial quoted companies in Nigeria. African Research Review 11(3) pp 42-59.
Tahir, K.M & Kulta, A.C. (2017). The impact of tax planning on corporate performance.
Journal of Commerce and Financial Studies 1(2) pp 39-52
Taylor, M.R & Rashfa, E.C (2018). Corporate tax planning and financial structure of firms: A
review of literature. Journal of Commerce, Financial and Economics 4(1) pp 14-25
Tye, W.L. & Nor, S.A.W. (2018). The roles of tax planning in market valuation of corporate
Social responsibility. Cogent Business and Management. S.I, Doi:1080/23311975:
2018.1482595
Ultcher, A & McDonald, B (2014). Impact of tax planning on growth of enterprises: Evidence
from Nigeria. Journal of Financial studies, Economics and Management 2(3) pp 28-42.
Valmer, D.U & Pesch, R (2015) Tax planning implementation and corporate performance.
Journal of Entrepreneurship Practice and Management 2(3) pp 32-44.
Wedner, I.B (2013) Impact of corporate tax planning on growth and profitability of business.
Journal of Investment and Entrepreneurship 1(4) pp 91-102.
76
Journal of Accounting
Vol. 11 (1) January - June 2022
RELATIONSHIP BETWEEN UNIVERSITY ENTRY REQUIREMENTS AND
ACADEMIC PERFORMANCE OF ACCOUNTING STUDENTS IN NIGERIA
Ibrahim Umar
Department of Accountancy, Yobe State University – Nigeria.
Abstract
Prior studies have associated academic performance of accounting students to learning facilities and
structure, learning method and entry qualification. Although it is expected that these entry qualifications
would have an impact on the students’ performance, studies have given contradictory findings. This
study was therefore conducted to examine the relationship between university entry requirements and
the performance of accounting students. Data were collected from the official records of 317 accounting
students who graduated from three universities in Nigeria in the 2018/2019 academic session. The data
were analyzed using correlation and multiple regression statistics with the aid of SPSS. The findings of
this study show a positive and strong correlation but statistically insignificant relationship between
Senior Secondary Certificate Examination (SSCE) grade in English language, Mathematics, Economics
and Accounting and the final Cumulative Grade Point Average (CGPA). The implication of the findings
and recommendations are provided.
Keywords: - academic performance, accounting students, CGPA, entry requirements, SSCE.
Introduction
Joint Admission and Matriculation Board (JAMB) is an institution in Nigeria that is
responsible for setting the criteria for admissions into the Nigerian tertiary institutions. These
include specifying the minimum entry requirements for which a candidate will be eligible for
admission into any program of the universities, polytechnics and colleges of education. The
entry requirements include the Unified Tertiary Matriculation Examination (UTME) cut-off
point, Advanced Level (A’Level) and Ordinary Level (O’level) grades. These entry
requirements are classified in accordance with the degree programs of the universities. The
use of O’level grade has been the dominant entry requirement for admission into degree
programs of the Nigerian universities.
One of the degree programs is the Bachelor of Science (B.Sc.) in Accounting. Admission into
the accounting program of the Nigerian universities requires the candidate to have a minimum
of five credits in O’level – Senior Secondary Certificate Examination (SSCE) results. The
SSCE requirement for admission into any degree program in Nigeria are English and
Mathematics. In addition, Economics is required for Bachelor Degree in Accounting.
Similarly, the UTME subject combination requires candidates to write and pass English
language, Mathematics, Economics and one other relevant subject. It is, therefore, a common
practice or policy in Nigerian universities to admit candidate into Bachelor of Accounting
without earning a credit grade in accounting at SSCE level. Thus, emphasizing English
language, Mathematics and Economics rather than Accounting.
Although it is expected that these entry requirements would have an impact on the students’
performance, studies have given contradictory findings (Beatson, Berg, & Smith, 2020; Bosua
77
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
& Nest, 2015; Keef, 1988; Koh & Koh, 1999). Notwithstanding these findings, concerned
institutions have continued to use the existing criteria for admission into the accounting
programs of the Nigerian universities. The objective of study is to examine the relationship
between SSCE results, as the entry requirements and the academic performance of accounting
at Bachelor Degree level. In achieving this objective, the current paper uses SSCE grade points
obtained in English, Mathematics, Economics and Accounting as the entry requirements. In
addition, we use the final result of the student measured by the overall Cumulative Grade Point
Average earned by the student at the end of the program. In addition, previous studies were
conducted in Cambodia (Sothan, 2019), New Zealand (Keef, 1988), Singapore (Koh & Koh,
1999) and Malaysia (Khadijah et al., 2004) with very few studies in Africa. Thereby pushing
for further studies in Nigeria. This is a major contribution of this study and therefore makes
the study unique. This study is structured into four parts to cover the review of related literature
after the background and introduction. Section three will be devoted to the description of the
methodology adopted in achieving the study’s objective. Results and conclusion will the last
two parts of the study.
Review of related literature
Substantial research efforts were devoted in understanding the success of students in their
academic programs. Several factors were linked to students’ academic performance. For
instance the association between gender, prior knowledge, motives and expectation were
associated to academic performance of accounting students (Byrne & Flood, 2008). Beatson
et al. (2020) on the other hand predicted academic performance based on self-efficacy believe
of the students. Similarly, Keef (1988) examined the influence of previous study of English,
Accounting, Mathematics and Economics on performance of accounting students.
The findings from previous studies have indicated that academic performance is dependent on
prior knowledge, entry requirements, school and socio-demographic characteristics, gender
and age (Beatson et al., 2020). Although the results are not consistent, a majority of the studies
reported the influence of entry requirements on the performance of accounting students. This
section is devoted to the review of the related literature on the relationship between English
and mathematics background; prior economics and accounting knowledge; and academic
performance.
English background and academic performance
English language is a second language and the medium of learning in the Nigerian universities.
It is therefore not surprising to see it as one of the entry requirements for admission into the
Nigerian universities. Proficiency in English language is considered essential because it
determines the literacy level of the students and may subsequently affect their academic
performance (Morris & Maxey, 2014). Therefore, the importance of English language to
students’ academic life can never be over emphasized. This is associated with the fact that the
ability to read and write provides the opportunity to learn and hence improve academic
performance of accounting students (Khadijah, Mahfudzah, Syed, & AlHabshi, 2004; Sothan,
2019).
78
RELATIONSHIP BETWEEN UNIVERSITY ENTRY REQUIREMENTS AND ACADEMIC PERFORMANCE OF
ACCOUNTING STUDENTS IN NIGERIA
IBRAHIM UMAR
The relationship between English language and the performance of accounting has been
previous investigated (Gul & Fong, 1993; Keef, 1988; Sothan, 2019). The findings from these
studies are not consistent. A number of them have reported positive association between
English and academic performance. For example, Sothan (2019) and Gul and Fong (1993)
presented a positive and significant relationship between English and academic performance
of accounting students. Similarly, Morris and Maxey (2014) reported a positive relationship.
In addition, English was reported by Keef (1988) to have a negligible effect on academic
performance of accounting students. In contrast, Baldwin and Howe (1982) reported that
English language has no effect on academic performance. Furthermore, Aidoo-buameh (2013)
found no significant relationship between English and academic performance of accounting
students. These inconsistencies in research findings call for further investigation into the
relationship between English language and academic performance of accounting students.
Mathematical background and academic performance
The mathematical background is one of the key requirements for admission into Nigerian
Universities irrespective of course of study. There is a common belief that numeric ability
provides advantage to students in quantitative program such as engineering, finance and
accounting (Guney, 2011). Previous research efforts have examined the effect of Mathematics
on academic performance (Barlette, Peel, & Pendlebury, 1993; Eskew & Faley, 1988; Gul &
Fong, 1993; Keef, 1988). Despite this, there is no clear evidence to indicate that having
mathematics background leads to better academic performance of accounting students. For
example, Gul and Fong (1993) reported positive and significant effects on student performance
while Barlette et al. (1993) found no significant impact on performance. Additionally, Keef
(1988) reported that mathematics background did not have important effect on academic
performance of accounting students. Thus, creating contradictory finding. These findings need
to be supported by other studies in different context such as Nigeria.
Economics knowledge and academic performance
In Nigeria, it is a requirement to have prior knowledge of economics and must have passed
with a grade not below ‘credit’ level to gain admission into the accounting degree program.
However, the effect of economic background has not received adequate attention by previous
studies. Many studies have considered English and Mathematical background, prior
accounting knowledge and age as determinants of academic performance of accounting
students. Despite the lack of adequate attention, Keef, (1988) reported a positive relationship
between Economics and academic performance of accounting students in New Zealand. This
is similar to the finding of the study conducted by Barlette et al. (1993). According to Barlette
et al. (1993) students with background in Economics were found to outperform those without
background in Economic. They further argued that Economics is significant determinants for
academic success of accounting students. This scarcity of previous studies calls for additional
research effort to affirmed or contradict the existing findings.
79
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Accounting knowledge and academic performance
Studies on the relationship between prior knowledge and academic performance have assumed
that having background or prior knowledge leads to better academic performance. This
presumption may be applied to the relationship between prior knowledge of accounting and
academic performance of accounting students. A number of previous studies have tested the
relationship between prior knowledge of accounting and academic performance of accounting
student at Bachelor Degree level (Barlette et al., 1993; Bosua & Nest, 2015; Eskew & Faley,
1988; Gul & Fong, 1993). Eskew and Faley (1988) found and reported a significant
relationship between prior knowledge of accounting and the academic performance of
accounting students. Similarly, Bosua and Nest (2015) reported a strong relationship between
accounting knowledge and academic performance of accounting students. This relationship
was also reported by Beatson et al., (2020) and Gul and Fong (1993). In addition, Cassidy
(2012) reported a positive relationship between accounting knowledge and academic
performance.
However, Barlette et al. (1993), Keef, (1988) and Baldwin and Howe (1982) examined and
reported that prior accounting knowledge does not have a significant influence on academic
performance of accounting students. In addition, Koh and Koh (1999) in a Singaporean study
found and reported that prior accounting knowledge does not give difference in academic
performance of accounting students at Bachelor level. This condition has called for future
research on the relationship between previous accounting background and academic
performance of accounting students at Bachelor level.
Academic performance
Previous studies on the determinants of performance of accounting students measured
academic performance differently. Most of the studies are concerned with either first-year
academic performance or a combination of two or more approaches (Byrne & Flood, 2008;
Keef, 1988; Koh & Koh, 1999). In addition, grade point earned per course or subject was used
as a measure of performance (Beatson et al., 2020; Gracia & Jenkins, 2003). Hence the need
to extend the frontier of knowledge and to adopt a measure that takes overall performance.
This study adopts the use of Cumulative Grade Point Average (CGPA) as a measure of
academic performance at Bachelor level.
In establishing the relation between entry requirements and academic performance of
accounting students, the current study employs the use of Ludwig Von Bertalanffy’s (1956)
system theory as the underpinning theory. This is because the quality of students admitted will
have effect on their final year graduating grade (Aidoo-buameh, 2013). This is explained in
the Input-Output model of system theory. Systems theory has also become a convenient model
used in supporting studies in cognitive development and human perception and it comes handy
for our study.
Methodology
This is a quantitative study aimed to examine the relationship between University entry
requirements and academic performance of accounting students in Nigerian universities. The
80
RELATIONSHIP BETWEEN UNIVERSITY ENTRY REQUIREMENTS AND ACADEMIC PERFORMANCE OF
ACCOUNTING STUDENTS IN NIGERIA
IBRAHIM UMAR
study investigated the relationship between Senior Secondary Certificate Examination (SSCE)
grades as mandatory entry requirements and the overall Cumulative Grade Point Average
(CGPA) as measure of performance of accounting students. The current study was conducted
with the graduates of Bachelor of Science in Accounting of three Universities in Northeast
Nigeria. The Bachelor's degree is a four program and a total of 317 students’ records were
collected for the 2018 and 2019 academic sessions.
The four variables used for the study are SSCE results in English, Mathematics, Economics
and Accounting/Book-keeping as the independent variables. Previous studies have used these
variables separately, or in a combination of two or three subjects. This study combined all four
variables to examine their relationship with students’ academic performance. The dependent
variable for the study is the academic performance of the students at Bachelor level.
Specifically, we used the overall performance of the students. Nigerian Universities use CGPA
system to assess the performance of the students. We used the final year CGPA to measure
students’ academic performance.
The final CGPA classifies students into six classes. They are First Class, Second Class Upper,
Second Class Lower, Third Class, Pass and Failed degrees. This classification indicates
students’ performance in descending order. A first Class graduate scores a final CGPA of 4.5
and above on a five (5) point grading system being the best performance. The least
performance is a final year CGPA of less than one (1). This grading system is depicted in the
table 1 below.
Table 1: Grade point and Degree classification
Grade
Grade point
A
5
B
4
C
3
D
2
E
1
F
0
Source: NUC 2007
CGPA
4.50-5.00
3.50-4.49
2.50-3.49
1.50-2.49
1.00-1.49
0.99-0.00
Class of degree
First Class
Second class upper
Second class lower
Third Class
Pass
Fail
The entry requirement is measured by the grade point a student gets in the SSCE. The SSCE
result has nine (9) grades with ‘Grade 1’ as ‘excellent’ and ‘Grade 9’ as ‘Fail”. For the purpose
of this study, only grades 1 – 6 were used. These are the acceptable grades for admission into
the Nigerian Universities. The grade classification is given in table 2.
81
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Table 2: SSCE Grade Classification
SSCE Grade
A1
B2
B3
C4
C5
C6
P7
P8
F9
Source: WAEC, 2019
Classification
Excellent
Very Good
Good
Credit
Credit
Credit
Pass
Pass
Fail
However, we observed that, numeric values assigned in the SSCE grade were the reverse of
what is obtainable in the universities. Lower values were assigned for better grades in SSCE
while higher values to better grades in University system. To overcome the reverse challenge,
we categorized the CGPA and assigned values of 6 – 1 with 6 as best performance and 1 the
least performance. The SSCE was reversed coded to reflect that of the CGPA. These were
made possible using Microsoft Excel and is presented in table 3. This gave us the variable
measurement for the required analysis. The data were then analyzed using regression and
correlation statistics with the support of SPSS version 23.
Table 3: Variable measurement
Academic performance
Degree classification
Weigh assigned
First Class
6
Second class upper
5
Second class lower
4
Third Class
3
Pass
2
Failed
1
Source: Author’s compilation
SSCE grade
Excellent
Very Good
Good
Credit
Credit
Credit
Entry requirement
Weight Assigned
6
5
4
3
2
1
Results and discussion
This section is dedicated to the presentation of the results of the analysis conducted on the data
collected. The aim of the analysis is to examine the relationship between SSCE grades of
English, Mathematics, Economics and Accounting/Bookkeeping as the entry requirements and
students final CGPA as academic performance. A total of 317 students’ records were analyzed
which forms the total population for the study.
We first all assess the performance of the students in terms of their CGPA. The result is
presented in table 4 where a majority of graduates, over 40%, fall under Second Class Lower
division. This is followed by Second Class Upper classification which represent 34.7% of the
sampled population. First Class degree has a total of 15, representing 4.7%, out of the 317
graduates from the three universities. The results shows that there are no third class nor failed
82
RELATIONSHIP BETWEEN UNIVERSITY ENTRY REQUIREMENTS AND ACADEMIC PERFORMANCE OF
ACCOUNTING STUDENTS IN NIGERIA
IBRAHIM UMAR
degree. As can be seen from table 4, the majority (74.8%) of the students graduated with
Second Class degree.
Table 4 Frequencies distribution of CGPA performance
Class of Degree
Frequency
Third Class
65
Second class Lower
127
Second Class Upper
110
First Class
15
Total
317
Percent
20.5
40.1
34.7
4.7
100.0
We further conducted descriptive analysis of the SSCE grades for English, Mathematics,
Economics and Accounting/Bookkeeping. The content of table 5 shows that the SSCE
performance of the students were on average grade. In other words a majority of the students
scored grade C5 which is the 5th grade in the ranking of students’ performance in SSCE. Going
by this analysis there is an apparent relationship in the performance of students in SSCE and
CGPA. Further interpretation of table 5 shows that 52.7%, 49.5%, 48.9% and 29% scored
SSCE grade C5 in English, Mathematics, Economics and Accounting. This is followed by
grade C4 with 24.6%, 31.2%, 22.7% and 18.3% in English, Mathematics, Economics and
Accounting.
Table 5 Frequencies distribution of SSCE grade
English
Mathematics
SSCE Grades
Freq.
%
Freq.
%
Credit 6
10
3.2
5
1.6
Credit 5
167
52.7
157
49.5
Credit 4
78
24.6
99
31.2
Good
50
15.8
28
8.8
Very good
11
3.5
28
8.8
Excellent
1
0.3
0
0
Economics
Freq.
%
23
7.3
155
48.9
72
22.7
39
12.3
27
8.5
1
0.3
Accounting
Freq.
%
107 33.8
92
29.0
58
18.3
35
11.0
23
7.3
2
0.3
In addition, we conducted a descriptive analysis of the variables. The mean score for SSCE
grade in English (2.65), Mathematics (2.74), Economics (2.67) and Accounting (2.31). The
corresponding standard deviation are .925, .967, 1.079 and 1.275 for English, Mathematics,
Economics and Accounting respectively. This shows that accounting students that graduated
from three Universities had low or poor performance in the SSCE grade as their entry
requirements. However, the overall academic performance had a mean score of 4.24 with a
standard deviation of .829 which shows a high performance indicating that there is little or no
relationship between the entry requirements (SSCE grade) and academic performance
(CGPA).
83
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Table 6 Descriptive statistics
Variables
Academic performance
Grade in English
Grade in Mathematics
Grade in Economics
Grade in Accounting
N
317
317
317
317
317
Mean
4.24
2.65
2.74
2.67
2.31
Std. Deviation
.829
.925
.967
1.079
1.275
In examining the relationship between the SSCE grades in English, Mathematics, Economics
and Accounting as entry requirements and CGPA as academic performance we ran correlation
analysis. Table 7 presents the correlation matrix. Our correlation coefficients indicate positive
and weak relationship between entry requirement (SSCE grade) and academic performance of
accounting graduates.
Table 7 Correlation matrix
Performance
Performance
1.000
English
.052
Mathematics
.038
Economics
.067
Accounting
.086
English
Mathematics
Economics
Accounting
1.000
.126
.111
.071
1.000
.096
.238
1.000
.052
1.000
In order to test the relationships simultaneously, we further conducted regression analysis to
regress academic performance on the four variables – SSCE grades in English, Mathematics,
Economics and Accounting. The regression coefficient, t-statistics, p-value, as well as the
model summary (R2, F-value) and variance inflation factors (VIF) are presented in Table 8.
Table 8 Regression analysis
Constant
English
Mathematics
Economics
Accounting
Coefficient
3.889
.034
.008
.044
.051
t-Statistics
18.508
.674
.155
1.011
1.352
p-Value
0.000
.500
.877
.313
.177
VIF
1.028
1.080
1.020
1.063
Model F=1.021. (p-value 0.397), R2 = 0.21
As can be observed in table 8, the regression model is insignificant because it has a p-value of
0.397. This indicate a very weak fit. However, the model’s R2 is 0.021 which indicate that at
least 20% of the variation in the final year academic performance can be explained by the
variation of performance in English, Mathematics, Economic and Accounting at SSCE level.
Although the R2 may not be considered high, Koh and Koh (1999) posit that it is adequate in
evaluating the determinants of performance rather than predicting performance.
84
RELATIONSHIP BETWEEN UNIVERSITY ENTRY REQUIREMENTS AND ACADEMIC PERFORMANCE OF
ACCOUNTING STUDENTS IN NIGERIA
IBRAHIM UMAR
Our regression result shows SSCE grade in English has a positive and insignificant relationship
with final CGPA of accounting student at the three universities. This can be seen in Table 8
where it has a p-value of .500. This agrees with the finding of Aidoo-buameh (2013) who
reported that pre-university English performance did not reflect statistical significance on
performance of accounting students. This is also in agreement with previous finding that
English has no effect on academic performance of accounting students (Baldwin & Howe,
1982).
Furthermore, our results indicate SSCE grade in Mathematics as entry requirement has
positive but insignificant relationship with CGPA as academic performance. This can be seen
in Table 8 where the p-value for mathematics is 0.877. Hence, mathematics has insignificant
effects on academic performance of accounting students at the sampled universities. Our
findings correspond to the findings of Barlette et al. (1993) and Keef (1988) who reported
insignificant relationship between mathematics and academic performance.
Our analysis of the data shows that prior knowledge of economics, as an entry requirement,
measured by the SSCE grade, has a positive but very weak correlation, as depicted in table 7,
as well as an insignificant effect on students’ performance as measured by the final year
CGPA. The regression analysis in table 8 shows a p-value of .313. This result do not agree
with previous studies (Barlette et al., 1993; Keef, 1988).
Similarly, our results as seen in Table 7 and 8 show that SSCE grade in
accounting/bookkeeping has positive but insignificant relationship with CGPA of accounting
students. This is explained by a p-value of .177. Therefore, prior knowledge of accounting is
not significantly related to academic performance of accounting students. Our result agrees
with previous finding that accounting background has no significant relationship with
academic performance (Baldwin & Howe, 1982; Barlette et al., 1993; Keef, 1988) and
contradict some previous finding that found significant relationship between prior accounting
knowledge and academic performance of accounting students (Beatson et al., 2020; Bosua &
Nest, 2015; Cassidy, 2012; Eskew & Faley, 1988; Gul & Fong, 1993). This contradiction may
be associated with the measurement of variables and context.
Conclusion
The current study was undertaken to examine the relationship between university entry
requirements and academic performance of accounting students. Results presented here
suggests that English background, Mathematical performance, prior knowledge of economics
and accounting are all having positive and strong relationship but statistically insignificant in
determining academic performance of accounting students. Despite the fact that our finding
agrees and contradict previous studies, our study is unique because it used SSCE grade as
determinants of entry into universities and the final CGPA of the students. No study has ever,
to the best of our knowledge, adopted these measures. Similarly, our study considers CGPA
as a measure of performance rather than students’ score in a particular course. We therefore
conclude that SSCE results as entry requirements may not be the most appropriate factor that
85
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
influence academic performance of accounting students. The uniqueness of this study also
reveals that SSCE results may not represent the students’ performance as previous studies have
questioned the SSCE performance. For instance the conduct of the entry level examination by
West African Examination Council (WAEC), National Examination Council (NECO) and
JAMB have all been trailed with complaints of examination misconduct (Anzene, 2014). This
has led to irreversible loss of credibility of the results of such examination (Onyibe, Uma, &
Ibina, 2015). Consequently, the observed insignificant relationship between the SCCE and
CGPA of accounting students may be attributed to effect examination malpractice at the
secondary school level, better learning environment at university, and maturity level of the
students. Other factors may include attitude to learning and self-efficacy belief.
References
Aidoo-buameh, J. (2013). The Effect of Entry Grades on Academic Performance of University
Accounting Students : A case of Undergraduates of Central University College.
Research Journal of Finance and Accounting, 4(7), 198–207.
Anzene, S. J. (2014). Trends in Examination Malpractice in Nigerian Educational System and
its Effects on the Socio-Economic and Political Development of Nigeria. Asian Journal
of Humanities and Social Sciences, 2(3), 2320–9720. Retrieved from www.ajhss.org
Baldwin, B. A., & Howe, K. R. (1982). Secondary-level study of accounting and subsequent
performance in the first college course. The Accounting Review, 57(3), 619–626.
Barlette, S., Peel, M. J., & Pendlebury, M. (1993). From fresher to finalist: A three year
analysis of student performance on an accounting degree programme. Accounting
Education, 2(2), 111–122.
Beatson, N. J., Berg, D. A. G., & Smith, J. K. (2020). The influence of self‐ efficacy beliefs
and prior learning on performance. Accounting & Finance, 60(2), 1271–1294.
Bosua, W. S., & Nest, D. P. Van Der. (2015). The effect of prior knowledge and academic
performance on success in first-year university accounting. Journal of New Generational
Sciences, 13(3), 17–33.
Byrne, M., & Flood, B. (2008). Examining the relationships among background variables and
academic performance of first year accounting students at an Irish University. Journal
of Accounting Education, 26(4), 202–212.
Cassidy, S. (2012). Exploring individual differences as determining factors in student
academic achievement in higher education. Studies in Higher Education, 37(7), 793–
810.
Eskew, R. K., & Faley, R. H. (1988). Some Determinants of Student Performance in the First
College-Level Financial Accounting Course. The Accounting Review, 63(1), 137–147.
Gracia, L., & Jenkins, E. (2003). A quantitative exploration of student performance on an
undergraduate accounting programme of study. Accounting Education, 12(1), 15–32.
Gul, F. A., & Fong, S. C. C. (1993). Predicting success for introductory accounting students:
Some further Hong Kong evidence. Accounting Education, 2(1), 33–42.
Guney, Y. (2011). Exogenous and Endogenous Factors Influencing Students ’ Performance in
Undergraduate Accounting Modules. Accounring Education: An International Journal,
18(1), 51–73.
Keef, S. P. (1988). Preparation for a first level university accounting course: The experience
in New zealand. Journal of Accounting Education, 6(2), 293–307.
Khadijah, S., Mahfudzah, A., Syed, M., & AlHabshi, M. (2004). An Exploratory Study On
English Language Proficiency And Academic Performance In The Context Of
86
RELATIONSHIP BETWEEN UNIVERSITY ENTRY REQUIREMENTS AND ACADEMIC PERFORMANCE OF
ACCOUNTING STUDENTS IN NIGERIA
IBRAHIM UMAR
Globalization Of Accounting Education. Journal of Financial Reporting and
Accounting, 2(1), 55–71.
Koh, M. Y., & Koh, H. C. (1999). The determinants of performance in an accountancy degree
programme. Accounting Education, 8(1), 13–29.
Morris, M., & Maxey, S. (2014). The Importance of English Language Competency in the
Academic Success of International Accounting Students. Journal of Education for
Business, 89(4), 178–185.
Onyibe, C. O., Uma, U. U., & Ibina, E. (2015). Examination Malpractice in Nigeria: Causes
and Effects on National Development. Journal of Education and Practice, 6(26), 12–18.
Sothan, S. (2019). The determinants of academic performance: evidence from a Cambodian
University. Studies in Higher Education, 44(11), 2096–2111.
87
Journal of Accounting
Vol. 11 (1) January - June 2022
VALUE RELEVANCE OF PERFORMANCE DISCLOSURE AND
TRANSPARENCY ON SHAREHOLDERS’ REWARD: AN EMPIRICAL
INVESTIGATION OF NIGERIAN BANKS
Ejike Sunday Okoroigwe
Department of Accounting, Faculty of Management and Social Sciences, Ibrahim Badamasi
Babangida University, Lapai, Nigeria. (ejikesunday@gmail.com)
Abstract
The main objective of this paper was to carry out an empirical investigation of the value relevance of
Performance Disclosure and Transparency on Shareholders’ Reward of Nigeria banks in 2020. The paper
is quantitative research and employed descriptive research design via correlation study. The population
of the study consists of the 23 banks listed in the Nigeria Stock Exchange as at December, 2020.
Secondary data was collected from the fact book of the Nigeria Stock Exchange and websites of the
selected banks for the year 2020. The study adopted a similar model used by Haat, et al. (2008) and
Hamad, et al. (2021) to estimate the combined effects of Performance disclosures and transparency
proxies on the shareholders rewards of selected banks. The data collected was analyzed using both
descriptive and inferential statistics (using the Ordinary Least Squares-OLS-regression) via the
Statistical Package for Social Sciences (SPSS). The findings show that all the three performance
disclosures and transparency indicators are very influential in ensuring Shareholders’ reward. The
implication of these findings is that the interests of shareholders, in the form of their rewards, are
guaranteed with enhanced performance disclosure and transparency by management of these banks. This
would in turn build owners confidence and subsequently guarantee more funds from while solidifying
the continuity and going concern of the Nigeria banks. The paper recommended that the various
stakeholders should always ensure that these banks meet up to standard of performance disclosures and
transparency to guarantee that shareholders always receive their appropriate rewards.
Keywords: Earning per share; Dividends per share; Performance disclosure and transparency;
Return on Investment; Shareholders’ reward
Introduction
There have been three propositions by accountants in practice and researchers alike with
regards to shareholders rewards. These propositions are
1. That with explosive innovations in technology and heavy application of modern scientific
procedures, modern companies now need more capital investment for every worker
employed.
2. That partly as a result of (1) above, reduction in public ownership, and increased
privatization and capitalism, there has been increased importance and requirement for
large companies which have the capacity to amass large capital.
3. That without any clear evidence of reduced risk, the role played by the risk bearing
shareholder in the company’s smooth operations has become more important than ever.
Laymen and other members of the public, who may not properly understand the intricacies
and complexities involved in the running of large corporations, may raise opinion at the
mention of this last proposition. Many of such persons usually would agitate that, from the
third proposition, it is obvious that the shareholder is in fact not playing any role at all in
raising additional corporate finance since the main source of investment comes from retaining
88
VALUE RELEVANCE OF PERFORMANCE DISCLOSURE AND TRANSPARENCY ON SHAREHOLDERS’
REWARD: AN EMPIRICAL INVESTIGATION OF NIGERIAN BANKS
Ejike Sunday Okoroigwe
earnings, a decision of board of directors, and not from new money subscribed by shareholders.
In this regard, from sociological point of view, the shareholders certainly play no active role
in retaining earnings to serve as reserve and financing of the company (Hamad, et al. 2021 and
Herbert, et al. 2021).
However, from accounting, finance and economics view points, without any ambiguity, the
issuing of new subscriptions to the general public or to existing shareholders in exchange for
money is only but a tiny part in the whole financing mechanism of companies. The major and
larger routine for financing since the industrial revolution of the 18th century is for the directors
to set aside very high and most often usually arbitrary portion of the profits as retained
earnings, treated as reserves, with little or no protest from the shareholders. In this regard, the
directors’ decision to retain back earnings or profits into the company, which are supposedly
owned by the shareholders, make each shareholder own more risk-capital. Hence, part of the
risk born by the shareholders is the directors’ tendencies to further implicate the shareholders
in the company instead of giving them the leverage to share the entire profits (Barros, 2021
and Sumatriani, et al. 2021).
Based on the financial reporting framework, financial information must have both relevance
and reliability qualities. Companies are expected to not just disclose financial information but
also a set of non-financial information intended to influence the decisions of various users of
the financial information. The companies are expected to not just disclose both financial and
non-financial information that would impact on the owners-shareholders’ interests and
rewards, but to show transparency in all its dealings with the amounts reported as returns on
investment or return on capital employed, earnings per share, and dividends per share.
Transparency is one of the fundamentals influencing the company’s attractiveness to existing
and potential shareholders and other investors. The extent of transparency hinges on the ability
and willingness of management to effect corrections on any distortive information. This is
because capital market only achieves growth and development through transparent
information environment. Companies that fail to meet acceptable level of transparency would
end up reducing the confidence of shareholders and other investors (Haat, et al. 2008).
Few recent attempts such as Ntim, et al. (2012), Sumartriani et al.(2021), Saeed et al. (2021)
and Valiana et al. (2021) have been made to research on corporate disclosure and transparency
and the determinant factors as well as its effects on shareholders, but they mostly focused on
minority shareholders, shareholders protection, corporate governance, or only on dividends
payments. None of them looked at ROI and earning per share which are also of interest to
shareholders in determining their rewards. Again, out of these studies, only Ntim, et al. (2012)
was conducted in Sub-Saharan Africa. But the study of Etim et al (2012) was on the Relative
Value of Shareholder Versus Stakeholder Corporate Governance Disclosure Policy Reforms
in South Africa, was conducted almost 10 years ago and even at that it was done in South
Africa which may yield different result if such study is conducted in Nigeria and with a
different and controversial sector like the Nigeria banking sector. It is based on these research
89
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
problems and desire to fill the identified gaps that this study attempted to investigate
empirically the value relevance of performance disclosure and transparency on shareholders’
reward of Nigeria banks (Etim, et al., 2012).
In line with the above argument the following research hypotheses that would provide answers
to the research questions are formulated.
1. There is no significant relevance of Performance disclosure and transparency on
Returns on Investments of Nigeria banks;
2. There is no positive significance of performance disclosure and transparency on
Earnings per shares of Nigeria banks; and
3. There is no positive significance of performance disclosure and transparency on
Dividends per shares of Nigeria banks.
Review of Related Literature
Shareholders’ Value and Reward
It is often argued that the pursuit of shareholder value and reward is the reason for the
challenges confronting corporate governance. The postulation is that managers and investors
are usually obsessed with immediate financial results and ignoring to invest in long-term
growth. Hence, when managers obliterate the value and reward for shareholders they are
supposedly creating, they blame it on profitability and stock market pressures. Interestingly,
evidence has shown that the shareholder value and reward principle has not failed
management, rather it is managers that keep betraying the principles due to lack of adequate
disclosure and transparency in their dealings (Haat, et al. 2008; Hamad, et al. 2021; Herbert,
et al. 2021; and Islam, et al. 2021).
This shortcoming on the side of management was obscured in Nigeria corporate world until
from two decades ago when scandals hit the banking sectors and other sectors leading to
sudden collapse of banks and other companies moments after receiving clean bills of health
from external auditors which indicated lack of transparency and disclosure of false or
incomplete information as corporate governance took backseat and corporate governance took
a backseat and ensuing eroding of shareholders and investors trust thereby prompting swift
stricter regulatory functions of the various regulatory bodies (Ntim, et al. 2012).
90
VALUE RELEVANCE OF PERFORMANCE DISCLOSURE AND TRANSPARENCY ON SHAREHOLDERS’
REWARD: AN EMPIRICAL INVESTIGATION OF NIGERIAN BANKS
Ejike Sunday Okoroigwe
Importance of Performance Disclosure and Transparency
The conceptual framework of financial reporting has imposed a two-edged fundamental
importance of relevance and reliability on every financial disclosure. Haat, et al. (2008) is of
the view that imbedded into these two qualities are usefulness, appropriateness, accuracy,
completeness, timeliness and adequacy. These disclosures include both financial and nonfinancial information. Transparency is a one of the most important influence of shareholders’
confidence and good corporate governance is very essential in ensuring adequate transparency.
This is because the extent of transparency is dependent on the ability and willingness of
management to ensure transparency.
Recently, financial international organizations such as International Monetary Fund (IMF),
Organization for Economic Cooperation and Development (OCED), the World Bank and even
the Nigeria banks regulatory body, the Central Bank of Nigeria (CBN), have been putting
pressure on fiscal transparency in financial institutions in Nigeria. This is because transparency
ensures that the right people are running organizations and ensuring that the right things are
not only being done but are seen to be done in the interest of all stakeholders, most especially
in the interest of the owner-shareholders and the general public (Ntim, et al. (2012).
However, despite all the arguments in favour of greater transparency as expressed above, some
companies are reluctant to voluntarily disclose all information without compulsion. Haat, et
al. (2008) associated the reasons for this to costs associated with collecting, processing and
disclosure of information, time and financial resources involved the existence of the
phenomenon of secrete managers interests, comparison of costs and benefits of divulging
certain information, and difficulty in measuring certain information accurately and
objectively. Even when they voluntarily disclose certain information, such information is often
not complete.
Hence, certain external forces need to play certain roles to ensure transparency and adequacy
of disclosures. In line with this, some scholars such as Haat, et al. (2008), Hamad, et al. (2021),
Herbert, et al. (2021) and Islam, et al. (2021), postulated three ways to achieve transparency.
These are (a) improving regulatory/legal mechanisms related to disclosure of accounting
policies to ensure more adequate and better information to improve disclosure quality and
reliability. (b) Designing of safety mechanisms to reduce moral hazards that could result from
disclosure of more information. (c) Legislative and regulatory institutions should come out
with laws and better policies respectively to deal with the inevitable problems that could
emanate from transparent and complete information in the financial markets.
Theoretical Review
This study is hinged on the Stakeholder theory while getting streamlining support from the
“Friedman doctrine,” shareholder theory.
The stakeholder theory is a capitalism postulation that emphasizes the interrelated
relationships existing between a business and its various stakeholders such as customers,
91
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
suppliers, employees, investors, communities, etc. The theory states that managers of
businesses must of necessity take into consideration the needs of all stakeholders and that these
constituents impact its operations and is impacted by its operations. It postulates that a
business must seek to maximize value for its stakeholders. It takes into cognizance both
economical and ethical considerations, while promoting fairness for everyone involved in the
company and gives the managers clear objective (Herbert, et al., 2021; Islam, et al., 2021).
Despite its seeming importance, many scholars such as Haat, et al. (2008) and Hamad, et al.
(2021) have criticized the stakeholder theory . Most argued that the theory lacks specificity
and as such cannot be operationalized in a way that allows scientific observation. They pointed
out that it can be difficult to consider the differing interests of various stakeholders. Some feel
that the theory offers no decision-making standard that could provide a benchmark for
governance. Others argued that the stakeholder theory is vacuous and unrealistic of the actual
operations of organizations. This study hinges on the stakeholder theory that bank managers
and directors in Nigeria are in those banks for the interest and reward of stakeholders and not
for their own personal interest. However, due to the lack of specificity of which of the
stakeholders interest we are talking about, which the fundamental criticism against the
stakeholder theory, the study further found streamlining support from the “Friedman doctrine”
shareholder theory outlined in Friedman’s book titled “Capitalism and Freedom”, which stated
that a company’s only objective is to increase profits (reward) for the shareholders.
Methodology
The study is a quantitative research. It employed descriptive research design. It made use of
correlation study that investigated the relationship between Performance disclosure and
transparency variables, i.e., Information on Ownership Structure (IOS), Information on Board
of Directors (IBD) and Information on Net Profit (INP) and Protection of shareholders’ interest
variables, i.e., Return on Investment (ROI), Earning per Share (EPS) and Dividend per Share
(DPS) of the commercial banks in Nigeria as at December 2020.
The population of the study consists of the 23 commercial banks listed in the Nigeria Stock
Exchange as at December, 2020. However the sampled banks comprise 8 banks with
international authorization in Nigeria as at December, 2020 representing about 35% of the
population. These include Access Bank PLC, Fidelity Bank PLC, First City Monument Bank
PLC, First Bank of Nigeria PLC, Guaranty Trust Bank PLC, Union Bank of Nigeria PLC,
United Bank for Africa PLC, and Zenith Bank PLC. These were purposefully sampled because
these banks are subject to all IFRS and IAS provisions and other local and international
disclosures and transparency requirements due to their global operations and presence.
The study made use of secondary data collected from the fact book of the Nigeria Stock
Exchange and websites of the selected banks for the year 2020. The data collected was for
both Performance disclosure and transparency, and protection of shareholders’ rights
variables. The data collected was analyzed using both descriptive and inferential statistics
(using the Ordinary Least Squares-OLS-regression) via the Statistical Package for Social
Sciences (SPSS). The multi regression analysis established whether the set of independent
92
VALUE RELEVANCE OF PERFORMANCE DISCLOSURE AND TRANSPARENCY ON SHAREHOLDERS’
REWARD: AN EMPIRICAL INVESTIGATION OF NIGERIAN BANKS
Ejike Sunday Okoroigwe
variables {Information on Ownership Structure (IOS), Information on Board of Directors
(IBD) and Information on Net Profit (INP)} explained the proportion of the variance in the
dependent variables {Return on Investment (ROI), Earning per Share (EPS) and Dividend per
Share (DPS)}.
The study adopted a similar model used by Haat, et al. (2008) and Hamad, et al. (2021) to
estimate the combined effects of Performance disclosures and transparency proxies on the
shareholders rewards of selected banks. Performance Disclosures and transparency (PDT) is
estimated as a function of the banks disclosure and transparency features, which are defined
in this study as Information on Ownership Structure (IOS), Information on Board of Directors
(IBD) and Information on Net Profit (INP). This is expressed as PDT= f (IOS, IBD, INP). On
the other hand, protection of shareholders’ interest (PSI) is represented by Return on
Investment (ROI), Earning per Share (EPS) and Dividend per Share (DPS). Thus, PSI= f
(PDT), which by expansion becomes: PSI= f (IOS, IBD, INP).
The Ordinary Least Squares (OLS) regression that is used to estimate the relationship is as
follows:
ROI = β0 + β1IOS + β2IBD+ β3INP + e……………. (i)
EPS = β0 + β1IOS + β2IBD+ β3INP + e …………… (ii)
DPS = β0 + β1IOS + β2IBD+ β3INP + e …………… (iii).
Where:
ROI = return on investment
EPS = earnings per share
DPS = dividend per share
IOS = information on ownership structure
IBS= information on board of directors
INP= information on net profit
β0 = Constant
β1toβ3 = Parameters to be estimated.
e = error term.
Results and Discussions
The results and discussions are presented in this section. The descriptive and regression results
for the cross-section of the firms using the shareholders interest proxied by ROI, EPS and DPS
as dependent variables are presented and findings discussed.
93
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Descriptive Results
The Table 4.1 below is the descriptive statistics of the variables of the study as calculated from
various annual reports of the sampled commercial banks in Nigeria.
Table 1: Descriptive Statistics
Variables
IOS
Mean
11
Standard Deviation
1.08
Kurtosis
0.41
Skewness
0.932
Maximum
12
Minimum
10
Count
23
Source: Researchers’ computation (2021)
IBD
0.62
0.03
-0.82
-1.01
0.55
0.38
23
INP
0.54
0.09
-1.03
-0.92
0.46
0.35
23
ROI
22.6
29.33
8.66
-1.73
76.65
-79.22
23
EPS
11
2.21
22.53
4.00
133.02
-6.22
23
DPS
0.76
1.10
8.66
3.44
5.62
0.06
23
The result in Table 4.1 shows a mean of 22.6, 11 and 0.76 respectively for ROI, EPS and DPS
respectively. Whereas, Information on ownership structure (IOS), Information on Board of
Directors (IBD) and Information on Net Profit (INP) have mean of 11, 0.62, and 0.54
respectively. ROI has the highest standard deviation of 29.33 signifying its low contribution
to shareholders interest, whereas EPS and DPS have very low standard deviation of 2.21 and
1.10 respectively, indicating their significant influence on shareholders’ interest. The results
further show that IOS, IBD and INP all have very low standard deviation figures of 1.08, 0.3
and 0.09 respectively, showing high influence on performance disclosure and transparency.
Performance Disclosure and Transparency, and Shareholders’ Interest in Nigeria Banks
The regression analysis presented results on the impact of performance disclosure and
transparency on protection of shareholders’ interest of banks in Nigeria. The three formulated
hypotheses which are tested here looked into the 3 performance disclosure and transparency
indicators as independent variables and the three indicators of shareholder’s interest as
dependent variables respectively, for the commercial banks in Nigeria.
Performance Disclosure and Transparency, and Return on Investment in Nigeria Banks
This sub-section presents the results of the regression equation of the relationship between
Performance Disclosure and Transparency, and ROI. The results summary is presented in
Table 4.2 and this is followed by a brief discussion
94
VALUE RELEVANCE OF PERFORMANCE DISCLOSURE AND TRANSPARENCY ON SHAREHOLDERS’
REWARD: AN EMPIRICAL INVESTIGATION OF NIGERIAN BANKS
Ejike Sunday Okoroigwe
Table 2. Summary of Regression Results on Performance Disclosure and Transparency,
and ROI
Variables
Intercept
Information on Ownership
Structure(IOS)
Information on Board of
Directors (IBD)
Information on Net Profit(INP)
R2
Adjusted R2
F-Stat
Durbin-Watson
Source: SPSS Computation (2021)
Coefficients
8.655
0.970
t-values
1.245
0.936*
0.931
0.821**
0.811
0.82
0.72
7.867**
1.331
0.763**
Note: (*) indicates significance at 1%, 5%, 10% levels of significance respectively
The Table 4.2 relates ROI (dependent variable) to Performance Disclosure and Transparency
variables (independent variables). The estimated regression relationship for ROI model is:
ROI = 8.655 + 0.970IOS +0.931IBD +0.811INP
The equation shows that all the independent variables have significant and positive influence
on Return on Investment (ROI). This implies that a change in any of these independent
variables (Information on Ownership Structure, IOS; Information on Board of Directors, IBD;
and Information on Net Profit, INP) would lead to a proportional change in ROI. That is,
increase or decrease in these independent variables guarantee increase or decrease in the
Return on Investment (ROI) of commercial banks in Nigeria. The Durbin-Watson statistics of
1.331 indicates that there is no presence of auto correlation. The adjusted coefficient of
determination (R2) gives a clearer definition of the variance in ROI at 72 percent. The Fstatistics has a value 7.867 with a p-value of 0.002, showing fitness of the model.
From the above result, the research hypothesis is rejected. This is because the result provides
evidence that Performance disclosure and Transparency in Nigeria banks has significant and
positive influence on the Return on Investment of shareholders as measured by their dividend
per share. The result is supported by findings in similar studies by Haat, et al. (2008) and
Hamad, et al. (2021).
Performance Disclosure and Transparency, and Earnings Per Share (EPS) of Banks in Nigeria
This sub-section presents the results of the regression equation of the relationship between
Performance Disclosure and Transparency, and EPS. The results summary is presented in
Table 4.3 and this is followed by a brief discussion.
95
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Table 3 Summary of Regression Results on Performance Disclosure and Transparency, And
EPS
Variables
Intercept
Information on Ownership
Structure(IOS)
Information on Board of
Directors (IBD)
Information on Net Profit(INP)
R2
Adjusted R2
F-Stat
Durbin-Watson
Source: SPSS Computation (2021)
Coefficients
7.222
0.832
t-values
1.052
0.798*
0.942
0.900**
0.923
0.765
0.68
6.952**
1.169
0.898**
Note: (*) indicates significance at 1%, 5%, 10% levels of significance respectively
The Table 4.3 relates EPS (dependent variable) to Performance Disclosure and Transparency
variables (independent variables). The estimated regression relationship for EPS model is:
EPS = 7.222 + 0.832IOS +0.942IBD +0.923INP
The equation shows that all the independent variables have significant and positive influence
on Earnings Per Share (EPS). This implies that a change in any of these independent variables
(Information on Ownership Structure, IOS; Information on Board of Directors, IBD; and
Information on Net Profit, INP) would lead to a proportional change in EPS. That is, increase
or decrease in these independent variables guarantee increase or decrease in the Earning per
Shares of the shareholders of commercial banks in Nigeria. The Durbin-Watson statistics of
1.169 shows that there is absence of auto correlation. The adjusted coefficient of determination
(R2) gives a better clarification of the variance in EPS at 68 percent. The F-statistics has a
value 6.952 with a p-value of 0.002, showing fitness of the model.
From the above result, the research hypothesis is rejected. This is because the result provides
evidence that Performance disclosure and Transparency in Nigeria banks has significant and
positive influence on the EPS of shareholders as measured by their dividend per share. The
result is supported by findings in similar studies by Chi (2009) and Feng, et al. (2021).
Performance Disclosure and Transparency, and Dividends per Share (DPS) of Banks in Nigeria
This sub-section presents the results of the regression equation of the relationship between
Performance Disclosure and Transparency, and DPS. The results summary is presented in
Table 4.3 and this is followed by a brief discussion.
96
VALUE RELEVANCE OF PERFORMANCE DISCLOSURE AND TRANSPARENCY ON SHAREHOLDERS’
REWARD: AN EMPIRICAL INVESTIGATION OF NIGERIAN BANKS
Ejike Sunday Okoroigwe
Table 4 Summary of Regression Results on Performance Disclosure and Transparency, And
EPS
Variables
Intercept
Information on Ownership
Structure(IOS)
Information on Board of
Directors (IBD)
Information on Net Profit(INP)
R2
Adjusted R2
F-Stat
Durbin-Watson
Source: SPSS Computation (2021)
Coefficients
9.328
0.982
t-values
1.092
0.929*
0.994
0.932**
0.888
0.801
0.70
7.292**
1.326
0.812**
Note: (*) indicates significance at 1%, 5%, 10% levels of significance respectively
The Table 4.3 relates DPS (dependent variable) to Performance Disclosure and Transparency
variables (independent variables). The estimated regression relationship for EPS model is:
DPS = 9.328 + 0.982IOS +0.994IBD +0.888INP
The equation shows that all the independent variables have significant and positive influence
on Dividends per Share (DPS). This implies that a change in any of these independent variables
(Information on Ownership Structure, IOS; Information on Board of Directors, IBD; and
Information on Net Profit, INP) would lead to a proportional change in DPS. That is, increase
or decrease in these independent variables guarantee increase or decrease in the Earning Per
Shares of the shareholders of commercial banks in Nigeria. The Durbin-Watson statistics of
1.326 show that there is absence of auto correlation. The adjusted coefficient of determination
(R2) gives a clearer definition of the variance in EPS at 70 percent. The F-statistics has a value
7.292 with a p-value of 0.002, showing fitness of the model.
From the above result, the research hypothesis is rejected. This is because the result provides
evidence that Performance disclosure and Transparency in Nigeria banks has significant and
positive influence on the DPS of shareholders as measured by their dividend per share. The
result is supported by findings in similar studies by Barros et al. (2021) and Burunciuc (2021),
The findings show that all the three performance disclosure and transparency indicators (i.e.
information on ownership structure, information on board of directors, and information on net
profit) are very influential in ensuring Shareholders’ reward. The implication of these findings
is that the interests of shareholders, in the form of their rewards, are guaranteed with enhanced
performance disclosure and transparency by management of these banks. This would in turn
build owners confidence and subsequently guarantee more funds from owner-shareholders and
solidifying the continuity and going concern of the Nigeria banks.
97
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Conclusion and Recommendations
Conclusion
From the above findings, the study concludes that all the three performance disclosure and
transparency indicators (i.e. information on ownership structure, information on board of
directors, and information on net profit) are very influential in enhancing and protecting
Shareholders’ interest. This shows that the interests of shareholders, who are the owners of
these Nigeria commercial banks, are guaranteed with enhanced performance disclosure and
transparency by management of these banks. This would in turn build owners confidence and
subsequently guarantee more funds from owner-shareholders and solidifying the continuity
and going concern of the Nigeria banks.
Recommendations
In line with the findings, the recommendations of this paper are propelled towards the various
stakeholders of these banks. The shareholders of the banks should seek to positively influence
the standard of performance disclosures and transparency of these banks to guarantee the
protection of their various interests. The board of directors, as well as management, should
ensure that they comply with all disclosures and transparency requirements to ensure adequate,
complete and robust disclosures. The Central Bank of Nigeria, which is the apex regulatory
body of all financial institutions in Nigeria, should ensure that banks in Nigeria give adequate
protection to their shareholders interests by providing all required information with regards to
their operations.
References
Barros V., Matos, P.V., Sarmento, J.M. and Rino, P. (2021). Do Activist Shareholders
Influence a Manager’s Decision on a Firm’s Dividend Policy: A Mixed-Method Study.
Journal of Business Research 122, 387-397.
Burunciuc, C. and Gonenc, H. (2021).Reforms Protecting Minority Shareholders and Firm
Performance: International Evidence. Journal of Risk and Financial Management 14(1),
5.
Chi, L. (2009). Do Transparency and Disclosure Predict Firm Performance? Evidence From
Taiwan Market. Expert Systems with Applications 36(8), 11198-11203.
Feng, Y., Pan, Y., Wang, L. and Sensoy, A (2021). The Voice of Minority Shareholders:
Online Voting and Corporate Social Responsibility. Research in International Business
and Finance 57,101408.
Haat, M.H.C., Ralman, R.A. and Mahenthiran, S. (2008). Corporate Governance,
Transparency and Performance of Malaysian Companies. Managerial Auditing Journal.
Hamad, K.Q., Saeed, Q. and Sharif, R.J.M. (2021). Effectiveness And Adequacy of Disclosure
Provisions in Tehran Stock Exchange. PalArch’s Journal of Archaeology of
Egypt/Egyptology 18(08), 2379-2388.
Herbert, W.E. and Agwor, T.C. (2021). Corporate Governance Disclosure and Corporate
Performance of Nigerian Banks. Journal of Research in Emerging Markets 3(3), 14-36.
98
VALUE RELEVANCE OF PERFORMANCE DISCLOSURE AND TRANSPARENCY ON SHAREHOLDERS’
REWARD: AN EMPIRICAL INVESTIGATION OF NIGERIAN BANKS
Ejike Sunday Okoroigwe
Islam, M.A., Cooper, B.J., Hague, S and Jones, M.J. (2021). Moral Versus Pragmatic
Legitimacy and Corporate Anti-Bribery Disclosure: Evidence From Australia.
Accounting Forum, 1-27.
Ntim, C.G., Opong, K.K. and Danbolt J. (2012). The Relative Value of Shareholder Versus
Stakeholder Corporate Governance Disclosure Policy Reforms in South Africa.
Corporate Governance: An International Review 20 (1), 84-105.
Sumatriani,G., Pagulung, G., Said, D. and Grace, T. (2021). The Effects of Shareholders’
Rights, Disclosures, and Transparency on Firm Value. The Journal of Asian Finance,
Economics and Business 8(3), 383-390.
Saeed, A. and Zamir, F. (2021). How does CSR Disclosure Affect Dividend Payments in
Emerging Markets? Emerging Markets Review 46, 100747.
Valiana, H., Jalalib, F., Darvishana, M. and Mehdi, M. (2021). To Study Effect of Investor
Protection on Future Stock Price Crash Risk. Advances in Mathematical Finance and
Applications 6(2), 1-27.
99
Journal of Accounting
Vol. 11 (1) January - June 2022
OWNERSHIP STRUCTURE AND FINANCIAL REPORTING QUALITY
OF LISTED OIL COMPANIES IN NIGERIA
Michael Chidiebere Ekwe 1, Amah Kalu Ogbonnaya 1.
1
Accounting Department, College of Management Sciences, Michael Okpara University of
Agriculture, Umudike, Abia State Nigeria (kaluogbonnaya30@yahoo.com
Abstract:
This paper assessed the effect of ownership structure on financial reporting quality of listed oil
companies in Nigeria. The ownership structure was proxy by the proportion of the total number of
common shares owned by the board of directors to the total number of common share outstanding, while
the financial reporting was computed through the 1991 Jones model of financial reporting quality. Data
for the study was sourced from the annual reports and accounts of the sampled study oil companies.
Time series data from 2006-2019 were used. The hypotheses were tested using regression analysis
technique. The result shows that ownership structure has a significant effect on quality of financial
reports of listed oil companies in Nigeria. The study among others recommends that shareholders and
investors to reconsider in the level of the ownerships in the companies especially the institutions that
invest in other companies in other to increase their supervisory role on the management performance
when preparing financial statement, it also went further to say that with regard to structure of company’s
share ownerships that the government and the institution should consider the influence of shareholders
control over the quality of the financial reporting.
Keywords: Ownership Structure, Oil Company, Shareholders, Financial Reporting Quality.
Introduction
In a world characterized by imperfect information and costly monitoring, a divergence of
interests between shareholders and managers can lead to suboptimal management decisions.
Such decisions are possible because the actions of managers are largely unobservable and the
goals of the managers and their shareholders are not necessarily aligned (Alves, 2012).
Financial reporting quality is considered as one of the main indicators of firm reliability and
as such, issue of financial reporting quality has already gained the attention of academic
researchers, financial markets regulators, operators and investors. Consequently, financial
reporting quality can no longer be handled with levity while organizations are confronted with
creative accounting practices. Quality financial reports promote transparency and deliver high
quality annual report through comprehensive disclosure (Hassan, 2013). Financial information
helps investors in all rounds as they influence the behavior with respect to portfolio selection
which in turn affects prices. With the issue of global financial crises, corporate failures and
scandals around the world, which has raised serious questions about relevance, reliability and
effectiveness of reported accounting information. There has been growing interest in the issue
of ownership structure and how they influence financial reporting quality, both in the
developed and emerging economies (Arezoo, Banafeheh & Mohammed, 2011).The wave of
accounting scandals and financial crises brought to the relevance of ownership structure in
ensuring ethical practice in financial reporting.
100
OWNERSHIP STRUCTURE AND FINANCIAL REPORTING QUALITY OF LISTED OIL
COMPANIES IN NIGERIA
Michael Chidiebere Ekwe , Amah Kalu Ogbonnaya .
According to Beylclinek, Blanco and Garcialan, (2013) ownership structure has been a
necessary condition to assure and maintain the confidence of stakeholders on issues relating
to the quality of financial reports. The presence of ownership structure has important
implications on financial reporting quality of most corporate organizations; just as Chtourun
and Courteau, (2001) as well as Klai and Omiri (2011) affirm that ownership structure affects
the quality of financial reports produced by companies. An organization with a presence of
large investors tends to increase financial reporting quality due to strict monitoring by
supervisory authorities. On the issue of managerial discipline Jensen (1993) suggests that
managerial stake holding is one way of helping to link the interest of stakeholders and
mangers; for as the proportion of managerial equity ownership increases then so too do firm’s
financial reporting quality. With concentrated ownership structures around the world
structures of such firm are being controlled by single large stakeholders, who more often than
not exercise ultimate control despite only possessing cash flow rights. This separation between
ultimate ownership and control provides stakeholders with a large controlling interest with the
incentive to drive personal benefits at expense of stakeholders. La porta,Lopez and Shleiter
(1999)
Oil companies in Nigeria are the biggest employer of labour in Nigerian other parts of the
world as they pay good salaries and also the oil sector contributes up to 70% of GDP in Nigeria
.With the above information ,the study attempts to ascertain whether a relationship exist
between ownership structure and financial reporting quality of oil companies in Nigeria as
well as the strength of the relationship where it exists between ownership structure and
financial reporting quality of oil companies in Nigeria.No other research work has considered
this aspect among oil companies operating in Nigeria, hence the motivation to cover this gap
in the current research. Predicated on these, the researchers formulated the hypothesis below
in null form to investigate the study:
Ho: Ownership structure has no significant effect on financial reporting quality of oil
companies in Nigeria.
Review of Related Literature
The issues of Ownership Structure
Ownership structure is an important concept which attracts public interest because of its
importance to the financial and economic health of companies and public in general. It is
described as the proportion of the total number of common shares owned by the board of
directors to the total number of common share outstanding. Hashim (2008) says that ownership
structure is the ratio of share owned by the largest corporate investors to the total number of
shares issued. Institutional investors take different forms such as fund managers, private equity
firms, banks mutual funds and pension funds. Fame and Jensen (1983) are of the opinion that
when insiders obtain relatively large ownership, they may posse sufficient power to overcome
governance mechanisms which allow insiders to act in their own interest with year of removal
101
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
or sanction so they will become convinced. Velury, Reisch and O’Reilly D (2003) believe that
the presence of institutional ownership would likely influence managements attributes through
increases monitoring activities by this class of investors. This constant monitoring tends to
forestall indiscipline within management by producing quality financial information to
stakeholders.
We have three types of ownership
i. Internal investors: the ownership of managers.
ii. Institutional ownership: this is ownership by institutional investors E.g., pensions
fund, private equity banks, mutual funds, private firms and managers.
iii. Foreign ownership: this is ownership by foreigners.
Financial Reporting Quality Concept
Financial reporting quality is defined as a true, relevant and timely discourse of the accounting
information in order for users of information to solve problem, plan and evaluate the activity
of a company. It relates to the accuracy with which reported finances of a firm reflect its
operating performance and how useful they are in forecasting futures cash flows (Scoft &
Irem, 2008). The value of financial accounting is generally determined by its quality (Pounder,
2013) and reporting quality suggests that accounting information is better and more reliable
than other information in relation to its characteristics of communicating what it purports to
communicate. Biddle, Hilany and Veidi (2009) define financial reporting quality as the
precision with which financial reports convey information about the firms operations, in
particular and its cash flows in order to inform the equity investors. Tang, Chen and Zhijun
(2008) define financial reporting quality as the extent of true and fair information about the
underlying performance and financial position of a firm. Jones and Balanced (2000) define
financial reporting quality as full and transparent financial information that is not designed to
obfuscate or mislead users.
Empirical Review.
Han (2004) studied the relationship between financial reporting quality and institutional
investors of 500 firms in US. They study established a negative relationship between financial
reporting quality and institutional ownership.
Teshima and Shut (2008) examined the effect of managerial ownership in earnings
management using discretionary accruals. Samples of 18,790 Japanese firms were used in the
period 1991 to 2000. The study found that the relationship is significantly positive within
intermediate regions of ownership which suggested that entrenchment effect is dominant in
these regions.
Dockery, Isegba and Herbart (2012) investigated an empirically question whether ownership
structure leads to improvements in firm performance in an emerging market like Nigeria. Date
from 73 firms were used, for the period of 2001 to 2007 while ordinary least square regression
was used for the test of the hypotheses if shown that strong owner concentration has no
influence in firm performance but foreign ownership influences firm performance.
102
OWNERSHIP STRUCTURE AND FINANCIAL REPORTING QUALITY OF LISTED OIL
COMPANIES IN NIGERIA
Michael Chidiebere Ekwe , Amah Kalu Ogbonnaya .
Alves (2012) examined the relationship between corporate structure and earnings management
in Portugal. The study made use of 34 non financial listed Portuguese firms from 2002-2007,
using discretional accruals as a proxy for earnings management. The study found out that
earrings management is negatively related both to managerial ownership and to ownership
concentration.
Beuselineu, Blanco and Lara (2013) examined the role foreign stakeholders in disciplining
financial reporting from southern European countries. The study established a positive
relationship between foreign ownership and quality of financial reporting.
Tsagba, Herbart and Ene (2014) examined corporate ownership, corporate control and
corporate performance in sub-saharan Africa: evidence for Nigeria. The study period was from
2002-2007. Data were obtained for annual report and accounts and Nigeria stock exchange
daily performance report a total of 70 firms were used, while ordinary least square (OLS)
regression analysis were used. The result of the study showed that foreign ownership structure
exhibit significant improvement in firm performance while there was no statistically
significant relation between concentrated ownership and firm performance.
Yo Han and Timy (2016) investigated the impact of family ownership in firm value and
earnings quality: evidence from Korea. The study period is for 2000-2005. Earning ownership
was classily into 3 categories family ownership, pure family ownership and ownership –
control disparity. The study found out that family ownership and pure family ownership is
positively associated with firm value and carvings quality.
Builar, Garba, Mustapha and Karaye (2016) studied the impact of institutional ownership and
tobacco firms in Nigeria. The study established a positive relationship between earnings
quality and institutional ownership.
Adebiyi and Olowookere (2016) studied ownership structure and quality of financial
reporting: evidence from Nigeria deposit money banks. The study period was nine years from
2005 to 2013; ordinary least square regression technique was used. The study result showed
that managerial ownership improves the quality of annual earnings by reducing the level of
financial reporting manipulation.
Omalichinwa and Mukor (2017) studied ownership structures and earnings management
practices of Nigeria companies. The study made use of 137 sampled companies. OLS
regression technique was used to measure the research model as well as Pearson moment
correlation coefficient. The study showed that ownership structure has a significant
relationship with earnings management practice in Nigeria.
Hussein and Nympha (2017) examined the effect of ownership structure upon the audit quality
in developing country, case of Bahrain. To achieve this annual report of listed companies in
Bahrain Burse for 2015 and unlisted companies registered by central bank of Bahrain as at
September, 2016 were used. Logistic regression was used to test the hypotheses. The result
103
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
shows that institutional ownership and ownership concentration factor have positive
relationship but not significant with the audit size.
Alsmady (2018) examined ownership structure and its endogeneity effect on the quality of
financial reporting. The study made use of 68 annual reports collected from Judaman
companies, for the period of 2005-2015 Hausman tests was used to perform the test. The result
showed that ownership concentration variable has no significant effect on OFRs.
Uwuigbe, Erin, Uwuigbe, Igbioba and Jafaru (2019) investigated ownership structure and
financial disclosure quality: evidence from listed firms in Nigeria. A total of 75 firms listed on
the Nigeria stock exchange, were used and study period was from 2011 to 2015. The study
used foreign ownership, managerial ownership and institutional investors as ownership
structure attributes. General least square (GLS) regression method was used to estimate the
parameters of the model. The study revealed that there is significant relationship between
institutional investors, managerial ownership and quality of financial disclosure.
Theoretical Review
Stewardship theory
This theory is in contract with agency theory. Stewardship theorist upholds that directors
frequently have interests that are consistent with those of shareholders. According to them
there will not be any major agency cost since managers are naturally trustworthy, Donaldson
(2003). Stewardship theory postulates that a steward protects and maximizes shareholders
wealth through firm performance, because by so doing the steward utility functions are
maximized. According to Cullen, Kirwan and Brennan ( 2006), the stewardship theorist
upholds that the attainment of organization success also satisfies the personal need of the
steward. The steward derives greater unity from satisfying organizational goals than through
self serving behavior. The theory reorganizes the essentials of structures that empower the
strewed, offering maximizing action built upon trust. This minimizes the cost of mechanisms
aimed at monitoring and controlling behaviors. According to Muth and Donaldson (1998)
stewardship theory is an opposite of agency theory which offers opposite of agency theory
which offers opposing predictors about structuring o effective board. While most of the
governance theories are economic and finance in nature the stewardship theory is sociological
and physiological in nature.
Methodology
Research Design
The research design adopted in this study is the ex post facto research design.
Method of Data collection and Analysis.
Annual time series data was employed ranging from 2006-2019with a sample size of
10 quoted oil companies, and Annual report published by the oil Companies Selected.
In this study Accrual model was used as a proxy for financial reporting quality serves
as the dependent variable. Accrual model was developed by Jones 1991 which is
104
OWNERSHIP STRUCTURE AND FINANCIAL REPORTING QUALITY OF LISTED OIL
COMPANIES IN NIGERIA
Michael Chidiebere Ekwe , Amah Kalu Ogbonnaya .
∆WC= CFOt-1 + CFO1 + CFOt+1 + ∆Sales + PPE + €
Where ∆WC= Change in Working Capital in year t, ie ∆Accounts receivables
+∆inventory – ∆Accounts Payable – ∆taxes payable + ∆other assets (Net).
CFOt-1= Cash flow from operation in year t-1
CFO1= Cash flow from operation in year t
CFOt+1= Cash flow from operation in year t+1
∆Sales= Sales in Year t less sales from Operation in year t-1
PPEt= Gross property, plant and equipments in the Year.
The Independent Variable is the ownership structure which is computed as the
proportion of the total number of common shares owned by the board of directors to
the total number of common share outstanding.,
Proxy for financial reporting quality is the accrual model which is calculated using
Jones model.
The study made use of simple linear regression sine the explanatory variable
(ownership structure) is one. The method of data analysis is Ordinary Least Square
(OLS) technique. The statistical formation of the model is presented as follows:
FRQ = f (OWS)
The simple linear relationship is stated thus:
LOGFRQ=β+β1 LOG OWS +µ
Where:
FRQ- Financial Reporting Quality
OWS- owner ship structure
β- Intercept
β1- Estimation of Coefficient
µ- Error term
Data Presentation, Analysis and Discussion of Findings
This study employed the panel data based simple regression model to understand the
interaction among the variables and estimating the relevant data. Time series data was
collected on annual basis on variables captured in the model.
Model Specification
FRQit = β0+ β1OSit+uit ………………….(i)
Where
FRQ = financial reporting quality (measured using accruals).
OS = ownership structure
105
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Data Presentation
The data extracted were estimated based on the panel data regression analysis to determine the
effect of the variables. Accrual was used as the proxy for financial reporting quality (dependent
variable) while ownership structure was used as the independent variable. The adjusted R
square which is the coefficient of determination and the F statistic was used to ascertain the
significance of the overall model. Specifically, the probability of the F-statistic test was used
to test the hypotheses of the study to determine the relationship between the variables. The
data for the various variables are shown in the appendix 1 below.
Data Analysis
Hausman Test
Correlated Random Effects - Hausman Test
E q u a t i o n :
U n t i t l e d
Test cross-section random effects
T e s t
S u m m a r y
Cross-section random
Chi-Sq. Statistic
Chi-Sq. d.f.
Prob.
2.681607
1
0.0115
Cross-section random effects test comparisons:
V a r i a b l e
Fixed
Random
Var(Diff.)
Prob.
OWNERSHIP
0.217140
0.157245
0.001338
0.0115
The Hausman test is used to differentiate between fixed effects model and random effects
model in panel data. In this case, random effect is preferred under null hypothesis due to
higher efficiency, while under the alternative fixed effects is at least as consistent and thus
preferred.
In this case, fixed effect panel data is preferable. This is so because the null hypothesis was
rejected (p-value of 0.0115 is less than 0.05).
106
OWNERSHIP STRUCTURE AND FINANCIAL REPORTING QUALITY OF LISTED OIL
COMPANIES IN NIGERIA
Michael Chidiebere Ekwe , Amah Kalu Ogbonnaya .
Panel Data Test
Dependent Variable: ACCRUALS
Method: Panel Least Squares
Date: 05/02/20
Time: 23:19
S a m p l e : 2 0 0 6 2 0 1 9
P e r i o d s i n c l u d e d : 1 4
Cross-sections included: 10
Total panel (unbalanced) observations: 11 8
V a r i a b l e
Coefficient
Std. Error
t-Statistic
Prob.
C
OWNERSHIP
4.949079
0.325535
0.221018
0.113210
22.39222
2.875497
0.0000
0.0050
Effects Specification
Cross-section fixed (dummy variables)
Period fixed (dummy variables)
R - s q u a r e d
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)
0.761269
0.709047
0.602217
34.81589
-95.41872
14.57746
0.000000
Mean dependent var
S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat
5.564297
1.116456
1.990148
2.506716
2.199890
1.697656
The panel data result showed the effect of ownership structure on financial reporting quality
(accruals) of oil companies in Nigeria. The coefficient of determination R-square of 0.761
implied that 76.1% of the sample variation in the dependent variable financial reporting quality
(accruals) is explained or caused by the explanatory variables (ownership structure) while
23.9% is unexplained. This remaining 23.9% could be caused by other factors or variables not
built into the model. The value of R-square is an indication of positive and strong relationship
between the dependent variable (financial reporting quality) and independent variables
(ownership structure).Consequently, the value of the adjusted R2 is 0.709. This shows that the
regression line which captures 70.9 per cent of the total variation in financial reporting quality
is caused by variation in the explanatory variable specified in the model with 29.1 per cent
accounted for the stochastic error term. The F-statistic was also used to test the overall
significant of the model. The F-value of 14.58 with p-value of 0.0050 is an indication that the
model is not statistically significant at 5 percent level of significant at degree of freedom df1=
1 and df2= 3.Finally, the test of autocorrelation using Durbin-watson shows that the Durbin107
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
watson value of 1.67 falls outside the conclusive region of Durbin-watson partition curve.
Hence, we can clearly say that there is no sign of autocorrelation.
Test of Hypothesis
Hypothesis
H01: Ownership structure has no significant effect on financial reporting quality of oil
companies in Nigeria.
To test the hypothesis:
The F-statistic with 14.58 has probability of 0.005% level of significance. Since the probability
of the F statistics is less than 5% level of significance, we would reject the null hypothesis, H0
and therefore conclude that ownership structure has a significant effect on financial reporting
quality of oil companies in Nigeria.
Discussion of Findings
Result in the hypothesis revealed that ownership structure has a significant effect on financial
reporting quality of oil companies in Nigeria. The decision is based on the fact that the P-value
is less than 0.05. The findings is consistent to the findings of La Porta, (2015), which revealed
that ownership structure affect financial reporting quality of firms in Nigeria. Also, the
findings is consistent to the findings of Zhao, (2017), which revealed that ownership
significantly affect the financial reporting quality of firms in Nigeria. In contrary, the findings
of Thomsen (2018), which revealed a negative relationship between ownership structure and
financial reporting quality.
Summary of Findings, Conclusion and Recommendations
Summary of Findings
Based on the data collected and analysis of data the result was summarized thus:
(i) Ownership structure has a significant effect on financial reporting quality of oil
companies in Nigeria.
Conclusion
This study focused on ownership structure and financial reporting quality of oil and gas firms
in Nigeria. Financial reporting quality (FRQ) in its essence is a description of all financial and
accounting activities of a company that can be used as a reference by external and internal
parties to make final decisions. The use of financial reporting will be more pronounced if it
meets the qualitative characteristics of reliable, understandable, relevant and comparable. The
financial crisis and its relation with the lack of accountability of directors for allowing their
companies to take excessive risks raise a big and world-wide debate on the directors’
obligations and its enforceability.
Given that investors need to real and unbiased earnings information to know and estimate cash
flows, the scandals have made corporate governance and governance structures reforms more
essential and highlighted the crucial need for firms to enhance the quality of reported earnings.
108
OWNERSHIP STRUCTURE AND FINANCIAL REPORTING QUALITY OF LISTED OIL
COMPANIES IN NIGERIA
Michael Chidiebere Ekwe , Amah Kalu Ogbonnaya .
The study was carried out using ten (10) selected oil and gas firms in Nigeria for the period of
14 years ranging from 2006 to 2019. The data collected were analyzed using panel data based
simple regression analysis and the findings revealed that Ownership structure has a significant
effect on financial reporting quality of oil companies in Nigeria.
Recommendations
Based on the summary of findings and conclusion of the study, the following
recommendations were made.
(i)
With regard to the structure of company’s share ownership, the government and the
institution should consider the influence of shareholder’s control over the quality of the
financial reporting, which may affect the company's sustainability and, globally, affect
the economy. The considerations made by the government and institutions can be rules
or limitation regarding the ownership structure of companies objected to create a
balance between interests of shareholders and the interests of management and to
improve the level of transparency and the extent of disclosure.
(ii) Furthermore, this study recommends of the shareholders and investors to reconsider in
the levels of the ownerships in the companies, especial the institutions that invest in
other companies in order to increase their supervisory role on the management
performance when preparing financial statements.
References
Adebiyi, W.K., & Olowookere J. (2016). Ownership structure and quality of financial
reporting evidence from Nigeria deposit money banks. International Journal of
Economics, Commerce and Management, 4(1).
Alsmadu, A.A. (2015). Ownership structure and its endogeneity effect in the quality of
financial reporting. International Fund of Academic Research in Business and social
Science 5(3), 509-526.
Alves, S. (2012). Ownership structure and earnings management: Evidence from Portugal.
Australian Accounting, Business and Financial Journal 6(2), 57-74
Arezoo, H., Banatzehch, F., & Mohammed, H. (2011) The impact of institutional ownership
on stock synchronicity and cash risk. International Journal of Business and Social
Science 6(1-9).
Beusclinck, C., Blanco, B., Garcia-lara. J. (2013). The role of foreign shareholders in
disciplining financial reporting. Involving paper service, IESEG school management,
France.
Biddle, G.C., Hillary,G., & Vardi, R.S. (2007) How does financial reporting quality related to
investment efficiency. Journal of Accounting and Economics 48(2-3) 112-131
Bullar, A., Garba J., Mustapha, N. & Karaye Y, (2016). The impact of institutional ownership
structure in earnings quality of listed food/beverages and tobacco firms in Nigeria.
Journal of Arts, Science and Commerce 41-11.
109
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Chtourou, M., Bedard, J., & Courtea, L., (2001). Corporate governance and earnings
management. Laval university of Canada.
Cullen, M., Kirwan, C., & Brennan, N. (2006). Corporative analysis of corporate governance
theory: The agency-stewardship continuum. Papers presented at the 20th annual
conference of the Irish Accounting &Finance Association Institute of Technology.
Dockery, E., Tsegba, I.N., & Herbart ,W.E., (2012). Does ownership structure influence firm
performance? Empirical insights from an emerging market. Journal of Governance and
Regulation 1(4).
Donaldson. L., & Davis, J. (1991). Stewardship theory or Agency theory: CEO governance
and shareholders return. Australian Journal of Management, 16(11), 49-65
Donldson, W. (2003). Congressional testimony concerning the implementation of Sarbanes Oxley act of 2002. www.secgov/news/testimony/090903tsnhd.
Fama, E, & Jensen, M (1953). Separation of ownership and control. Journal of good
governance and sustainable development in Africa.
Han, S. (2005). Ownership structure and quality of financial reporting. University of Illinois.
USA.
Hashim, (2005). Corporate governance ownership structure and earnings quality. University
of Malaysia.
Hassan, S.U (2013) Financial reporting quality does monitoring characteristics matter? An
empirical analysis of Nigeria manufacturing sector. The Business and Management
Review 3(2) 147-161.
Hussein,K., & Nympha, J. (2017). Does ownership structure affects audit quality evidence
from Bahrain. Global Journal of Accounting, Economics and Finance 10(3), 92-100
Jensen, M.C. (1993). The modern industrial revolution exit and failure of internal control
system. Journal of Finance 10/488 831-880.
Jones, G., & Blanchet, J. (2000) Assessing quality of financial reporting. Journal of
Accounting Research 29(2), 193-228.
Klai, O., Omri, A., (2011). Corporate governance and financial reporting quality. International
Business Research 4, 158-167.
La Porta, R., Lopez-de-silance, F., Shleiter, A (1999). Corporate ownership around the world.
Journal of Finance 10(2 ), 471-517.
Omolehinwa, E.O & Makiro, D.O., (2017). Ownership structure and earnings management
practice of Nigeria companies. Journal of Internet Banking and Commerce 10, 22.
Pounder, B(2013). Measuring accounting qualities. Strategic Finance Magazine.
Scofh,R., & Irem, T. (2008) International Financial Statement Analysis. Retrieved in 23rd July
2017 from http://ww.cfapubs.org/ati/pdf/102469.
Tang,F.,Qchen,H., & Zhijium (2008). Financial reporting: Quality and investor protections a
global investigator.
110
OWNERSHIP STRUCTURE AND FINANCIAL REPORTING QUALITY OF LISTED OIL
COMPANIES IN NIGERIA
Michael Chidiebere Ekwe , Amah Kalu Ogbonnaya .
Tsegba, I.N., Herbart , N.E., & Eric, E.E. (2014). Corporate ownership, corporate control and
corporate performance in sub-saharan Africa: Evidence for Nigerian. International
Business Research, 2, 11.
Uwuigbe, U., Eric, O.A.,. Uwuigbe O.R., Igbinoba, E.E, & Jatoru J. (2019). Ownership
structure and financial disclosure quality: evidence from listed firms in Nigeria. Journal
of Internet Banking and Commerce.
Velury, U., Reisch, J.O., & Reilly, D. (2003). Institutional ownership and the selection of
industry specialist auditor. Review of quantitative finance and accounting, 21 35-48.
Yo-Han, A., & Tony, N. (2016). The impact of family ownership in firm value and earnings
quality: evidence from Korea. E/M classification number 110, 150, 200
111
Journal of Accounting
Vol. 11 (1) January - June 2022
FIRM ATTRIBUTES AND DIVIDEND PAYOUT: STUDY OF DEPOSIT
MONEY BANKS LISTED IN NIGERIAN.
Musa, Success Jibrin
Department of Accounting, Faculty of Management Sciences, Veritas University, Abuja.
Abstract
Nigerian financial sector especially deposit money banks serve as an engine for economic growth and
development with it function as the intermediary between the surplus and the deficit unit of the economy.
However, recent banking distress constrain these banks for distributing dividend to their investors which
pores fair to so many investors both individual and institutional. Therefore, the study investigates the
effect of firm’s attributes on dividend payout in the Nigerian deposit money banks. A correlation research
design was used for the study. The population of the study was all the listed Nigerian deposit money
banks as at 2020 out of which 10 were arrived at, as the sample size, multivariate technique of data
analysis was employed using multiple regression model, structured using longitudinal panel data. The
findings of the study revealed that bank size, liquidity, and growth have a significant effect on the
dividend payout of the Nigerian deposit money banks. Base on the findings of the study, it is therefore
recommending among others that, the investors and portfolio analysts who want to select the dividend
paying firms might have to look into the five mentioned attributes before selecting the investing bank.
in other to have a promising and good investment.
Keywords: Firm attributes, Dividend, Payout, Deposit money banks & Nigeria
Introduction
The practice of management in making dividend payout decisions, that is, the magnitude and
pattern of cash payouts to shareholders over time, is referred to as dividend policy (Lease et
al., 2000). However, despite the numerous studies conducted on the subject, particularly in
developed countries, comprehensive digestion of the subject matter of dividend policy has
proven difficult. As stated by Black (2016), the more we look at the dividend picture, the more
it appears to be a puzzle with pieces that don't fit together. This puzzle has spawned a slew of
opposing theoretical and empirical studies attempting to explain why corporations pay or don't
pay dividends. The dividend program is still regarded as one of the best after two decades The
dividend policy is still one of the top ten most important unresolved issues in the financial
sector, with no consensus established (Brealey & Myers, 2013).
There are a variety of reasons why corporations should pay or not pay dividends; earnings
might be invested in operational assets, used to acquire securities, used to retire debt, or
delivered to shareholders as cash dividends. The goal of a company's dividend policy is to be
compatible with its broader goal of maximizing shareholder value, because every investor
wants a return on their investment.
The third important financial decision is whether or not to pay a dividend (Pandey, 2018). The
firm's finance manager must determine whether to disperse all profits, keep a portion of them,
or distribute a portion and keep the rest. Dividend payouts should be calculated in terms of
their impact on the value of the company's stock. The best dividend policy is one that optimizes
the value of a company's stock. As a result, if shareholders are unconcerned about the firm's
112
FIRM ATTRIBUTES AND DIVIDEND PAYOUT: STUDY OF DEPOSIT MONEY BANKS LISTED IN NIGERIAN.
MUSA, SUCCESS JIBRIN
dividend distribution policy, the financial manager must establish the best payout strategy. The
majority of productive businesses distribute cash dividends on a regular basis. Dividends, on
the other hand, may be seen favorably by shareholders because they tend to improve their
existing return.
Dividends, on the other hand, are a use of the firm's funds. The most prevalent type of payout
is a cash dividend (Pandey, 2018). It's a dividend to the stockholders. Companies planning to
pay such dividends will need to keep enough cash on hand in their bank accounts to make the
payment. It is beneficial for a company to prepare cash budgets to determine which period
would be best for paying cash dividends without jeopardizing the company's liquidity position,
and if this is in jeopardy, the company should make arrangements to borrow funds to fill the
gap left by cash dividend payments. Overall, paying cash dividends has the effect of
diminishing the company's cash balance, and consequently overall assets and net value.
The classic work of Linter (2017) finds that the industry and firm's growth prospects, earnings,
and cyclical variation in investment possibilities are all essential elements influencing the
firm's dividend policies. Although firm-specific characteristics such as investment
requirements and earnings fluctuation appear to influence dividend payouts, Linter (1996)
hypothesizes that dividend policy is also influenced by an industry effect. This effect could be
understood as common correlations with dividend payout determinants among companies in
the same industry.
This intends to optimize the financing decision and dividend decision in the context of
attaining the specified target, assuming good investment strategies are in place. The choice of
an acceptable finance mix, as it pertains to the capital structure or leverage, is referred to as a
financing decision. The composition of long-term debt capital and equity capital required to
finance an investment proposal is referred to as capital structure. To provide reasonable
financial leverage, there should be an optimal or balanced capital structure. This paper mainly
concentrates on the exercise of financial leverage in the context of understanding its impact
on dividend payout policy of Nigerian deposit money banks.
Furthermore, the study in the determinant of dividend payout has been explored in different
study and it provides different or divergent views Elisa, Abubakar & Damankah (2014), Pruitt
& Gitman (2016), Rozeff (2916), Lloyd et al. (2013), Colins et al. (2013) and D’Souza (2015)
have considered risk as a significant determinant of the dividend decision. On the other hand
Al-Malkawi (2018), Kouki & Guizani (2019). However, considering the fact that most or all
of the above study were conducted in developed nations with entirely different economic,
social, political and legal background with developing nations Nigeria inclusive, a similar
study may be promising. Similarly, the Nigerian financial sector, particularly deposit money
banks, which serve as the engine for economic growth by acting as an intermediary between
the surplus and deficit units of the economy, and the recent banking distress that has affected
so many individual and institutional investors. The study therefore examined the determinant
of dividend payout in the Nigerian deposit money bank. In view of the above,
113
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
The following hypotheses were formulated to navigate the study thus:
Ho1: Profitability has no significant effect on the dividend payout of deposit money banks
listed in Nigerian.
Ho2: Firm size has no significant effect on dividend payout of deposit money banks listed
in Nigerian.
Ho3: Liquidity has no significant effect on dividend payout of deposit money banks listed
in Nigerian.
Ho4: Firm growth has no significant effect on dividend payout of deposit money banks listed
in Nigerian.
Ho5: Leverage has no significance effect on dividend payout of deposit money banks listed
in Nigerian.
Empirical Review
Amidu and Abor (2016) revealed that profitability is very negative and significantly related to
dividend distribution, indicating that companies invest in their assets rather than paying
dividends to shareholders.
Baker and Gandi (2017) stated that the higher the return on equity, the larger the company's
retained earnings for reinvestment or the smaller the dividend distribution. Contrary to popular
belief, there are plenty. According to Aivazian and Cleary (2003) and Kun Li and Chung-Hua
(2012), large and profitable companies are more inclined to increase their dividends. Their
research found that the dividend payout ratio has a favorable relationship with profitability.
Profitable companies with more steady net earnings can afford to pay higher dividends since
their free cash flows are larger. The company profitability ratio appeared to be a very strong
and statistically significant factor of the dividend payment ratio in GCC countries, according
to Alkuwar (2009). Furthermore, the flexibility of When looking at the dividend payout ratio
in relation to firm profitability, it was discovered that a 10% increase in firm profitability
would result in a 5.8% increase in the dividend payout ratio. This is in line with the finding
that when a company's profitability rises, it pays a bigger dividend ratio.
Anupam (2012) looked at UAE companies from 2005 to 2009 and found that profitability, as
defined by ROE, has a negative connection with dividend distribution, implying that the more
profitable companies pay fewer dividends. The dividend payout ratio is inversely associated
with profitability as assessed by ROA and EPS, but the results are not statistically significant.
Turki and Ahmed (2013) investigated companies listed on Saudi Arabian stock exchanges,
finding that earnings per share were considerable and had a positive association with dividends
per share. When a result, as a company's profitability rises, so do its dividends per share. In
their study on important elements influencing dividend policy decisions, Mohammed and
Mohammed (2012) found that An empirical examination of industrial businesses listed on the
Amman Stock Exchange came to the following conclusion Earnings per share (EPS)
profitability has the greatest and most important impact on dividends.
Taher (2012) investigated the following factors that influence dividend payment policy: The
data from Bangladesh showed that EPS was negatively related to dividend payout policies.
114
FIRM ATTRIBUTES AND DIVIDEND PAYOUT: STUDY OF DEPOSIT MONEY BANKS LISTED IN NIGERIAN.
MUSA, SUCCESS JIBRIN
While EPS is a useful tool for comparing earnings across companies, it does not reveal how
the stock is valued in the market. As a result, the P/E ratio is used in fundamental research to
determine how much the market is ready to pay for a company's earnings. It was assumed that
a company with a high EPS would have a lower dividend payout ratio and, as a result, a
negative sign, as established by the estimation. As a result, the higher the payout ratio, the less
certain the corporation is that it could have put the money to better use.
Hafeez and Attiya (2008) observed that the in results study on the determinants of dividend
policy in Pakistan demonstrate a negative and substantial link between dividend payout and
size. As a result, we fail to reject the null hypothesis that size has a negative connection with
dividend payout because large-sized enterprises prefer to pay less dividends.
AL- Shabibi (2011) conducted research on companies listed on the Amman Stock Exchange
between 2005-2009. He discovered that there is a strong and considerable positive association
between the size of a company and the choice to pay dividends. As a result, large Jordanian
enterprises are more diversified than smaller firms, and thus less likely to be less prone to
financial difficulties and better able to pay dividends to shareholders. The transaction cost
theory of dividend policy supports this relationship.
Eriotis (2015) investigated how Greek firms determine their dividend policies based on not
just net distributed earnings but also dividend changes and firm size, with the empirical
findings indicating that firm size was included as a signal concerning the firm's payout.
According to Al-Twaijry (2007), large enterprises are more likely to be mature, have easier
access to capital markets, and should be able to pay higher dividends. Anupam (2012)
investigated UAE companies from 2005 to 2009 and found that the firm's size is considerably
and positively associated to the firm's dividend distribution in the UAE. This investigation,
like previous studies, concludes that the when compared to smaller companies, larger
companies pay out higher dividends. Large corporations have easier access to the capital
market and are thus less reliant on internal money, allowing them to pay higher dividends.
Alkuwar is a word that can be translated as "(2019) The size of the company was also revealed
to be a statistically significant factor in dividend policy. The firm size and dividend ratio have
a positive relationship, according to this finding. It's worth noting that this coefficient's value
was quite low. Nonetheless, this finding shows that the dividend ratio rises with the size of the
company. Mundati (2013) investigated the factors that influence dividend payout for Karachi
Stock Exchange-listed non-financial enterprises. According to the regression results, out of
the six explanatory factors under consideration, the size of the company has a substantial
impact on dividend payout. The probability was within a 5-percentage-point margin of error.
As a result, in Pakistan, the dividend payout is heavily influenced by the company's size. TStatistics' observed value was also higher than the expected value. The observed value of TStatistics was similarly higher than the tabulated t-statistics, confirming the level of probability
significance. As a result, a 1% change in business size can result in a 5 percent change in dividend
payout. The dependent variable of dividend payout was found to have a positive association with size.
115
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
The findings suggest that dividend payout and size have a negative and substantial association. This
finding indicates that large corporations tend to pay lower dividends;
Hafeez and Attiya (2008) found this in their study of the dynamics and drivers of dividend
policy in Pakistan, using data from the Karachi stock market for non-financial listed
companies. The findings suggest that dividend payout and size have a negative and substantial
association. This finding indicates that huge corporations choose to pay less dividends.
Alli et al. (2015) and Mahapatra and Sahu (2013) argued that dividend payments depend more
on cash flows than on current earnings, Amidu and Abor (2014), Afza and Mirza (2015), and
Thanatawee (2016) find out that a positive relationship exist between cash flow and dividend
payout ratio. This is because relatively liquid firms with stable cash flows tend to pay higher
dividends as compared to firms with unstable cash flows. However, Barclay et al. (2175) find
negative relationship between liquidity and payout ratio suggesting that increase in payout
ratio reduces firm’s liquidity level, therefore lowering dividend payments. This finding is
supported by Ahmed & John (2018); Ongeri (2019) a Nairobi stock exchange study, Manegi,
Ondiek, Musiega, Maokomba & Egassa (2013) also found negative and insignificance
relationship between the variables in a study of 50 UK non-financial firms between the period
of 2007-2011.While Adedeji (2015) does not find any relationship between liquidity and
dividend policy.
In order to strengthen its equity foundation, a heavily leveraged company is expected to return
more money. Because highly leveraged companies have more debt and interest obligations to
meet, they are more likely to pay a low dividend payout ratio. According to Jensen (1996),
highly leveraged corporations have a low payout ratio because debt holders watch them,
reducing management's ability to pay dividends. He also recommended that levered may be
used instead of the dividend payout ratio to cut agency costs.
Gugler and Yurtoglogly (2013) discovered a negative link. The debt total assets ratio is used
as a proxy for leverage in the study. It is projected that leverage and dividend policy will have
a negative relationship. According to Rozeff (1982), enterprises with substantial financial
leverage have low payout ratios to reduce the transaction costs connected with external
funding. Al-Malkawi (2007) revealed that the firm's financial leverage is considerably and
negatively associated to its dividend policy, however Kania and Bacon (2005) discovered a
strong positive relationship, highlighting the fact that the firms have larger debt funds to pay
off dividends. Also, according to Koki et al. (2019), the factors have a negative connection.
The relationship between a company's shareholders and management is one of agency, with
the shareholders acting as principals and the managers acting as agents. The management are
in charge of acting in the best interests of the shareholders (Agent). However, there is a chance
that the two parties will have competing interests. In many circumstances, a firm's
management make decisions that are in their best interests, which may be at odds with the
interests of the shareholders and the entity. Lloyd et al. (1985) and Jersen et al. (1986) are two
empirical investigations that support agency theory on dividends (1992). As a result, paying a
116
FIRM ATTRIBUTES AND DIVIDEND PAYOUT: STUDY OF DEPOSIT MONEY BANKS LISTED IN NIGERIAN.
MUSA, SUCCESS JIBRIN
dividend is considered as a way of lowering the amount of money available to managers that
may not be utilised.in the best interests of the company's stockholders As a result, agency
theory is employed in this research.
Methodology
Because of its ability to describe a statistical link between variables, the correlation research
design was chosen for the investigation. It is thus the most appropriate for this study. Between
2012 and 2020, 22 deposit money banks were listed on the Nigerian stock exchange. After
filtering out companies that were merged or acquired, as well as those that were in crisis
throughout the study period, the final number was 8. Only since it is a quantitative study with
a positivist paradigm and the data needed for analysis can be sufficiently collected from the
audited financial reports and accounts of the selected banks within the period, longitudinal
balanced panel data from secondary sources was employed. The study's model was examined
using the multiple linear regression technique.
The result of the robustness test (multicollinearity, serial correlation and the test of
heteroscedasticity) conducted in other to improve the validity and reliability of the statistical
inferences of the study reveals favorable. The longitudinal balanced panel model of the study
is presented as follows:
DPOit = α0 + β1PROFit + β2SIZEit +β3LQDTYit + β4GRWTit + β5LEVit €it
The explained and the explanatory variables are define and measured as follows:
Table 1 Variable definition and measurement
Variable
DPO (DV)
PROF
Definition
Dividend pay out
Profitability
SIZE
Size of the firm
LQDTY
Liquidity
GRWT
Firm Growth
LEV
Leverage
Source: by Author 2022
Where:
i=firm
t=timeα=constantβ1-β5=coefficient
Measurement
Dividend per share/Earnings per share
Net Profit after Preference Dividend/Number of Equity
Shares outstanding
Natural log of total asset
Current asset/Current liability
(Current Revenue - previous Revenue)/previous sales
Total Debt/Total Assets
€ = stochastic term error
Result and Discussion
This section of the study presents the result of the regression model, where it present and
discuss the normality of the data, the correlation matrix which shows the relationship between
the variables and finally the summary of the regression between the variables is presented.
117
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Table 2: Descriptive statistics
Variables
Mean
DPO
-0.070315
Stad Dev 0.440822
PROF
-0.0158966
0.4212962
SIZE
LQDT
0.0337326
0.1279766
Min
-1.43131
-3.07663
-0.2434173
Max
0.847725
0.50067
0.5861427
0.1391393
0.7615594
GRWT
0.0129263
0.
0.2349954 0.9528478
-0.2961091 -0.8941562
5.814223
LEV
0.5611203
0.0006917
5.839315
Source: STATA Output 2022
From table 2 above the mean value of dividend payout is -0.070315 for banks, while
profitability, size, liquidity, growth and leverage have an average value of -0.0158966,
0.0337326, 0.1391393, 0.0129263 and 0.1715096 respectively. The minimum value of
dividend payout stood at -1.43131, while having a maximum value of 0.847725. profitability,
size, liquidity, growth and leverage has a maximum values of 0.50067, 0.5861427, 5.814223,
0.5611203 and 5.839315 respectively together with respective minimum values of -3.07663, 0.2434173, -0.2961091, -0.8941562 and 0.0006917 respectively It is observed that leverage
has the highest standard deviation of 0.9528478 and it’s therefore has the lowest contribution
to the dividend payout in the Nigerian listed deposit money banks.
Table 3: Correlation Matrix
DPO
PROF
SIZE
LQDT
GRWT LEV
DPO
1.0000
PROF -0.0833 1.0000
SIZE -0.3620-0.0575 1.0000
LQDT -0.33870.1317
-0.0749 1.0000
GRWT 0.4085 -0.0620
-0.11660.06451.0000
LEV
0.10590.01660.0510-0.0840-0.0672 1.0000
Source: STATA Output 2022
Table 3 shows the relationship between all pairs of variables in the regression model. The
result reveals a negative correlation between profitability, size and liquidity with the dependent
variable dividend payout while growth and leverage appeared to have a positive correlation
with the dividend payout. Hence the behavior between the endogenous variables and
themselves are mostly in an opposite direction except for profitability and liquidity,
profitability and leverage, size and leverage and liquidity with growth that goes in the same
direction, but that is not strong enough to course for collinearity. More so, to further check for
collinearity another robustness check was conducted. The test for multicollinearity using the
variance inflation factor (VIF) and tolerance value (TV) reveals the absence of
multicollinearity as all factors are below 10 and tolerance values are below 1.0.
The summary of the regression result obtained from the model of the study (DPOit = β0 +
β2PROFit+ β5SIZEit + β6LQDTit + β1GRWTit + β7LEVit + еit) is presented in Table 4 below:
118
FIRM ATTRIBUTES AND DIVIDEND PAYOUT: STUDY OF DEPOSIT MONEY BANKS LISTED IN NIGERIAN.
MUSA, SUCCESS JIBRIN
Table 4: Regression Summary
Coeff
PROF
-0.426753
SIZE
-1.219281
LQDT
-0.189264
GRWT
0.659696
LEV
0.558998
CONST
-0.052054
2
R
0.3987
Adj R2 0.3430
F-Stat
7.16
F-Sig
0.0000
Hettest
2.17
Het. Sig
0.1410
T-val
-0.38
-3.31
-3.05
3.29
1.14
-0.86
Sig
0.704
0.002
0.004
0.002
0.261
0.394
VIF
1.02
1.03
1.03
1.03
1.01
TV
0.976116
0.975189
0.975189
0.973103
0.985663
________________________________________________
Source: STATA Output 2022
The regression result reveals that the profitability of banks has a coefficient of -0.426753 with
a t-value of -0.38 which was found to be insignificant either at 1% level or 5% level of
significance, this result shows that profitability has no significant influence on the dividend
payout of listed deposit money banks in Nigeria. The implication is that when there is an
increase in the level of profitability of Nigerian deposit money banks the dividend paid out of
such banks will be negatively influenced. This is surprising as it contradicts our priory
expectation, but it may be as a result of political, economic and financial sector instability of
the country and the current central bank of Nigeria financial policies to banks that obliged
these banks to use surplus earnings to allocate into retention for the plugging back for harsh
economic periods. On the other hand surplus earnings are being allocated mostly for growth
opportunities of the banks so that the banks can open new branches in different locations of
the where they found projects with positive NPV. The findings also support the agency theory
which argued that conflict of interest usually occurred between the owners of firm (principals)
and the managers (agent). The result of this study fails to support the researcher’s intention of
rejecting the first null hypothesis of the study. This finding support the finding of Amidu &
Abor (2006), Baker & Gandi (2007) & Christopher & Rim (2014), Anupam (2012), Taher
(2012) contrary to Aivazian, & Cleary (2003), Kun Li & Chung-Hua (2012), Alkuwar (2009),
Turki and Ahmed (2013) and Mohammed & Mohammed (2012).
Furthermore, Bank size was found to have a coefficient value of -1.219281 and a t-value of 3.3. Looking at the relation between bank size and dividend payout, a negative relation
emerged and this has been supported statistically at 1% level of significance. This negative
and significant relation shows that, the size of the bank has a strong influence on dividend
payout and thus implying that if there is an increase in the total asset acquired by Nigerian
deposit money banks that will course a decrease in the dividend paid by such a bank. This
result is surprising because the expectation before was that a larger bank with big size in terms
of asset may have an incentive to payout dividend to their shareholders which is contrary to
119
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
the findings of this study, but it may be as result of the surplus earnings normally generated
by this banks are used to finance growth opportunities, service and maintain their asset. In
addition larger firm especially Nigerian deposit money banks are old generation banks with a
history of reputation and sustainability and so they might not bother to pay dividend frequently
because they already win the heart of their investors or shareholders. The second explanation
to this finding is that most investors of these larger firms are market sensitive with capital
appreciation motive. The result also validates the agency theory which the study is based on.
This finding serves as an evidence of rejecting the null hypothesis of the study with regards to
firm size. The result of this variable support the study of Hafeez & Attiya (2008) and
contradict that of (AL- Shabibi, 2011; Eriotis 2005; Al-Twaijry 2007; Anupam 2012; Alkuwar
2009 & Mundati 2013).
In addition, the regression result reveals that liquidity has a coefficient value of -0.189264 and
a t-value of -3.05. This is statistically significant at 1%. This shows that liquidity has a negative
and strong significant impact on dividend payout of Nigerian deposit money banks. The
implication of this finding is that when the liquidity of the banks increases their dividend
payout decreases within the period of the study. Surprisingly the findings but mostly liquid
firms use their excess liquidity in financing growth project especially in hard economic
situation. On the other hand introduction of new financial policies coupled with the
introduction of treasury single account (TSA) by the Nigerian government contribute
immensely to this development as the banks are afraid distributing their excess liquidity which
have a greater consequences on their day to day operation and their liquidity position by the
central bank of Nigeria. On the other hand banks may shun off dividend payment in other to
avoid being distress. Hence the third null hypothesis is hereby rejected base on the above
finding. This result support the result of Barclay et al. (1995), Ahmed & John (2010), Ongeri
(2012), Manegi, Ondiek, Musiega, Maokomba & Egassa (2013) and does not agree with the
finding of Alli et al. (1993), Mahapatra & Sahu (1993), Amidu and Abor (2006), Afza & Mirza
(2010), and Thanatawee (2013). Whereas Adedeji (1998) was indifferent.
However, our regression result reveals that firm growth measured by changes in revenue
divide by previous sales found to be positively, strongly and statistically significant in
influencing the dividend payout of listed deposit money banks in Nigeria as it recorded a
coefficient value of 0.659696 and a t-value of 3.29. Meanwhile, a positive and significant
relationship was found between bank growth and dividend payout. This implies that when
there is an increase in change in revenue divide by the previous sales growth has been
experienced and increases or encourages Nigerian listed deposit money banks to payout
dividend. This finding is not surprising considering the measure of the growth used in this
study which is unique and different with mostly used changes in total deposit. Consequently
the fourth hypothesis of the study which states that growth has no significance influence on
dividend payout of listed Nigerian deposit money banks is hereby rejected. Arnott & Asness
(2003), Gwilym et al. (2006), Ping & Ruland (2006), Vivian (2006) and Manegi et,al.(2013)
also support the finding of this study while study by Higgins (1972), Rozeff (1982), Lloyd et
120
FIRM ATTRIBUTES AND DIVIDEND PAYOUT: STUDY OF DEPOSIT MONEY BANKS LISTED IN NIGERIAN.
MUSA, SUCCESS JIBRIN
al. (1985), Collins et al. (1996), Amidu & Abor (2006), and Gill et al. (2010) gives a contrary
view.
The result in respect of leverage and dividend payout shows a coefficient value of - 0.558998
and a t-value of 1.14 which is statistically insignificant at any acceptable level. This shows
that leverage has no significant influence on dividend payout meanwhile a bank which debt
dominate it capital has no incentive to payout dividend. On the hand financial leverage has a
positive relationship with the dividend policy, implying that listed deposit money banks in
Nigeria might use debt to distribute dividend but despite its positive sign, the financial leverage
is explaining that the variable is not an important factor in influencing dividend payments in
Nigerian. However highly levered firm have debt and interest obligation to service therefore
discouraging their motive dividend distribution. The other explanation for this is that highly
levered firms are expected to be monitored by their creditors or lenders which may constrain
their desire to payout dividend even when they financially sound for that may question the
confidence of their creditors for the safety of their funds. This result gives us an evidence for
failing to reject the last hypothesis formulated in null form for the study. However the result
is in agreement with the result of Jensen (1996) and Rozeff (1982), also disagree with Kania
and Bacon (2005).
The cumulative association between dependent variable and all the independent variables is
0.3987 (see table 4) indicating that the relationship between dividend payout and firm
attributes used in this study is 40% which is positively good. This implies that for any changes
in firm attributes of listed deposit money banks in Nigeria, their dividend payout policy will
be directly affected. Hence, it signifies 40% of total variation in dividend payout of listed
deposit money banks in Nigeria is caused by their, level of profitability, size liquidity, growth
and leverage. Hence, it signifies 34% of the total variation in dividend payout of listed deposit
money banks in Nigeria is caused by their, level of profitability, size, liquidity, growth and
leverage. This indicates that the model is fit and the explanatory variable are properly selected,
combined and used as evidenced by the Fisher’s statistics of 7.16 which is significance at 1%.
The results of robustness tests conducted in order to improve the validity and reliability of all
statistical inferences revealed favorable to the data collected and used for the study. These tests
include; multicollinearity test, heteroscedasticity test, cross-sectional dependence test, test of
serial correlation, Hausman specification test and Breusch and pagan lagrangian multiplier test
for random effects.
Conclusion and Recommendation
Finally, the study has presented both empirical and statistical evidence on the value of five
business attributes, namely profitability, size, liquidity, growth, and leverage, in explaining
and predicting dividend payment policy of Nigeria's listed deposit money banks. The report
stated that the business variables examined in this study had a significant impact on the
Nigerian banking sector's dividend payment policy. What remains is for investors and portfolio
analysts who want to identify dividend-paying companies to consider the five characteristics
121
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
outlined above before choosing an investment bank. Consequently, the board of directors of
the Nigerian listed deposit money banks should give consideration to the earlier mentioned
five features when setting the dividend policy as they are found to be important to dividend
policy.
References
Christopher M., & Rim El K., (2014), Determinants of the Dividend Policy: An Empirical
Study on the Lebanese Listed Banks., International Journal of Economics and Finance;
Vol. 6, No. 4; 2014 ISSN 1916-971X E-ISSN 1916-9728 Published by Canadian Center
of Science and Education
Adedeji, A. (1998), Does the pecking order hypothesis explain the dividend payout ratios of
firms in the UK? Journal of Business Finance and Accounting, 25(9), 1127-1155.
Afza, T., Mirza, H. (2010), Ownership Structure and cash flows as determinants of corporate
dividend policy in Pakistan. International Business Research, 3(3), 180-187.
Aivazian, V. & S. Cleary, (2003), Do Emerging Market Firms Follow Different Dividend
Policies From U.S. Firms? The Journal of Financial Research 26, 371-387.
Al Shabibi, B. K., & Ramesh, G. (2011). An Empirical Study on the Determinants of dividend
policy in the UK. International Research Journal of Finance and Economics (80), 105120.
Al-Kuwari, D. (2009), Determinants of the Dividend Payout Ratio of Companies Listed on
Emerging Stock Exchanges: The Case of the Gulf Cooperation Council (GCC)
Countries. Global Economy & Finance Journal Vol. 2 No. 2. Pp. 38-63
Alli, K.L., Khan, A.Q., Ramirez, G.G. (1993), Determinants of corporate dividend policy: a
factorial analysis. Financial Review, 28(4), 523-547.
Al-Malkawi, H., 2008. Factors Influencing Corporate Dividends Decision: Evidence from
Jordanian Panel Data. International Journal of Business, 13(2), pp. 177-195.
Al-Malkawi, H., 2008. Factors Influencing Corporate Dividends Decision: Evidence from
Jordanian Panel Data. International Journal of Business, 13(2), pp. 177-195.
Al-Malkawi, HN 2007, „Determinants of corporate dividend policy in Jordan: an application
of the Tobit model‟, Journal of Economic & Administrative Sciences, Vol. 23, No.2,
December pp.44-70.
Al-Twaijry, AA 2007, „Dividend policy and payout ratio: Evidence from the Kuala Lumpur
Stock Exchange‟, The Journal of Risk Finance, Vol. 8 No. 4, pp. 349-363.
Amidu, M., Abor, J. (2006), Determinants of dividend payout ratios in Ghana. Journal of Risk
Finance, 7(2), 136-145.
Anupam. M. (2012) An Empirical Analysis of Determinants of Dividend Policy - Evidence
from the UAE Companies. Global Review of Accounting and Finance Vol. 3.No. 1. 18
– 31
Arnott, R., Asness, C. (2003), Surprise! higher dividends = higher earnings growth. Financial
Analysts Journal, 59(1), 70-87.
122
FIRM ATTRIBUTES AND DIVIDEND PAYOUT: STUDY OF DEPOSIT MONEY BANKS LISTED IN NIGERIAN.
MUSA, SUCCESS JIBRIN
Baker, H.K. and Powell, G.H., ( 2000). “Determinants of corporate dividend policy: a survey
of. NYSE firms”, Financial Practice and Education, Vol. 10
Barclay, M.J., Smith, C.W., Watts, R.L. (1995), The determinants of corporate leverage and
dividend policies. Journal of Applied Corporate Finance, 7(4), 4-19.
Black, F. (1976). “The dividend puzzle”, Journal of Portfolio Management, winter, pp. 5-8.
Brealey, R. A., & Myers, S. C. (2003). Principles of corporate finance (7th ed.). New York:
McGraw Hill.
Collins, M.C., Saxena, A.K. & Wansley, J.W., 1996. The role of insiders and dividend policy:
a comparison of regulated and unregulated firms. Journal of Financial and Strategic
Decisions, 9(2), pp.1-9.
D’Souza, J., 1999. Agency cost, market risk, investment opportunities and dividend policy –
an international perspective. Managerial Finance, 25(6), pp.35-43.
Eliasu N., Abubakar M., & Damankhal B S (2014): Determinant of dividend payout of
financial firms and Non- financial firms in Ghana: International journal of academic
Research in accounting, finance and management science. Vol. 4, No.3 ISSN 23080337.
Eriotis, N. (2005). The Effect of Distributed Earnings and Size of the Firm to Its Dividend
Policy: Some Greek Data. International Business and Economics Journal, 1, 67-74.
Gill, A., Biger, N., Tibrewala, R. (2010), Determinants of dividend payout ratios: evidence
from United States. Open Business Journal, 3(1), 8-14.
Gugler, Klaus P. and B. Burcin Yurtoglu, (2003). “Corporate Governance and Dividend PayOut Policy in Germany,” European Economic Review 47 pp.731-758.
Gwilym, O., Seaton, J., Suddason, K., Thomas, S. (2006), International evidence on the payout
ratio, earnings, dividends, and returns. Financial Analysts Journal, 62(1), 36-53.
Hafeez, A. & Attiya, Y. (2008). Determinants of dividend policy in Pakistan. policies” Journal
of Financial and Quantitative Analysis 27: 247–63.
Higgins, R.C. (1972), The Corporate Dividend-saving Decision. Journal of Financial and
Quantitative Analysis, 7(2), 1527-1541.
Jensen, G., Solberg, D. & Zorn, T. (1992). “Simultaneous determination of insider ownership,
debt, and dividend
Jensen, Michael, (1996). “Agency Costs of Free Cash Flow, Corporate Finance and
Takeovers,” American Economic Review, 76, pp.323, 329.
John, S.F., Muthusamy, K. (2010), Leverage, growth and profitability as determinants of
dividend payout ratio: evidence from Indian Paper industry. Asian Journal of Business
Management Studies, 1(1), 26-30.
123
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Kun-Li L. &Chung-Hua S. (2012) The Impact of Corporate Governance on the Relationship
between Investment Opportunities and Dividend Policy: An Endogenous Switching
Model Approach Asia-Pacific Journal of Financial Studies (2012) 41, 125–145
Lease, R.C., John, K., Kalay, A., Loewenstein, U. and Sarig, O.D. (2000). “Dividend Policy:
Its Impact on Firm Value”, Harvard Business School Press, Boston, MA.
Linter, John, (1996). “Distribution of Incomes of Corporations among Dividends, Retained
Earnings and Taxes,” American Economic Review, 46, pp.97-113.
Lloyd, W.P., Jahera, S. J. & Page, D.E. (1985). Agency cost and dividend payout ratios,
Journal of Business and Economics 1985; 24: 19-29.
Lloyd, W.P., Jahera, S.J. & Page, D.E., 1985. Agency cost and dividend payout ratios.
Quarterly Journal of Business and Economics, 24(3), pp.19-29.
Lloyd, W.P., Jahera, S.J., Page, D.E. (1985), Agency cost and dividend payout ratios.
Quarterly Journal of Business and Economics, 24(3), 19-29.
Mahapatra, R.P., Sahu, P.K. (1993), A note on determinants of corporate dividend behaviour
in India: an econometric analysis. Decision, 20(1), 1-22.
Manegi G M, Ondiek B A, Musiega D, Maokomba O C., & Egassa R. (2013), Determinants
of Dividend Payout Policy Among Non-Financial Firms On Nairobi Securities
Exchange, Kenya. International journal of scientific & technology research volume 2,
Issue 10, October 2013
Mohammed S.& Mohammed M (2012) A Worthy Factors Affecting Dividends Policy
Decisions An Empirical Study on Industrial Corporations Listed in Amman Stock
Exchange; Interdisciplinary Journal of Contemporary Research in Business Vol
Mundati, Z. (2013). The effects of macroeconomic variables on the dividend payout of firms
listed at the Nairobi Securities Exchange, Unpublished MBA project, University of
Nairobi.
Ongeri G. A.,(2012), Determinants Of Dividend Payout For Companies Listed At The Nairobi
Securities Exchange; Unpublished; A Research Project Submitted In Partial
Fulfilment of The Requirements For The Award of the degree of master of science in
finance, school of business, university of Nairobi
Pandey I. M., (2008). Financial Management, UBS Publishers’ Modern Printers, Delhi, India
– 110032.
Ping, Z., Ruland P. (2006), Dividend payout and future earnings growth. Financial Analysts
Journal, 62(1), 58-69
Pruitt, S. & Gitman, L., 1991. The interactions between the investment, financing, and
dividend decisions of major US firms. Financial Review, 26(3), pp.409-30.
Rozeff, MS 1982, „Growth, beta and agency costs as determinants of dividend payout ratios‟,
The Journal of Financial Research, Vol. 5, pp. 249-259.
Rozeff, S.M., 1982. Growth, beta and agency cost as determinants of dividend payout ratios.
Journal of Financial Research, 5, pp.411-33.
124
FIRM ATTRIBUTES AND DIVIDEND PAYOUT: STUDY OF DEPOSIT MONEY BANKS LISTED IN NIGERIAN.
MUSA, SUCCESS JIBRIN
Thanatawee, Y. (2013), Life-cycle theory and free cash flow hypothesis: evidence from
dividend policy in Thailand. International Journal of Economics and Finance, 5(1), 121132.
Turki S. & Ahmed A (2013) Determination of Dividend Policy: The Evidence from Saudi
Arabia. International Journal of Business and Social Science Vol. 4 No. 1;
Vivian, A. (2006), The Payout Ratio, Earnings Growth Returns: UK Industry Evidence.
Working Paper, School of Economics, Finance and Business, University of Durham.
125
Journal of Accounting
Vol. 11 (1) January - June 2022
DETERMINANTS OF LABOUR PRODUCTIVITY IN NIGERIA
Odili Okwuchukwu 1, Kingsley Onyekachi Onyele 1, Ihekwereme, Joseph Onyemaechi 2
1
Department of Banking and Finance, College of Management Sciences, Michael Okpara University
of Agriculture, Umudike, Umuahia, Abia State, Nigeria.
2
Department Department of Economics, College of Management Sciences, Michael Okpara
University of Agriculture, Umudike
*Corresponding Author Email: palmereck@gmail.com
Abstract
This study examined the determinants of labor productivity proxied with human capital development
index, capital intensity, wage rate, per capita income, globalization index, governance and usage of
information and communication technology. Thus, empirical model is estimated using Vector Auto
Regressive (VAR) technique. The study spans from 1990 to 2018. The findings show that human capital
development index, capital intensity, wages, per capita income, globalization index, governance and
application of ICT collectively influenced productivity of labour. The VAR estimates showed that human
capital development index, capital intensity, wages, globalization index and governance had positive
effect on labour productivity while per capita income and ICT usage had negative effects on labour
productivity. This study therefore, recommends that Nigeria should take advantage of the globalization
waves to attract foreign resources and knowledge to enhance labour productivity in the country as well
as compete in the international labour market. Consequently, there is need for trade liberalization that
will permit new technology and innovation transfer needed for the upgrade of workers skills. It further
recommends improvement in public administration, institutional reforms and application of appropriate
policies and regulations towards promoting and enhancing national productivity of labour, as well as
ensuring accountability of public funds.
Key words: Labour, productivity, human capital, wages, ICT, governance
Introduction
Labour productivity refers to the output value each person creates from a given input in the
production process. In other words, labour productivity is monetary value contributed per
worker to the total economic output. Nigeria is well-known for its large population, vast
economy, natural resources endowment as well as manpower which explains’ why it is
branded “the giant of Africa” (UNDP, 2019). Hence, with her large labour force and natural
resource endowment, a country like Nigeria is expected to have greater productivity than the
less resource endowed countries. During the past years, actions aimed at improving the
productivity of labour have been included in various national development plans in the country
due to the fact that the ability to harness its rich-resource endowment depends on the capacity
of its labour force. This clearly shows that sustainable economic development over a long-run
period of time cannot be achieved if available labour is not employed in the production process
to add value to the natural resources at its disposal. Human resource has a strategic role for
productivity increase of any economy, and this makes labour superior in the industrial
competition (Razak, Osman, Yusof, Naseri & Ali, 2014). With the effective and optimum uses
of labour, all the merits supplied by the productivity growth can be obtained. Unfortunately,
the Nigerian situation is miles away from what is expected. Notwithstanding the level of
126
DETERMINANTS OF LABOUR PRODUCTIVITY IN NIGERIA:
ODILI OKWUCHUKWU, KINGSLEY ONYEKACHI ONYELE,IHEKWEREME & JOSEPH ONYEMAECHI
3.29
-2.02
-4.49
-0.92
-0.09
-0.15
-2.19
-0.88
-1.04
-2.42
-3.13
-0.43
0.31
1.45
1.51
2.53
2.62
6.21
5.21
4.42
4.25
4.01
4.06
2.72
3.93
6.44
7.62
10.55
abundant resources in terms of labour and raw materials, labour productivity have been
unsatisfactory, falling below those of some developing countries with smaller resources and
low labour force. To give a glimpse of labour productivity in Nigeria, data sourced from the
World Bank (see, globaleconomy.com) shows that the growth rate of labour productivity
(GDP-to-labour force ratio) ranged from -3.13% to 3.93% between 1991 and 2001, hit 10.55%
in 2002 and persistently declined, reaching negative values from 2013 to 2018. In fact, this
scenario negates the term “giant of Africa” often used to describe Nigeria. Figure 1 below
presents the growth rate of labour productivity in Nigeria (1991-2018).
Figure 1: Growth rate of labour productivity in Nigeria (1991-2018);
Source: Authors Computation
The Nigerian labour market has experienced problems ranging from unemployment,
downsizing by employers of labour, inconsistent government policies, low employment
generation capacity and imbalance between demand and supply of labour. As at 2019, it was
estimated that the Nigerian labour force was about 62.47 million which qualified it as the
largest workforce within the African continent (NBS, 2019). However, the large proportion of
Nigeria’s labour force appears to have been consistently underperformed in terms of
productivity of labour. Figure 2 below shows that between 2011 and 2019 productivity of
labour increased slowly notwithstanding the rapid increase in population and labour force in
the country. The slow increase in productivity of labour could be due to the rising
unemployment and low labour participation rates. The National Bureau of Statistics (NBS)
report shows that out of an average population of 176.73 million people, only 55.25 million
constituted the entire labour force out of which 55.12% (about 30.45 million) were
127
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
economically active between 2010 and 2019. This implies that labour has been underemployed
in Nigeria and productivity of labour is low.
Figure 2: Profile of Nigeria’s labour force (2010-2019); Source: Authors Computation
As predicted by Bloom & Humair (2010) cited in Umoru & Yaqub (2013), the problem of
unsatisfactory productivity of labour might persist over a long period if the government fails
to put proper policies in place to save Nigeria from the predicament. Data and projections (see
Table 1 below) reveals a realistic guide and forecast to the unemployment situation and job
requirements in Nigeria between 2010 and 2030. Looking at policies aimed at addressing low
Productivity of
labour
Population
Unemployment
rate
Labour force
Labour
participation
labour productivity in Nigeria is rather difficult in the light of the rising rate of unemployment
as approximately 1.8 million Nigerians enter the labour market each year (NBS, 2019). The
initial response of government was to engage unemployed youths in public programs such as
the Operation Feed the Nation as well as the Directorate of Food, Road and Rural
Infrastructure (DIFRRI) which availed immediate and direct jobs to qualified individuals
interested in agribusiness which automatically increased labour productivity in the agricultural
sector in the mid-1980s (Falusi, 2014). Afterwards, better planned and coordinated approaches
followed in three major categories, namely; labour demand, labour supply and labour market
interventions. Strategies for labour demand hinged on creation of immediate jobs via public
works in the private sector towards enhancement of skills as well as entrepreneurship.
Strategies for labour supply focused on training and education of potential workforce while
the labour intervention strategy was bent on enhancing labour market activities by striking a
balance between demand and supply of labour (Falusi, 2014).
128
DETERMINANTS OF LABOUR PRODUCTIVITY IN NIGERIA:
ODILI OKWUCHUKWU, KINGSLEY ONYEKACHI ONYELE,IHEKWEREME & JOSEPH ONYEMAECHI
Table 1: Projected Nigerian Job Requirements, 2010-2030
Year
Working Age
Population
Unemployment
rate (%)
Jobs
Between
Years
Jobs to be
Added
2010
85,525,401
20.00
52,358,719
2015
97,731,223
15.00
63,570,579
2010-2015
11,211,860
2020
111,088,8501
10.00
76,509,768
2015-2020
12,939,189
2025
125,325,513
8.00
88,233,036
2020-2025
11,723,268
2030
140,036,212
7.00
99,661,452
2025-2030
11,428,415
Needed
Source: NBS, 2019
Reports from the United Nations Development Programme (UNDP) shows that labour
productivity in Nigeria is lower than those of South Africa and Ghana (UNDP, 2019). This
implies that a large proportion of Nigeria’s labour force is not fully engaged in economically
productive activities, which could account for the persistent increase in unemployment and
underemployment in the country. Then, one may ask; what factors are undermining
productivity of labour in a wealthy nation like Nigeria? The answers are not far-fetched.
Recently, studies had identified level of human capital development, availability of capital,
ability to acquire and apply technology, standard of living of employees, state of governance
and globalization as critical factors strongly influencing labour productivity in Nigeria. For
instance, human capital development which entails accumulation of knowledge, skills as well
as expertise generates greater labour productivity amidst motivations through the desired wage
level (Heshmati & Rashidghalam, 2016; Kaimbo, 2015). Nuttee, Thamma-Apiroam &
Santipolvut (2019) averred that availability of the necessary capital required to facilitate a
production process accelerates productivity of labour. Labour productivity is a function of the
standard of living (measured by per capita GDP), as one with insufficient income would lack
essential commodities like food, clothing, shelter, health services and even entertainment
which are essential to higher productive capacity of labour (Sengupta, 2017). On the other
hand, Mallick (2014) advocated that through globalization, there is enhanced labour
productivity through acquisition and/or spillover effect of advanced and new information,
communication and technology (ICT) system from developed countries to less developed
countries through FDI. It is also stated that there exist greater productive in well-governed
countries than countries where governance is poor (Elham, 2020).
Disappointingly, Nigeria is faced with a relatively low productivity of labour for several
reasons. First, both present and previous government has not been able to sufficiently fund
domestic production due to dependence on foreign made products and revenue from crude oil
exports. This implies that with increasing appetite for foreign made goods amidst the fall in
oil price ensued by loss of government revenue, resulting to lack of capital to fund domestic
production. Again, production processes in Nigeria is still done in an old-fashioned pattern;
even when new technologies are made available, a vast proportion of the labour lack the
129
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
requisite knowledge to use them (Awotunde, 2018; Onwuchekwa & Ohachosim, 2017; Umoru
& Yaqub, 2013). Also, in Nigeria, inflation rate is ever increasing more than the average wage
rate and this cannot guarantee a good standard of living for the large labour force. These
problems have deepened macroeconomic instability which has automatically hindered Nigeria
from tapping into the productive potentials of globalization (Onyele & Ikwuagwu, 2020).
Though, labour productivity responds to many factors but some factors such as working
environment, firm policies, payment delay, relaxation allowances, job security, work
satisfaction, outdated equipment, etc. are characterized by subjective and non-precise
indicators or proxies.
The main objective of this study is to examine determinant of labor productivity in Nigeria. The specific
objectives are to evaluate the effect of human
capital development index, capital intensity (total
capital-to-labour ratio), average wage rate, per capita income (a measure of standard of
living), globalization index, and governance and ICT usage on the productivity of labor in
Nigeria.
Conceptual Review
Theoretically, the endogenous growth model (EGM) postulates that through adequate
investments in human capital, infrastructures and research & development sustainable
economic productivity will be achieved without relying on exogenous factors (Romer, 1990).
Another strand of theory explaining the determinants of labour productivity is the efficiency
wages theory which avers that higher wage rate would accelerate the opportunity cost of job
loss and automatically would motivate workers to enhance productivity (Kumar, Webber &
Perry, 2009; Gordon, 1997).
Again, there is a school of thought that due to globalization, there is rapid achievement of
technology diffusion through foreign direct investment (Barrel & Pain, 1997; Barro, 1990).
Hence, trade liberalization would trigger foreign competition, improved domestic productivity
and increased capital mobilization as well as human transfer of modern technology which will
encourage efficiency in the process of resource allocation and economic productivity (Mallick,
2013). Furthermore, the classical Ricardian theory stated that differences in technology among
countries could lead to comparative advantage. The Hecksher-Ohlin model theorized that
comparative advantage could be generated from differences in factor endowments, but both
the classical Ricardian and Hecksher-Ohlin models reached a consensus that globalization has
a prominent role to play when it comes to productivity of labour (Lam, 2015). Also, the
neoclassical growth model had considered capital mobilization as a crucial factor towards
enhancing productivity. Likewise, Awotunde (2018) asserted that greater capital formation
could improve and stimulate higher productivity. Similarly, Kang & Na (2018) showed that
capital flows to resource scarce economies can revive the productivity of labour.
From another perspective, Smith emphasized role of government regulations, policies and
institutions in advancing economic productivity of a country (Smith, 1776). He emphasized
that some policies and regulations made by the government might not drive domestic
productivity. Similarly, Barro (1990) stressed that government policies and institutions are
130
DETERMINANTS OF LABOUR PRODUCTIVITY IN NIGERIA:
ODILI OKWUCHUKWU, KINGSLEY ONYEKACHI ONYELE,IHEKWEREME & JOSEPH ONYEMAECHI
seen to play a crucial role in enhancing productivity in the long-run. Additionally, Barro (1990)
stated that maintenance of rule of law and improvement in government policies could exert
significant positive influence on economic productivity. Likewise, Khan & Ajmal (2015)
affirmed that unsound policies that extend unrestricted authority to the governing elite over
the allocation of resources could lead to unproductivity of labour.
Empirical Review
In this light, myriads of empirical studies found a significant relationship between wages and
productivity of labour (Elham, 2020; Onwuchekwa & Ohachosim, 2017). On the other hand,
Powell, Montgomery & Cosgrove (1994); Krueger & Summers (1987) found that higher wage
rate that is greater than the market clearance level is unlikely to achieve the desired level of
labour productivity. Under perfect competition, the classical economic theory ascertained that
wages are paid according to the marginal productivity of labour. However, following the 2008
financial crisis, both demand for labour and employment level declined, which automatically
made people desire to retain their jobs and improve productivity even with lower wage rate
(Romei, 2017; Trpeski, Eftimov & Cvetanoska, 2016). Also, Tsoku & Matarise (2014) found
that wages and labour productivity are positively related in the short-run but strongly
dependent on capital/labour ratio in the long-run. Many empirical studies share the view of the
EGM (Nuttee, Thamma-Apiroam & Santipolvut, 2019; Awotunde, 2018; Heshmati &
Rashidghalam, 2016; Micallef, 2016). However, Nurudeen & Usman (2010) discovered an
inverse relationship between human capital development and labour productivity due to poor
financing of the Nigerian education sector. Similarly, Fallahi, Sakineh & Mehin (2010) found
that human capital and labour productivity were negatively related due to inadequate and
improper training by firms, hence workers lacked the ability to effectively exhibit the required
skills needed to adopt and put modern technology to work. Nevertheless, it might take a longterm for human capital development to positively influence labour productivity which could
be a plausible reason for the contradictory results obtained in some prior empirical studies.
Also, in the short-term, training could meet other purposes like career prospects, salary and
even working position rather than labour productivity.
Methodology
In this study secondary data were used. The time series data cover a period of 29 years, from
1990 to 2018. The data were obtained from World Development Indicators (WDI) and the
International Labour Organization Statistics (ILOSTAT) database.
Model Specification
This study followed the methodological approach used by Elham (2020) to analyze
determinants of productivity of labour. The study used annual time series data that spanned
from 1990 to 2018. The model applied by Elham (2020) was based on the Cobb Douglas
production function as denoted by equation (1) below:
𝑌 = 𝑓(𝐾, 𝐿)
(1)
131
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Where,
Y = total domestic output; K = amount of capital; and L = labour
Using equation 1 to derive the function for productivity of labour, both sides of the equation
was divided by “L” to give equation (2) below:
𝑌
𝐿
𝐾 𝐿
𝐾
= 𝑓 ( 𝐿 , 𝐿) = 𝑓 ( 𝐿 )
(2)
Hence, productivity of labour (Y/L) is the value of output (measured by real GDP) produced
per worker. Hence, equation 2 implies that productivity of labour (Y/L) is a function of capital
intensity per labour (K/L). Adding other factors affecting productivity of labour as captured in
Elham (2020); Kang & Na (2018) and Mallick (2013), the model for this study was developed.
The function presented in equation (2) is thus stated in equation (3) below:
𝐿𝐵𝑃 = 𝐹(𝐻𝐶𝐼, 𝐶𝐴𝑃, 𝐴𝑊𝑅, 𝐿𝑁𝑃𝐶𝐼, 𝐺𝐿𝐵, 𝐺𝑂𝑉 𝑎𝑛𝑑 𝐼𝐶𝑇)
(3)
𝑌
Where, LBP = labour productivity ( ); HCI = human capital development index; CAP = capital
𝐿
𝐾
intensity ( 𝐿 ); AWR = Average wage rate; LNPCI = Natural logarithm of GDP per capita; GLB
= Globalization index; GOV = Governance; ICT = Information and communication
technology usage.
The econometric form of equation (3) was denoted by equation (4) below:
𝐿𝐵𝑃𝑡 = 𝛽0 + 𝛽1 𝐻𝐶𝐼𝑡 + 𝛽2 𝐶𝐴𝑃𝑡 + 𝛽3 𝐴𝑊𝑅𝑡 + 𝛽4 𝐿𝑁𝑃𝐶𝐼𝑡 + 𝛽5 𝐺𝐿𝐵𝑡 + 𝛽6 𝐺𝑂𝑉𝑡 + 𝛽7 𝐼𝐶𝑇7
Where,
𝛽0 = denotes the constant,
𝛽1 - 𝛽7 = coefficients of the explanatory variables, and
𝜇𝑡 = Error term
Table 2 below contains the descriptions of the model variables:
132
+ 𝜇𝑡
(4)
DETERMINANTS OF LABOUR PRODUCTIVITY IN NIGERIA:
ODILI OKWUCHUKWU, KINGSLEY ONYEKACHI ONYELE,IHEKWEREME & JOSEPH ONYEMAECHI
Table 2: Description of variables and sources of data
Variable
Description
Source of Data
Labour
productivity
(LBP)
Labour productivity is a measure of real World
Development
economic output per labour. It entails the Indicator (WDI)
value of output per worker.
Human
capital HCI represents a composite index that World
Development
development
measures average achievements in three Indicator (WDI)
index (HCI)
aspects of human development - a healthy
life, knowledge and a decent standard of
living which are essential to greater
productivity of labour.
Capital intensity Capital intensity refers to the amount of World
Development
(CAP)
available fixed or real capital in relation to Indicator (WDI)
labour. Higher ratio entails availability for
productivity.
Average wage
rate (AWR)
Per capita
income (PCI)
Labour productivity to a large depends on International
wages paid to workers. A worker who
receives sufficiently high wages will ensure Labour Organization (ILO),
an adequate standard of living would be ILOSTAT database.
more productivity.
PCI is a variable that measures standard of World
Development
living of a country. It is measured as GDP- Indicator (WDI)
to-total population ratio.
Globalization
index (GLB)
The globalization index covers aspects of World
Development
economic,
social,
and
political Indicator (WDI)
globalization. Higher values denote greater
globalization. With globalization, there ease
in transferring resources from resourceabundant countries to resource-scarce
countries.
Governance
(GOV)
Governance was measured by the civil
liberty index which evaluates freedom of
expression and belief, associational and
organizational rights, rule of law, as well as
personal autonomy and individual rights.
The rating ranges from 1 (strong liberties)
to 7 (no liberties).
The
global
database:
economy
https://www.theglobalecono
my.com/
Nigeria/civil_liberties/
Information
& ICT was measured by growth in the number The
global
economy
communication
of internet users. Internet users refer to database:
technology (ICT) individuals who use internet facilities in
https://www.theglobalecono
Nigeria.
my.com/
Nigeria/Internet_users/
Source: Authors Compilation
133
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Analytical Technique
The study applied the multivariate regression technique in a Vector Autoregressive (VAR)
model which was used to show the linear interdependencies among the variables. It is proven
that the VAR model is useful especially for giving descriptions to the dynamic behaviour of
economic time series and for forecasting. The impacts of VAR models are often summarized
with impulse response functions and forecast error variance decompositions. The VAR method
of data analysis places a theoretical emphasis on the structural relationship, but simply
connotes the specification of a set of variables that are seen to have logical relationship and
considered as part of an economic system. The VAR model is used for estimating systems that
contain interrelated time series data and for analyzing the dynamic impact of random
disturbances in the system. Equation (5) below shows the restricted standard form of a VAR
model with lag order k:
[𝐿𝐵𝑃𝑡 𝐻𝐶𝐼𝑡 𝐶𝐴𝑃𝑡 𝐴𝑊𝑅𝑡 𝐿𝑁𝑃𝐶𝐼𝑡 𝐺𝐿𝐵𝑡 𝐺𝑂𝑉𝑡 𝐼𝐶𝑇𝑡 ] =
∑𝑘𝑖−1
𝑔3𝑖 ℎ3𝑖 𝑎4𝑖 𝑏3𝑖 𝑐3𝑖 𝑑3𝑖 𝑒3𝑖 𝑓3𝑖 𝑔3𝑖 ℎ3𝑖 𝑎5𝑖 𝑏5𝑖 𝑐5𝑖 𝑑5𝑖
𝐿𝐵𝑃𝑡−1 𝐻𝐶𝐼𝑡−1 𝐶𝐴𝑃𝑡−1 𝐴𝑊𝑅𝑡−1
[ 𝑒5𝑖 𝑓5𝑖 𝑔5𝑖 ℎ5𝑖 𝑎6𝑖 𝑏6𝑖 𝑐6𝑖 𝑑6𝑖 𝑒6𝑖 𝑓6𝑖 𝑔6𝑖 ℎ6𝑖 𝑎7𝑖 𝑏7𝑖 ] [
]+
𝐿𝑁𝑃𝐶𝐼𝑡−1 𝐺𝐿𝐵𝑡−1 𝐺𝑂𝑉𝑡−1 𝐼𝐶𝑇𝑡−1
𝑐7𝑖 𝑑7𝑖 𝑒7𝑖 𝑓7𝑖 𝑔7𝑖 ℎ7𝑖 𝑎8𝑖 𝑏8𝑖 𝑐8𝑖 𝑑8𝑖 𝑒8𝑖 𝑓8𝑖 𝑔8𝑖 ℎ8𝑖
[𝜀1𝑡 𝜀2𝑡 𝜀3𝑡 𝜀4𝑡 𝜀5𝑡 𝜀6𝑡 𝜀7𝑡 𝜀8𝑡 ]
(5)
Where,
𝑎𝑖𝑗 𝑏𝑖𝑗 . . . 𝑔𝑖𝑗 ℎ𝑖𝑗 = Coefficients of 𝐿𝐵𝑃𝑡 , 𝐻𝐶𝐼𝑡 , 𝐶𝐴𝑃𝑡 , 𝐴𝑊𝑅𝑡 , 𝐿𝑁𝑃𝐶𝐼𝑡 , 𝐺𝐿𝐵𝑡 , 𝐺𝑂𝑉𝑡 , 𝐼𝐶𝑇𝑡
𝜀𝑡 = are stochastic terms
𝑡 − 𝑖 = lagged values of the series
Before the VAR estimation, the data were tested for stationarty using the Augmented Dickey
Fuller (ADF) and Philip Perron (PP) techniques of unit root testing (Dickey & Fuller, 1979;
Phillips & Perron, 1988). This very stage is crucial because most time series data contain unit
root and any regression analysis involving such data will likely yield spurious output. The
general model for the ADF test is represented by equation (6) below:
𝛥𝑦𝑡 = 𝛽0 + 𝛽1t + 𝛽𝜆𝑦𝑡−1 + ∑𝑝𝑗−1
𝛿𝑗 𝛥𝑦𝑡−𝑗 + µ𝑡
(6)
Where,
𝑦𝑡−1 = lagged value of 𝑦𝑡 at first difference
𝛥𝑦𝑡−𝑗 = change in lagged value
δ = lag length
𝛥𝑦𝑡 = First difference of 𝑦𝑡
µ𝑡 = error term
Results and Discussions
Stationarity tests
This study investigated the time series properties of the data using the Augmented Dickey
Fuller (ADF) and Phillip-Peron (PP) tests to ascertain the order of integration of the series.
The results of the ADF and PP tests are presented in Table 3 below:
134
DETERMINANTS OF LABOUR PRODUCTIVITY IN NIGERIA:
ODILI OKWUCHUKWU, KINGSLEY ONYEKACHI ONYELE,IHEKWEREME & JOSEPH ONYEMAECHI
Table 3: ADF unit root test results
ADF test
Variables
@
HCI
CAP
AWR
LNPCI
GLB
GOV
ICT
Order
First
difference
Second
difference
@ Level
First
difference
Second
difference
of
integration
-2.0015
-1.8871
-5.0722
-2.0088
-1.9072
-6.3772
I(2)
{0.5743}
{0.6333}
{0.0023}
{0.5715}
{0.6231}
{0.0001}
-2.2938
-5.1787
-2.3901
-5.2048
{0.4244}
{0.0014}
{0.3762}
{0.0014}
-2.5545
-4.1621
-2.6631
-4.0584
{0.3019}
{0.0148}
{0.2579}
{0.0186}
-1.5290
-3.9689
-1.3668
-4.0261
{0.7938}
{0.0226}
{0.8486}
{0.0200}
-2.0388
-4.5610
-2.2100
-4.5559
{0.5557}
{0.0060}
{0.4661}
{0.0061}
-0.6548
-4.3386
-0.6548
-4.3386
{0.9676}
{0.0100}
{0.9670}
{0.0100}
-2.2474
-4.1116
-2.2474
-4.3386
{0.4469}
{0.0196}
{0.4469}
{0.0100}
-2.5753
-4.8543
-0.7151
-14.854
{0.1930}
{0.0011}
{0.9994}
{0.0000}
Level
LBP
PP test
I(1)
I(1)
I(1)
I(1)
I(1)
I(1)
I(1)
Source: Authors Computation
Table 3 above shows that the ADF and PP test were consistent. Both tests suggest that LBP
was integrated at order 2, that is, second difference while HCI, CAP, AWR, LNPCI, GLB,
GOV and ICT were all stationary at first difference. As the series are a mixture of I(1) and
I(2), it then excludes the presence of cointegration (Johansen & Juselius, 1990). Since there
were no traces of long-run relationship, the study proceeded with the Vector Autoregressive
(VAR) estimation.
VAR Lag Order Selection Criteria
The VAR order selection criteria were used in selecting the best lag interval. The option has a
vector containing the selected lags from the different criteria. The AIC (Akaike information
criteria) which has the lowest value of the lag selection criteria was selected. Consequently,
the selected lag period is 1, which is the best fit as shown in Table 4 below:
135
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Table 4: Lag Length Selection Criteria
Lag
LogL
LR
FPE
AIC
SC
HQ
0
-102.0395
NA
3.58e-07
7.859967
1.283257*
8.240597
7.976330
2.142412*
-0.235996*
1
89.96560
260.5784*
Source: Authors Computation
4.62e-11*
Note: * indicates lag order selected by the criterion; LR: sequential modified LR test statistic
(each test at 5% level); FPE: Final prediction error; AIC: Akaike information criterion; SC:
Schwarz information criterion; HQ: Hannan-Quinn information criterion.
VAR Granger Causality/Block Exogeneity Wald Tests
Having ascertained the optimal lag length, the VAR Granger Causality/Block Exogeneity
Wald tests was carried out as presented in Table 5 below:
Table 5: VAR Granger Causality/Block Exogeneity Wald tests
Variable
LBP
HCI
CAP
AWR
LNPCI
GLB
GOV
ICT
LBP
--
0.8610
0.5878
0.6250
0.1273
0.4709
0.2376
3.0998
{0.3535}
{0.4432}
{0.4292}
{0.7211}
{0.4926}
{0.6259}
{0.0783}
--
2.9954
14.3949
0.3549
0.5136
0.3876
0.4811
{0.0835}
{0.0000}
{0.5514}
{04736}
{0.5335}
{0.4879}
--
4.2941
0.5341
1.6896
0.1972
1.3763
{0.0382}
(0.4649}
{0.1936}
{0.6569}
{0.2407}
--
2.4717
1.6169
0.1213
0.4692
{0.1159}
{0.2035}
(0.7276}
{0.4933}
--
1.4837
1.9771
0.0501
{0.2232}
{0.1597}
{0.8228}
--
1.9927
0.0738
{0.1581}
{0.7859}
--
0.0002
HCI
0.6647
{0.4149}
CAP
AWR
LNPCI
GLB
GOV
ICT
All
2.7629
0.1386
{0.0965}
{0.7096}
1.4447
0.9594
0.0052
{0.2294}
{0.3273}
{0.9421}
4.3115
0.7611
0.1525
7.5812
{0.0379}
{0.3830}
{0.6961}
{0.0059}
3.0685
0.0694
0.0038
0.0087
0.0004
{0.0798}
{0.7922}
{0.9505}
{0.9255}
{0.9828}
3.8071
1.8180
0.1919
0.6494
25.1058
3.6310
{0.0510}
{0.1775}
{0.6613}
{0.4203}
{0.0000}
{0.0567}
3.1325
0.9010
4.6830
0.1011
3.1311
0.1381
0.0030
{0.0767}
{0.3425}
{0.0305}
{0.7504}
{0.0768}
{0.7102}
{0.9563}
46.0953
5.9196
18.3890
22.6487
39.2828
21.2170
10.0774
5.4444
{0.0000}
{0.5492}
{0.0103}
{0.0020}
{0.0000}
{0.0035}
{0.1842}
{0.6059}
Source: Authors Computation
136
{0.9873}
--
DETERMINANTS OF LABOUR PRODUCTIVITY IN NIGERIA:
ODILI OKWUCHUKWU, KINGSLEY ONYEKACHI ONYELE,IHEKWEREME & JOSEPH ONYEMAECHI
The VAR Granger Causality/Block Exogeneity Wald tests were used to ascertain the nature
of causality between changes in the variables. With the productivity of labour (LBP) as the
dependent variable, there was causality between the natural logarithm of per capita income
(LNPCI) and the dependent variable; also, the combination of all the independent variables
caused changes in the dependent variable. Having Human Capital development Index (HCI)
as the dependent variable, there was no causality between the independent variables and the
dependent variable; also, the combination of all the endogenous variables did not cause
changes in the dependent variable. Using Capital Intensity (CAP) as the dependent variable,
only ICT usage caused changes in the dependent variable but a combination of the explanatory
variables Granger caused changes in CAP. With Average Wage Rate (AWR) as the dependent
variable, HCI and LNPCI Granger caused changes in AWR and a mix of all the independent
variables caused changes in AWR. Also, with LNPCI as the dependent variable, only
Governance (GOV) Granger caused changes in LNPCI, the combination of the entire
endogenous variable contributed to the changes in LNPCI. None of the independent variables
Granger caused changes in Globalization (GLB) but a combination of the explanatory
variables Granger caused changes in GLB. It was also observed that GOV and ICT was not
Granger caused by any of the endogenous variables even a combination of the variables did
not contribute to the variation.
Impulse Response Functions (IRF)
The IRF was applied to trace the responses of LBP to shock to one endogenous variable in the
VAR model. This analysis was based on Cholesky approach which uses the inverse of the
Cholesky factor of the residual covariance matrix to orthogonalize impulses was adopted as
reported by Figures 2a – 2g. The Figures focused on responses of LBP to its determinants
such, human capital development index (HCI), capital intensity (CAP), average wage rate
(AWR), natural log of per capita income (LNPCI), globalization (GLB), governance (GOV)
and ICT usage. Hence, the graphs were used to show how LBP responded to unexpected
innovation or changes in the explanatory variables.
Response of LBP to HCI Innovation
using Cholesky (d.f. adjusted) Factors
Response of LBP to CAP Innovation
using Cholesky (d.f. adjusted) Factors
.12
.04
.10
.02
.08
.00
.06
.04
-.02
.02
-.04
.00
-.06
-.02
1
2
3
4
5
6
7
8
9
1
10
Figure 2(a)
2
3
4
5
6
7
8
9
10
Figure 2(b)
Figure 2(a) indicates that LBP responded positively to a change in HCI. In line with Awotunde
(2018); Heshmati & Rashidghalam (2016) it implies that human capital development will
encourage higher productivity of labour. From Figure 2(b), it is seen that LBP responded
137
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
positively to CAP within the first eight periods but this response turned negative in the last
two periods which suggests that changes in capital intensity might cause low productivity of
labour at some point. This lends credence to Elham (2020); Nuttee, Thamma-Apiroam &
Santipolvut (2019); Micallef (2016) availability of capital spurs productivity of labour.
Response of LBP to AWR Innovation
using Cholesky (d.f. adjusted) Factors
Response of LBP to LNPCI Innovation
using Cholesky (d.f. adjusted) Factors
.04
.04
.02
.02
.00
.00
-.02
-.02
-.04
-.06
-.04
-.08
-.06
-.10
-.08
-.12
1
2
3
4
5
6
7
8
9
10
1
Figure 2(c)
2
3
4
5
6
7
8
9
10
Figure 2(d)
Figure 2(c) shows that changes in AWR led to a persistent decline in LBP. This result is in
consonance with our a priori expectation that unexpected shock to wages could lower
productivity. In consonance with Romei, (2017); Trpeski, Eftimov & Cvetanoska (2016) as
well as Tsoku & Matarise (2014), this implies that a negative change in wages could
discourage supply of labour, hence low productivity of labour. On the other hand, Figure 2(d)
indicates that the response of LBP to changes in LNPCI was negative throughout the time
horizon. This could be attributed to low GDP amidst exponential increase in Nigeria’s
population, leading to lower standard of living which has disrupted productivity of labour in
the country.
Response of LBP to GOV Innovation
using Cholesky (d.f. adjusted) Factors
Response of LBP to GLB Innovation
using Cholesky (d.f. adjusted) Factors
.04
.04
.03
.02
.02
.00
.01
-.02
.00
-.04
-.01
-.06
-.08
-.02
1
2
3
4
5
6
7
8
9
1
10
2
3
4
5
6
7
8
9
10
Figure 2(f)
Figure 2(e)
Figure 2(e) indicated that LBP responded positively to changes in GLB. However, the positive
response of LBP varied within the time horizon but remained positive. As stated by Onyele,
Opara & Ikwuagwu (2017); Lipovina-Božović & Ivanović (2018), these fluctuations could be
due to contagion effects of global economic crisis such as the 2008 global financial crisis.
Likewise, this view is supported by Mallick (2013) who affirmed that globalization leads
domestic productivity as modern technologies are transferred from developed countries to
developing countries. On the other hand, LBP persistently responded negatively to GOV
probably due to the height of bad governance inherent in Nigeria. This is in consonance with
Khan & Ajmal (2015) who stated that unsound policies that extend unrestricted authority to
138
DETERMINANTS OF LABOUR PRODUCTIVITY IN NIGERIA:
ODILI OKWUCHUKWU, KINGSLEY ONYEKACHI ONYELE,IHEKWEREME & JOSEPH ONYEMAECHI
the governing elite over the allocation of resources could make a nation suffer from corrupt
practices, which consequently results to low productivity of labour.
Response of LBP to ICT Innovation
using Cholesky (d.f. adjusted) Factors
.12
.08
.04
.00
-.04
-.08
-.12
1
2
3
4
5
6
7
8
9
10
Figure 2(g)
In Figure 2(g), there is a slight positive response of LBP to change in ICT throughout the
period. This could be plausibly due to the lack of well-trained and educated labour force that
possibly lacked the ability and technical knowledge to apply such ICT system in economic
production.
Summary of the VAR Estimates
The VAR estimates were presented in Table 6. The VAR model shows a very good statistical
fitness judged by the high adjusted R-squared and F-statistic values. Based on the high adjusted
R-squared and F-statistic, it was implied that the relationship among the variables was well
explained by the VAR model.
Table 6: VAR estimates
Standard errors in ( ) & t-statistics in [ ]
LBP(-1)
HCI(-1)
CAP(-1)
AWR(-1)
LBP
HCI
CAP
[ 0.76673]
AWR
0.748973
(0.94735)
[0.79060]
0.795512
(0.10615)
0.093075
(0.10031)
0.570059
(0.74349)
[ 7.49400]
[ 0.92791]
0.172776
(0.21191)
[ 0.81532]
[ 0.35693]
0.704570
(0.20024)
2.568788
(1.48422)
7.175224
(1.89117)
1.257470
(2.11078)
[ 1.73074]
[ 3.79407]
[ 0.59574]
0.437400
(0.22360)
0.590410
(0.28491)
0.232403
(0.31800)
2.702451
(2.07903)
[ 1.66222]
[ 3.51865]
0.011233
(0.03017)
[0.37237]
GLB
4.743808
(6.91285)
[0.68623]
9.890061
(13.7999)
[0.71667]
[ 1.95613]
[ 2.07224]
[ 0.73083]
[ 1.29986]
0.018842
(0.01568)
0.014509
(0.01481)
0.007981
(0.10980)
0.723415
(0.13990)
0.245488
(0.15615)
1.298132
(1.02086)
[ 1.20197]
[ 0.97952]
[ 0.07269]
[ 5.17092]
[ 1.57216]
[ 1.27160]
0.053067
(0.03193)
139
LNPCI
0.377403
(1.05736)
GOV
ICT
1.605543
(3.29348)
43.25184
(24.5661)
[ 0.48749]
4.093447
(6.57468)
[0.62261]
0.439922
(0.99051)
[0.44414]
[ 1.76063]
0.169415
(0.48637)
[0.34833]
2.485143
(3.62781)
[0.68502]
34.01693
(49.0405)
[ 0.69365]
8.667562
(7.38819)
[1.17316]
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Table 6: VAR estimates
Standard errors in ( ) & t-statistics in [ ]
LBP(-1)
LNPCI(1)
LBP
HCI
CAP
0.795512
(0.10615)
0.093075
(0.10031)
0.570059
(0.74349)
[ 7.49400]
0.030837
(0.01485)
[2.07644]
[ 0.92791]
0.012242
(0.01403)
[0.87242]
[ 0.76673]
0.040626
(0.10401)
[0.39059]
0.172600
(0.14792)
1.177996
(0.96710)
[ 1.16682]
[ 1.21807]
[ 0.48749]
0.647878
(0.46075)
[1.40613]
0.377403
(1.05736)
GOV
ICT
1.605543
(3.29348)
43.25184
(24.5661)
[ 1.76063]
0.769661
(3.43676)
[0.22395]
0.544355
(0.19668)
0.132277
(0.09370)
[ 0.06207]
[ 0.02159]
[ 2.76773]
[ 1.41165]
0.008815
(0.00654)
0.021233
(0.04846)
0.049757
(0.06174)
0.345297
(0.06891)
[ 1.95118]
0.001973
(0.00112)
[1.76990]
[ 1.34835]
0.001000
(0.00105)
[0.94925]
[ 0.43817]
0.016900
(0.00781)
[2.16403]
[ 0.80587]
0.003165
(0.00995)
[0.31809]
[ 5.01058]
0.019652
(0.01111)
[1.76950]
0.342827
(0.13963)
[2.45531]
0.088212
(0.13194)
[0.66860]
0.931825
(0.97794)
[0.95285]
R2
0.995135
0.957031
Adj. R2
Fstatistic
0.993087
485.8210
ICT(-1)
C
0.013499
(0.00692)
[ 0.35693]
GLB
4.743808
(6.91285)
[0.68623]
0.000649
(0.03008)
GOV(-1)
[ 1.75173]
LNPCI
0.002525
(0.02695)
[0.09367]
GLB(-1)
0.000752
(0.00285)
[0.26344]
AWR
0.748973
(0.94735)
[0.79060]
0.364916
(0.13253)
[2.75340]
0.005291
(0.00302)
0.001313
(0.02115)
0.189888
(0.69894)
[0.27168]
0.858536
(0.45055)
[1.90554]
[ 3.68307]
0.025534
(1.60110)
[0.01595]
0.026984
(0.07261)
0.001895
(0.03459)
0.566164
(0.25804)
[ 0.37162]
[ 0.05477]
[ 2.19414]
0.790582
(0.21465)
2.594736
(9.09266)
2.569127
(4.33200)
17.79947
(32.3124)
[ 3.49529]
0.751813
(1.39077)
[0.54057]
[ 0.28537]
[ 0.59306]
[ 0.55086]
0.905981
0.988907
0.923824
0.951276
0.628918
0.883229
0.938938
0.866394
0.984236
0.891750
0.930760
0.472673
0.834062
52.89702
22.88587
211.7248
28.80292
46.36861
4.025209
17.96389
4.355386
(1.24607)
Source: Authors Computation
Conclusion and Recommendations
Conclusion
Achieving sustainable productivity of labour has long been regarded as a cornerstone for
economic growth and development in every nation. However, the productivity of labour has
historically been low in Nigeria due to the lack of human capital development index, poor
governance, poor standard of living and low wages. This study applied vector auto-regressive
(VAR) model to investigate the determinants of labour productivity in Nigeria. Results showed
140
DETERMINANTS OF LABOUR PRODUCTIVITY IN NIGERIA:
ODILI OKWUCHUKWU, KINGSLEY ONYEKACHI ONYELE,IHEKWEREME & JOSEPH ONYEMAECHI
that productivity of labour was more responsive to the combinations of the endogenous
variables than the individual variables as shown by the VAR Granger Causality/Block
Exogeneity Wald tests and Impulse Response Functions respectively. However, productive of
labour responded positively to changes in human capital development index and ICT but its
response to capital intensity varied with time but responded negatively to wage rate,
governance and per capita income (measure of standard of living) in Nigeria. Based on the
results, this paper concludes that interactions between several variables such as human capital
development index, capital intensity, wages, standard of living, degree of globalization index,
governance and ICT are relevant to determine productivity of labour in Nigeria.
Recommendations
Based on the empirical evidence emanating from the study, the followings are recommended:
1)
2)
3)
4)
5)
6)
7)
It is crucial that Nigeria builds capacity through investments in human capital by
ensuring that the labour force is well-educated and trained in order to enhance its
productivity which would further boost the overall economy.
There is need to ensure adequate capital mobilization which would trigger higher
labour productivity. Hence, it is recommended that the government build capacity
towards ensuring sufficient capital accumulation through public-private partnership.
Also, policy makers should aim at developing policies that would ensure that wages
paid to workers are commensurate with the work done as this would encourage workers
to do better. This may imply an upward review of the minimum wage of ₦30,000
currently paid by the Nigeria government.
With the negative response of labour productivity to low per capita income, there is
need to ensure equitable distribution of productive resources that would engage the
Nigerian population in economically productive activities.
Nigeria should take advantage of the current globalization waves to attract foreign
resources and knowledge to enhance labour productivity in the country as well as
compete in the international labour market. Consequently, there is need for trade
liberalization that will permit new technology and innovation transfer needed for the
upgrade of workers skills.
There should be improvements in public administration, institutional reforms and
application of appropriate policies and regulations towards promoting and enhancing
national productivity of labour, as well as to ensure that all resources are efficiently
and effectively employed in pursuit of this objective.
To facilitate high labour productivity, there is need to make available adequate and
modern technology and also to educate the labour force on how to apply such
technology and innovations in ICT and other areas of productivity.
References
Awotunde, I. (2018). Capital accumulation and labour productivity growth in Nigeria.
International Journal of Economics and Financial Research, 4(6): 171-179.
141
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Barrel, R. & Pain, N. (1997). Foreign direct investments, technological change and economic
growth within Europe, Economic Journal, 107(3), 243-265.
Barro, R. (1990). Government spending in a simple model of endogenous growth. Journal of
Political Economy, 98(2), 103-125.
Bloom, D. & Humair, S. (2010). Economic Development in Nigeria: A Demographic
Perspective. Committee on Africa studies, Harvard Africa Seminar, April, 13.
Dickey, D. A. & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time
series with a unit root. Journal of American Statistical Association, 74(1), 427-431.
Elham, M. Y. (2020). The determinants of labor productivity in Jordan uring the period 19802017. International Journal of Business and Economics Research, 9(1), 21-28.
Fallahi, F., Sakineh, S., & Mehin, A. N. (2010). Determinants of labor productivity in Iran’s
manufacturing firms: with emphasis on labor education and training. MPRA Paper,
27447, University Library of Munich, Germany. https://mpra.ub.unimuenchen.
de/27447/1/MPRA_paper_27447.pdf.
Falusi, A.O. (2014). Employment generation for poverty reduction in Nigeria: issues for
consideration. Presented at the 21st Celebration of the Development Policy Centre in
Memory of Professor Ojetunji Aboyade, 9th September.
Gordon, R. J. (1997). Productivity, wages and price inside and outside of manufacturing in the
U.S., Japan, and Europe.National Bureau of Economic Research Working Paper,
2070,1-73. https://www.nber.org/papers/w2070.
Heshmati, A. & Rashidghalam, M. (2016). Labour productivity in Kenyan manufacturing and
service industries, IZA Discussion Papers, No. 9923, Institute for the Study of Labor
(IZA), Bonn.
Johansen, S. & Juselius, K. (1990). Maximum likelihood estimation and inference on
cointegration with application to demand for money. Oxford Bulletin of Economics and
Statistics, 52(3), 169-210.
Kaimbo, N. (2015). Determinants of labour productivity in Zambia’s manufacturing firms.
Published Thesis, University of Zambia.
Kang, Y. & Na, K. (2018). Determinants of labor productivity in emerging markets: evidence
from pre- and post-financial crisis Mexico. Gadjah Mada International Journal of
Business, 20(3), 259-276.
Khan, A. & Ajmal, S. (2015). Role of management in motivating labor to improve labor
productivity. Journal of Advanced Management Science, 3(3), 179-185.
Krueger, A. B. & Summers, L. H. (1987). Reflections on the inter-industry wage structure.
NBER Working Paper, 48-81. Retrieved from: https://www.nber.org/papers/w1968
Kumar, S., Webber, D. J. & Perry, G. (2009). Real wages, inflation and labour productivity in
Australia. Department of Business Economics, Auckland University of Technology,
New Zealand, 1-15.
https://mpra.ub.unimuenchen.de/19293/1/MPRA_paper_19293.pdf.
Lam, T. D. (2015). A review of modern international trade theories. American Journal of
Economics, Finance and Management, 1(6), 604-614.
Lipovina-Božović, M. & Ivanovic, M. (2018). Capital flows in Montenegro: SVAR model.
Journal of International Economies, 36(2), 647-675.
Micallef, B. (2016). Determinants of labour productivity in Malta: evidence from a firm-level
survey, Economics and Sociology, 9(4), 27-40. Retrieved from: DOI:10.14254/2071789X.2016/9-4/2
Mallick, J. (2013). Globalization and Labour productivity in OECD regions. Faculty of
Economics and Administration, University of Pardubice.
142
DETERMINANTS OF LABOUR PRODUCTIVITY IN NIGERIA:
ODILI OKWUCHUKWU, KINGSLEY ONYEKACHI ONYELE,IHEKWEREME & JOSEPH ONYEMAECHI
National Bureau of Statistics (2018). Labour force statistics: unemployment and
underemployment reports, 1, 1-76.
Nurudeen, A., & Usman, A. (2010). Government expenditure and economic growth in Nigeria:
1970-2008: a disaggregated analysis. Business and Economic Journal,4(2), 1-11.
Nuttee, S., Thamma-Apiroam, R. & Santipolvut, S. (2019). Determinants of labor productivity
in Northeast Thailand. Journal of Applied Economic Sciences, 14(1), 252-268.
Onwuchekwa, F. C. & Ohachosim, C. I. (2017). Determinants of labour efficiency in Nigeria:
a cross company study of manufacturing firms. Research Journal of Finance and
Accounting, 8(23), 30-35.
Onyele, K.O., Opara, C.C. & Ikwuagwu, E. B. (2017). Does stock market performance
influence capital flight from Nigeria? International Journal of Economics and Business
Management, 3(7), 22-37.
Onyele, K.O. & Ikwuagwu, E. B. (2020). The globalization wave and stock market return in
Africa. International Journal of Economics, Business and Management Studies, 7(1),
80-94. Retrieved from: DOI: 10.20448/802.71.80.94
Phillips, P. C. B. & Perron, P. (1988). Testing for a Unit Root in Time Series Regression.
Biometrika, 75(2), 335 -346.
Powell, I., Montgomery, M. & Cosgrove, J. (1994). Compensation structure and establishment
quit and fire rates. Industrial relations: A Journal of Economy and Society, 33 (2), 229248.
Razak, M., Osman, I., Yusof, M., Naseri, R. & Ali, M. (2014). Factors affecting labor
productivity in Malaysia: an overview. International Journal of Economics, Commerce
and Management, 2(10), 1-13.
Romei, V. (2017). How wages fell in the UK while the economy grew. Financial Times.
https://www.ft.com/content/83e7e87e-fe64-11e6-96f8-3700c5664d30?mhq5j=e2.
Romer, P. M. (1990). Endogenous technological change. Journal of Political Economy, 9(8),
71-102.
Sengupta, K. (2017). Health and its impact on labour productivity and labour market.
International Journal of Health and Medicine, 2(1), 13-16.
Smith, A. (1776). The wealth of nations. Great Britain: United Kingdom: Edward Elgar
Publishing Limited.
Trpeski, P., Eftimov, L. & Cvetanoska, M. (2016). Labor productivity and real wages in
Macedonia: an overview before and after the global economic crisis. European Scientific
Journal, 12 (10), 1-14.
Tsoku, J.T. & Matarise, F. (2014). An analysis of the relationship between remuneration (real
wage) and labour productivity in South Africa. Journal of Educational and Social
Research, 4 (6), 1-10.
UNDP (2019). Inequalities in human development in the 21st century. Briefing note for
countries on the 2019 Human Development Report.
Umoru, D. & Yaqub, J. (2013). Labour productivity and health capital in Nigeria: the empirical
evidence. International Journal of Humanities and Social Science, 3(4), 199-221.
143
Journal of Accounting
Vol. 11 (1) January - June 2022
CORPORATE GOVERNANCE AND FIRM VALUE: IS POOR CORPORATE
GOVERNANCE RESPONSIBLE FOR THE PERSISTENT CRISES IN
NIGERIA BANKING SECTOR?
Ejike Sunday Okoroigwe 1, Habiba Mohammed-Bello Umar 2, Abdullahi Ndagi 3
1
Department of Accounting, Faculty of Management and Social Sciences, Ibrahim Badamasi
Babangida University, Lapai, Nigeria.
2.
Department of Economics, Faculty of Management and Social Sciences, Ibrahim
Badamasi Babangida University, Lapai, Nigeria.
3
Department of Business Administration, Faculty of Management and Social Sciences, Ibrahim
Badamasi Babangida University, Lapai, Nigeria.
Abstract
The broad objective of this study was to investigate the relationship between corporate governance and
firm value of Nigeria banks. It is quantitative research that used correlation descriptive design. The study
adopted a similar model used by Haat, et al. (2008) and Hamad, et al. (2021) to estimate the combined
effects of corporate governance proxies on the firm value of selected banks. Secondary data was
collected from the published financial reports of the selected banks for the year 2010 to 2020, which is
the scope of the study. The data was analyzed using both descriptive and inferential statistics (using the
Ordinary Least Squares-OLS-regression) via the Statistical Package for Social Sciences (SPSS). The
findings indicated that corporate governance has significant effect on the Return on Investment,
Dividend per Share, as well as on the Net Assets per share of the banks in Nigeria. The paper
recommends that all the stakeholders involved in monitoring the institutionalization of an effective
system of corporate governance in Nigeria banks should do more to ensure that bank directors adhere to
good and transparent corporate governance to reverse the continuous trend of bank failures in Nigeria.
Keywords: Corporate governance; Firm value; Dividends per share; Return on Investment;
Net Assets per Shares
Introduction
The Directors and managers of any company are agents of the shareholders and must carry out
their operations to satisfy the interest of the shareholders. These managers and shareholders
are mandated to carry out the operations of the company ethically and transparently within the
provisions of laws and regulations governing the operations of companies in the country and
globally. These managers and directors must endeavor to run the company successfully,
increase the value of the company and bring in profit for the owner-shareholders. This is where
corporate governance comes in. It aims to protect the interest of the shareholders, preserve the
company’s reputation and shields the company from monumental fraud by its directors and
officers (Rahman & Nugrahanti 2021; Uddin, et al., 2021).
Over the years several study have been done in the area of corporate governance and its
influence and indicators. It has also been discovered that good corporate governance is pivotal
for any company’s success and bad corporate governance could herald crises in companies.
Also, in the last one decade and half, Nigeria banks have been going through one crises or the
144
CORPORATE GOVERNANCE AND FIRM VALUE: IS POOR CORPORATE GOVERNANCE RESPONSIBLE FOR THE
PERSISTENT CRISES IN NIGERIA BANKING SECTOR?
EJIKE SUNDAY OKOROIGWE, HABIBA MOHAMMED-BELLO UMAR &. ABDULLAHI NDAGI
other. From the failures of Halmark bank, All states bank, Savanah bank, and recently, Oceanic
bank, Intercontinental Bank, Diamond bank, Bank PHB, Equatorial Trust Bank, etc. Presently,
First bank is going through its own crises. A closer look at the crises in these banks shows that
insider dealings and non-performing loans are key to their failures and crises. This begs the
questions: Why are crises in Nigeria banks continuing despite efforts by the central bank to
revitalize and recapitalize these banks? Could this also be as a result of poor corporate
governance? Is corporate governance responsible for the failure or success of Nigeria banks?
Also, interestingly, with the persisting crises popping up in the Nigeria banking sector, one
would have expected to see recent studies in Nigeria investigating why these banks continue
to fail and the present role of corporate governance in mitigating the crises. However, the
opposite is the case. Most studies in Nigeria in the area of corporate governance and firm value
in Nigeria banks are over a decade old and these calls for updating of literature. At the
backdrop of these, the researchers formulated the following hypotheses in their null form to
carry out their investigations:
1 To investigate the relevance of corporate governance on Returns on investments of Nigerian
banks.
2. To investigate the value relevance of corporate governance on dividend per share of
Nigerian banks.
3. To examine the importance of corporate governance on net assets per share of Nigerian
banks.
Review of Related Literature
Corporate Governance Relevance
Corporate governance refers to how firms are managed, that is, how the resources of a firm
are employed in the pursuit of the set goals of the organization (Chiejien, 2010). It includes
transparency, independence, accountability, fairness, corporate social responsibility, timely
and accurate disclosure of information and corporate discipline. Good corporate governance
is expected to regulate the relationship and interconnectivity amongst shareholders, board of
directors and management (Hassan, 2010; Murinda, et al., 2021).
Good corporate governance should be preoccupied with giving direction to the firm, in terms
of its operations, resource derivation and resource allocation. It ensures transparency in the
operations of the firm.
The relevance of corporate governance is usually judged from its contribution to economic
growth and efficient utilization of resources. Other concrete relevance of corporate governance
should include:
(a)
Enhanced accessibility to external fiancé: Better creditor and shareholder rights are
seen to be related with in-depth and better developed banking and capital markets.
(Claessens, 2003)
145
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
(b)
(c)
(d)
(e)
Influences firm value positively: This attracts investors and attracts lower cost of
capital, as well as leads to higher growth and employment opportunities.
Promotes optimal and efficient allocation of resources and better firm operations.
Acts as a shock absorber in times of economic crises, thereby reducing and mitigating
risks, and promoting the firm’s reputation.
Creates better relations amongst various stakeholders.
Firm Value Characteristics
Firm value or total enterprise value is the economic measure reflecting the market value of a
business. It reflects the value of a business at a given date. Theoretically, it is the amount that
an individual or firm would be willing to pay to buy or to take over a business entity and can
be determined on the basis of either book value or market value. (Kurniansyah, et al. 2021).
However, market value is commonly used in determining the value of a business. It is the sum
of claims by all claimants. These claimants include creditors (secured and unsecured
creditors), and shareholders (preference shareholders and ordinary shareholders).
Varying findings from different authors in most previous recent studies related to factors
influencing firm value have been reviewed. In his findings, Anabestani and Shourvarzi
discovered that profitability negatively affects firm value. Antounian, et al. (2021). found
profitability to positively influence firm value. Results obtained from the study conducted by
Danoshana and Ravivathani (2019) showed that leverage is positively related to firm value.
Furthermore, the findings of the study of El-Deeb, et al. (2021). found that size of the firm is
positively connected to firm value, while Garay and Gonzalez (2008) indicated that size of the
firm has negative relationship with firm value.
Theoretical Review
Stakeholder Theory
This study is hinged on the stakeholder theory and obtained support from Agency theory. The
stakeholder theory is a capitalism postulation that emphasizes the interrelated relationships
existing between a business and its various stakeholders such as customers, suppliers,
employees, investors, communities, etc. The theory states that managers of businesses must of
necessity take into consideration the needs of all stakeholders and that these constituents
impact its operations and is impacted by its operations (Lemmon and Lins 2003).
It postulates that a business must seek to maximize value for its stakeholders. It takes into
cognizance both economical and ethical considerations, while promoting fairness for everyone
involved in the company and gives the managers clear objective (Herbert, et al., 2021; Islam,
et al., 2021).
Despite its seeming importance, many scholars such as Haat, et al. (2008) and Hamad, et al.
(2021) have criticized the stakeholder theory. Most argued that the theory lacks specificity and
as such cannot be operationalized in a way that allows scientific observation. They pointed out
that it can be difficult to consider the differing interests of various stakeholders. Some feel that
the theory offers no decision-making standard that could provide a benchmark for governance.
146
CORPORATE GOVERNANCE AND FIRM VALUE: IS POOR CORPORATE GOVERNANCE RESPONSIBLE FOR THE
PERSISTENT CRISES IN NIGERIA BANKING SECTOR?
EJIKE SUNDAY OKOROIGWE, HABIBA MOHAMMED-BELLO UMAR &. ABDULLAHI NDAGI
Others argued that the stakeholder theory is vacuous and unrealistic of the actual operations
of organizations. This study hinges on the stakeholder theory that bank managers and directors
in Nigeria are in those banks for the interest and reward of stakeholders and not for their own
personal interest. the study further found support from the agency relationship theory which
was first pointed out by Jensen and Meorching (1976) as a contract under which one or more
persons {the principal (s)} engage another person (the agent) to perform some services on their
behalf. Here, the shareholders (owners/principal) of the firm hire the agents (managers and
directors) to oversee the activities of the firm.
Methodology
The scope of the study covers the 2010 to 2020 accounting years of the selected banks. The
study is a quantitative research. It employed descriptive research design. The population of the
study consists of the 23 commercial banks listed in the Nigeria Stock Exchange as at
December, 2020. However the sampled banks comprise 8 banks with international
authorization in Nigeria as at December, 2020 representing about 35 percent of the population.
These include Access Bank PLC, Fidelity Bank PLC, First City Monument Bank PLC, First
Bank of Nigeria PLC, Guaranty Trust Bank PLC, Union Bank of Nigeria PLC, United Bank
for Africa PLC, and Zenith Bank PLC. These were purposefully sampled because these banks
are incorporated and also subject to all IFRS and IAS provisions and other local and
international disclosures and transparency requirements due to their global operations and
presence.
The study made use of secondary data collected from the fact book of the Nigeria Stock
Exchange and websites of the selected banks for the year 2020. The data collected was for
both corporate governance and corporate performance variables. The data collected was
analyzed using both descriptive and inferential statistics (using the Ordinary Least SquaresOLS-regression) via the Statistical Package for Social Sciences (SPSS). The multi regression
analysis established whether the set of independent variables {Firm Ownership Structure
(FOS), Board Size (BOS), Board Composition (BOC), Financial Disclosure and Transparency
(FDT) and Composition of Audit Committee (CAC)} explained the proportion of the variance
in the dependent variables {Return on Investment (ROI), Dividends per Share (DPS) and Net
Assets per Share (NPS)}.
The study adopted a similar model used by Haat, et al. (2008) and Hamad, et al. (2021) to
estimate the combined effects of corporate governance proxies on the corporate performance
of selected banks. Corporate governance (COG) is estimated as a function of the banks’
corporate performance indicators, which are defined in this study as Firm Ownership Structure
(FOS), Board Size (BOS), Board Composition (BOC), Financial Disclosure and Transparency
(FDT) and Composition of Audit Committee (CAC). This is expressed as CG= f (FOS, BOS,
BOC, FDT, CAC). On the other hand, corporate performance (COP) is represented by Return
on Investment (ROI), Dividends per Share (DPS) and Net Assets per Share (NPS). Thus,
COP= f (COG), which by expansion becomes: COP= f (FOS, BOS, OC, FDT, CAC).
147
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
The Ordinary Least Squares (OLS) regression that is used to estimate the relationship is as
follows:
ROI = β0 + β1FOS + β2BOS+ β3BOC + β4FDT + β6CAC + e……………. (i)
DPS = β0 + β1FOS + β2BOS+ β3BOC + β4FDT + β6CAC + e……………. (ii)
NPS = β0 + β1FOS + β2BOS+ β3BOC + β4FDT + β5CAC + e……………. (iii)
Where:
ROI = return on investment
DPS = Dividend per share
NPS = Net Assets per share
FOS = Firm Ownership Structure
BOS = Board Size
BOC = Board Composition
FDT = Financial Disclosure and Transparency
CAC = Composition of Audit Committee
β0 = Constant
β1toβ5 = Parameters to be estimated.
e = error term.
Results And Discussions
This section dealt with the presentation, interpretation, as well as the discussion of results.
The main objective of this paper was to investigate the relationship between corporate
governance and performance of Nigeria banks. The results would provide information on the
descriptive and inferential statistics used in analyzing the formulated hypotheses.
Table 1: Descriptive Statistics
Variables
FOS
Mean
12
Standard Deviation
1.20
Kurtosis
0.42
Skewness
0.935
Maximum
14
Minimum
10
Count
26
Source: Field Investigation (2021)
BOS
0.67
16.20
-0.57
-1.08
0.75
0.58
26
BOC
0.39
0.09
-1.10
-0.92
0.62
0.46
26
FDT
8.8
0.21
12.02
3.64
60.32
0.70
26
CAC
0.04
0.41
-0.34
1.34
0.09
0.04
26
ROI
27.9
31.62
8.09
-1.75
89.67
-89.63
26
DPS
11
24.56
28.8
6.00
151.04
-8.22
26
NPS
0.62
1.09
8.89
3.65
5.88
0.04
26
The table 4.1 above shows that the mean figures of DPS, ROCE, and NAPS of the sampled
banks are 27.9, 11, and 0.62 respectively. While firm ownership structure, board size, board
composition, financial disclosure and transparency, and composition of audit committee have
a mean of about, 0.67, 0.39, 8.8, 0.04 and 12 members respectively. Board size has the highest
standard deviation of 16.20 signifying its low contribution, whereas Firm Ownership Structure
(FOS), Board Composition (BOC), Financial Disclosure and Transparency (FDT) and
Composition of Audit Committee (CAC) have lower standard deviation which indicates their
significant contribution.
148
CORPORATE GOVERNANCE AND FIRM VALUE: IS POOR CORPORATE GOVERNANCE RESPONSIBLE FOR THE
PERSISTENT CRISES IN NIGERIA BANKING SECTOR?
EJIKE SUNDAY OKOROIGWE, HABIBA MOHAMMED-BELLO UMAR &. ABDULLAHI NDAGI
The composition of the audit committee falls between 38 to 51 percent which is not in line
with requirement of CAMA 1990, now amended in 2020, that the representation of
shareholders on the committee should be three whereas the whole committee should be six.
During the period of the study, Fidelity bank had ratio 2 directors to 4 shareholders. Likewise
Union Bank Plc for the first 4 years the ratio of the Audit Committee Composition was 2:4.
Corporate Governance and Return on Investment (ROI)
In this section, the regression equation results of the relationship between Corporate
Governance and Return on Investment are presented and discussed. The summary of the
results are presented in Table 2.
Table 2. Regression Results on Corporate Governance and ROI
Variables
Coefficients
t-values
Intercept
12.634
1.433
FOS
-11.512
-1.856*
BOS
-16.321
-2.951**
BOC
-10.991
-3.261**
FDT
0.443
0.431
CAC
0.862
3.121**
2
R
0.82
2
Adjusted R
0.71
F-Stat
5.865**
Durbin-Watson
1.334
Source: Field Investigation (2021)
The symbol ***, **, * indicates statistical significance at 1%, 5% and 10% respectively.
Table 4.2 relates DPS (dependent variable) to corporate governance variables (independent
variable). The estimated regression relationship for DPS model is:
ROI = 11.544 - 10.703FOS -17.460BOS - 11.440BOC +0.310FDT + 0.959 CAC
The equation shows that the independent variables have significant impact on the dividend per
share. While board size is negatively related and statistically significance at 10%, board
composition and composition of audit committees have negative relationship with the
dependent variable at 5% significant level. This signifies that an increase in these variables
would lead to decrease in ROI. The adjusted coefficient of determination (R2) offers better
explanation of the variations in ROI as the value is about 65 percent. Also, the value of the Fstatistics is 5.865 with a p-value of 0.001, showing fitness of the model.
From the result, the null hypothesis can be rejected. In other words, the result provides
evidence that corporate governance of firms in Nigerian banks has significant impact on the
performance as measured by their Return on Investment.
149
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Corporate Governance and Dividends per Share
In this section, the result of the regression equation of the independent variable: Firm
Ownership Structure (FOS), Board Size (BOS), Board Composition (BOC), Financial
Disclosure and Transparency (FDT) and Composition of Audit Committee (COC), and
dependent variable, DPS is presented.
Table 3. Regression Results on Corporate Governance and DPS
Variables
Coefficients
Intercept
11.543
FOS
-9.743
BOS
-17.980
BOC
-11.775
FDT
0.385
CAC
0.812
R2
0.875
2
Adjusted R
0.734
F-Stat
8.988**
Durbin-Watson
1.185
Source: Field Investigation (2021)
t-values
1.678
-2.398**
-5.238**
-4.987**
1.901*
6.845***
The symbol ***, **, * indicates statistical significance at 1%, 5% and 10% respectively.
Table 4.3 relates DPS (dependent variable) to corporate governance variables (independent
variable). The estimated regression relationship for DPS model is:
DPS = 10.407 - 9.997FOS-16.467BOS - 10.884BOC +0.294FDT + 0.903 CAC
The equation shows that the independent variables have significant impact on the return on
capital employed as a proxy for financial performance. Firm’s ownership structure (FOS),
Board Size (BOS), Board Composition (BOC) have negative relationship with the dependent
variable at 5% respectively. This signifies that decrease in these variables would lead to an
increase in dependent variable. Financial Disclosure and Transparency (FDT) and
Composition of Audit Committee (CAC) are positively related with DPS. While financial
disclosure and transparency has significant relationship at 1%, composition of audit
committees is at 10%. That is, increase in the level of financial disclosure and transparency,
and composition of audit committee increase in DPS of banks in Nigeria. Durbin Watson
statistics of 1.195 shows absence of auto correlation. The adjusted coefficient of determination
(R2) of approximately 73% offers better explanation of the variations in DPS occasioned by
variation in the independent (CG) variables. Also, the value of the F-statistics is 8.988 with a
p-value of 0.002, indicates fitness of the model.
From the result, the null hypothesis can be rejected. In other words, the result provides
evidence that corporate governance of banks in Nigeria has significant impact on their
performance as measured by their DPS. The result however, did not support the findings of
Ararat, et al. (2017), Black, et al. (2015) and Chhaochharia and Grinstein (2007).
150
CORPORATE GOVERNANCE AND FIRM VALUE: IS POOR CORPORATE GOVERNANCE RESPONSIBLE FOR THE
PERSISTENT CRISES IN NIGERIA BANKING SECTOR?
EJIKE SUNDAY OKOROIGWE, HABIBA MOHAMMED-BELLO UMAR &. ABDULLAHI NDAGI
Corporate Governance and Net Asset per Share (NPS)
The result of the regression equation of the independent variables; corporate governance
represented by Firm Ownership Structure (FOS), Board Size (BOS), Board Composition
(BOC), Financial Disclosure and Transparency (FDT) and Composition of Audit Committee
(COC), and dependent variable, NPS is presented.
Table 4 Regression Results on Corporate Governance and NPS
Variables
Coefficients
t-values
Intercept
27.567
2.875***
FOS
-0.701
-2.321**
BOS
-21.825
-5.021***
BOC
-19.946
-4.983***
FDT
0.024
1.772*
CAC
50.123
8.332***
2
R
0.907
2
Adjusted R
0.834
F-Stat
15.223***
Durbin-Watson
1.121
Source: Field Investigation (2021)
The symbol ***, **, * indicates statistical significance at 1%, 5% and 10% respectively.
Table 4.4 relates NAP (dependent variable) to corporate governance variables (independent
variable). The estimated regression relationship for NPS model is;
NAPS = 28.689 – 009FOS -23.999BOS – 21.634BOC +0.017FDT + 45.278 CAC
The equation shows that Firm Ownership Structure (FOS), Board Size (BOS) and Board
Composition (BOC) have negative relation with the NPS at 5% level of significance
respectively. This signifies that decrease in these variables would lead to an increase in NPS.
Financial Disclosure and Transparency (FDT) and Composition of Audit Committee (CAC)
are positively related with NPS. While Financial Disclosure and Transparency has statistically
significant relationship at 1%, Composition of Audit Committee is at 10%. This implies that,
increase in the level of Composition of Audit Committee guarantee increase in the
performance of the banks in Nigeria. The adjusted coefficient of determination (R2) offers
better explanation of the variations in NPS as the value is about 83 percent. Also, the value of
the F-statistics is 15.223 with a p-value of 0.002, this shows the fitness of the model.
From the result, the null hypothesis can be rejected. In other words, the result provides
evidence that corporate governance of firms in Nigeria banks has significant impact on the
performance as measured by their NPS.
Implications of the Findings
The results of the study have provided insight into the predictor variables that have important
impact in explaining the dependent variable (financial performance) of banks in Nigeria. The
151
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
results indicate that corporate governance has significant effect on the Dividend per share of
banks in Nigeria and Financial Disclosure and Transparency (FDT) and Composition of Audit
Committee (CAC) are important variables that can be used to explain financial performance
of banks in Nigeria. The important feature of this finding is that the financial performance of
the banks can be controlled by manipulating financial disclosure and transparency, and
composition of audit committee. The results also indicate that corporate governance has
significant effect on the Return on investment, dividends per share and net assets per share of
banks in Nigeria. Adequate disclosure with robust transparency increases the chances of
having good performance and ensuring appropriate business and financial decision making.
Also Composition of audit committee affects the financial performance as the presence of the
shareholders’ representative in the audit committee would ensure that the work of the audit
committee is effective and without bias.
Conclusion and Recommendations
Conclusion
From the findings, we can conclude that corporate governance influences the performance of
banks in Nigeria. The firm ownership structure could affect the dividends per share paid out
to shareholders, the returns on investment and the net assets per share. The presence of
shareholders or their representatives in the audit committee has critical consequence on the
work of the audit committee and this would further ensure proper audit work and enhance
corporate performance.
A very fundamental propeller of shareholders value that ensures the going concern of the banks
is financial disclosure and transparency. Evidence has shown that inadequate disclosure and
insufficient transparency are the reasons for insider dealings that have led to monumental nonperforming loans of Nigeria banks. The heavy non-performing loans like the case of First Bank
Nigeria PLC, Ecobank PLC, former Diamond bank (now Access bank PLC) are the major
reasons for their financial crises.
Recommendations
In line with the findings, the study recommends as follows. There should be cordial
interrelationship between the boards of the banks, the management and the shareholders
through continuous consultations and carrying everyone along. The government and regulators
such as the central bank of Nigeria should have zero tolerance for below standard corporate
governance practices by Nigeria banks. The central bank should be above board and
transparent in dealings with the banks to ensure that all stakeholders’ interests in the Nigeria
banking sector are consistently protected.
References
Anabestani, Z. and Shourvarzi, M.R. (2014). Cash Holdings, Firm Value and Corporate
Governance. Asian Journal of Research in Banking and Finance 4(4), 128-143
Antounian, C., Dah, M.A. and Harakeh, M. (2021). Excessive Managerial Entrenchment,
Corporate Governance, and Firm performance. Research in International Business and
Finance 56, 101392
152
CORPORATE GOVERNANCE AND FIRM VALUE: IS POOR CORPORATE GOVERNANCE RESPONSIBLE FOR THE
PERSISTENT CRISES IN NIGERIA BANKING SECTOR?
EJIKE SUNDAY OKOROIGWE, HABIBA MOHAMMED-BELLO UMAR &. ABDULLAHI NDAGI
Ararat, M., Black, B.S. and Yurtoglu, B.B (2017). The Effect of Corporate Governance on
Firm Value and Profitability: Time-Series Evidence from Turkey. Emerging Markets
Review 30, 113-132.
Black, B.S., Kim, W., Jang, H. and Park, K. (2015). How Corporate Governance Affect Firm
Value? Evidence on A Self-dealing Channel From A Natural Experiment in Korea.
Journal of Banking & Finance 51, 131-150.
Chhaochharia, V. and Grinstein, Y. (2007). Corporate Governance and Firm Value: The
Impact of the 2002 Governance Rules. The Journal of Finance 62 (4), 1789-1825.
Danoshana, S. and Ravivathani, T. (2019). The Impact of the Corporate Governance on Firm
Performance: A Study on Financial Institutions in Sri Lanka. SAARJ Journal on
Banking & Insurance Research 8(1), 62-67.
El-Deeb, M.S., Halim, Y.T. and Elbayoumi, A.F. (2021). Disclosure Tone, Corporate
Governance and Firm Value: Evidence From Egypt. Asia-Pacific Journal of Accounting
& Economics, 1-22.
Garay, U. and Gonzalez, M. (2008). Corporate Governance and Firm Value: the Case of
Venezuela. Corporate governance: An International Review 16(3), 194-209
Haat, M.H.C., Ralman, R.A. and Mahenthiran, S. (2008). Corporate Governance,
Transparency and Performance of Malaysian Companies. Managerial Auditing
Journal.
Hamad, K.Q., Saeed, Q. and Sharif, R.J.M. (2021). Effectiveness And Adequacy of
Disclosure Provisions in Tehran Stock Exchange. PalArch’s Journal of Archaeology of
Egypt/Egyptology 18(08), 2379-2388.
Hassan, Y.A. (2010). Corporate Governance and Performance of Deposit Money Banks in
Nigeria. Nigerian Journal of Accounting and Finance.
Kurniansyah, F., Saraswati, E. and Rahman, A.F. (2021). Corporate Governance, Profitability,
Media Exposure, and Firm Value: the Mediating Role of Environmental Disclosure.
Journal Minds: Manajemen Ide dan Inspirasi 8 (1), 69-88.
Lemmon, M.L and Lins, K.V. (2003). Ownership Structure, Corporate Governance, and Firm
Value: Evidence from the East Asian Financial Crisis. The Journal of Finance 58 (4),
1445-1468.
Murinda, C.S., Islahuddin, I. and Nuraini, A. (2021). Firm Value: Does Corporate Governance
and Research & Development Investment Matter? Jurnal Reviu Akuntansi dan
Keuangan 11 (2).
Rahman, A.F. and Nugrahanti, Y.W. (2021). The Influence of Related Party Transaction and
Corporate Governance on Firm Value: An Empirical Study in Indonesia. The Journal of
Asian Finance, Economics and Business 8(6), 223-233.
Uddin, M.Z., Hosen, M. and Chowdhury, M.M. (2021). Does Corporate Governance Influence
Firm Value in Bangladesh? A Panel Data Analysis. Technicka Univerzita v Liberci
153
Journal of Accounting
Vol. 11 (1) January - June 2022
MODERATING EFFECT OF AUDIT QUALITY ON VALUE RELEVANCE
OF ACCOUNTING INFORMATION OF LISTED FIRMS IN NIGERIA
Success, Blessing Ejura , Musa, Success Jibrin , Agbo Emmauel
Department of Banking and Finance, Faculty of Management Sciences, Veritas University, Abuja.
Corresponding Author: musas@veritas.edu.ng
Abstract
This study assessed the moderating effect of audit quality on value relevance of accounting information
of listed firms on the Nigerian Stock Exchange (NSE). The Ex-post facto research design was used with
the population of 192 and sample size of 58 firms covering the period of 2008 to 2019. Ordinary Least
Square (OLS) regression analysis and Granger Causality test was used to test the hypothesis. The results
of this study revealed that there is a insignificant positive effect between earning per Share and market
Share Price of listed firms in Nigeria. The study recommends that Earnings per share policy should be
such that allow the possibility of paying regular Earnings since dividend is found to have impact on their
share price. This is because earning plays vital role in investors’ decision making on the companies on
the trading exchange.
Keywords: Value relevance, Earnings Per Share, Market Share Price.
Introduction
Accounting's value relevance is motivated all over the world because publicly traded
corporations use these data to interact with investors and the general public (Sharma, et al.
2012). The user's response to accounting information provided by reporting firms in any period
can be used to assess the value relevance of accounting metrics such as earnings, book value
of equity, and book value of assets (Ahemen, 2020).
Value-relevant, harmonized accounting standards are expected to build a credible shared
accounting framework for a globalized capital market, according to firms. However, valueadded, harmonized accounting standards aren't enough to improve the financial reporting
environment. Accounting standards should be of high quality, enforced, and acceptable.
Demonstration of these attributes, such as audit quality, would have a direct impact on the
value relevance of accounting results, and they would complement each other in improving
the value relevance of earnings (Onuha, 2016).
The relevant or irrelevant accounting information revealed by a company can affect its market
value in either a favorable or negative way. The indirect role of financial instruments with
productive capacity (such as stocks) is to separate corporate management from its owners and,
most likely, engage an audit firm for an independent expert opinion capable of influencing
public trust and attracting further investments. Furthermore, several elements in a country's
economy might influence equity market value.
Kocenda & Svejnar, (2012), while share indexes may represent the pattern and degree of
economic developments to some extent, one major economic aspect that may affect share
154
MODERATING EFFECT OF AUDIT QUALITY ON VALUE RELEVANCE OF ACCOUNTING INFORMATION OF LISTED
FIRMS IN NIGERIA
SUCCESS, BLESSING EJURA, MUSA, SUCCESS JIBRIN & AGBO EMMAUEL
value is the ability of companies to attract greater investment. Because obtaining more
investments can potentially change a business's share value and, as a result, its ownership
confidence, this study aims to determine whether audit quality has an impact on firm value.
More research into the value relevance of accounting information in non-developed markets
outside of the United States which was expanded to developing markets as the importance of
financial reports for foreign markets grew Graham et al., 2018, and Păşcan, 2015) . The
findings of study in literature on these emerging markets revealed a range of opinions on the
importance of accounting information for listed companies in Nigeria.
The main objective of the study is to examine the moderating effect of audit quality on value
relevance of accounting information of listed firms in Nigeria. Predicated on this objective,
the researchers formulated the hypothesis in its null form to navigate the investigation:
Ho: Value relevance of earning per share moderated by Audit experience has no significant
effect on market share price of listed firms in Nigeria.
Review Related Literature
Concept of Value Relevance of Accounting Information.
Accounting information, particularly earnings, is thought to be the most superior information
for investment decision making, while data from the statement of financial position and
statement of cash flows can also be valuable (IASB, 2018). According to Marquardt and
Wiedman (2014), as well as Whelan and McNamara (2014), when a firm offers lower quality
earnings, the relationship between accounting earnings and value relevance is weakened. In
that situation, investors pay attention to additional accounting data for decision-making, such
as Cash Flow from Operations and Book Value of Equity, in addition to earnings. (Bo, 2009;
Kwon, 2018b; Mirza, Malek, & Abdul Hamid, 2019a; Tahat & Alhadab, 2017;
Vichitsarawong, 2011; Musa, Success and Nwaorgu, 2015;). Therefore, this study suggests
assessing simultaneously the value relevance of Earnings Per Share if is been moderated by
audit experience in Nigeria listed firms.
In most cases, earnings and Book Value are used to determine value significance (Kothari,
2001). The reason for this is that the Ohlson (1995) price model, which describes the company
value as a function of the Book Value plus future residual income's present value and other
information, has been adopted as the theoretical underpinning of valuation. While recent
research implies that earnings per share may also include useful information (Bepari, 2013;
Tahat & Alhadab, 2017).
Previous research has also demonstrated that when organizations engage in earnings
management strategies and cash, the value relevance of earnings diminishes, partially because
earnings are unaffected by these practices (Marquardt & Wiedman, 2014 and Musa; Ifurueze,
and Bernard 2013). The information shown above emphasizes the relevance of Cash Flow
from Operations, together with earnings and Book Value, in making investment decisions. As
155
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
a result, Earnings Per Share, Book Value Per Share, Dividend Per Share, and Cash Flow
Operation will be included as independent variables in this study.
Financial accounting information or numbers are the product of corporate accounting and
external reporting systems that measure and publicly disclose audited, quantitative data
concerning the financial position and performance of publicly listed firms. According to the
Generally Accepted Accounting Principles (GAAP), these financial statements must meet four
primary qualitative qualities in order to fulfil their purpose: relevance, reliability,
understandability, and comparability. Accounting information is only relevant when users may
analyze past, present, or future occurrences in order to make economic decisions, according to
the International Accounting Standard Board (IASB) Framework (2018). These users could
be owners, managers, or employees. Previous research has also demonstrated that when
organizations engage in earnings management strategies and cash, the value relevance of
earnings diminishes, partially because earnings are unaffected by these practices (Marquardt
& Wiedman, 2014 and Musa; Ifurueze, and Success (2013). The information shown above
emphasizes the relevance of Cash Flow from Operations, together with earnings and Book
Value, in making investment decisions. As a result, this research will take into account
Earnings Per Share, Book Value Per Share, and Dividend Per Share are all independent
variables, as is Cash Flow Operation.
Market Share Price
The market share price is the company's value divided by the number of outstanding shares.
Stock prices frequently reflect the company's value, allowing shareholders to compare the
stock market price to the genuine stock price before determining whether to buy or sell.
According to Hartono (2000), an investment's intrinsic value can be calculated using both
fundamental and technical security research. Earnings Per Share, Book Value Per Share, and
Dividend Per Share are all independent variables, as is Cash Flow Operation. Fundamental
analysis include evaluating a variety of macro and micro elements in the global and domestic
contexts, as well as the industry and firm. Technical analysis, on the other hand, is the search
for recurring and predictable patterns in stock prices (Igbinosa, 2012). "The technicians" have
established a number of technical indicators (such as resistance levels, market breadth,
confidence index, put-call ratio, short interest, and so on) that are utilized in market timing
methods as a result of this (Igbinosa, 2012).
A significant number of studies have looked into share price changes and some of the
components that are thought to cause such movement. Changes in the fundamental elements,
which Kehinde (2012) characterized as financial performance and macroeconomic variables,
as well as market noise, which, according to Kehinde (2012), cannot be recorded as
fundamental factors, amplify the movement in the share price of quoted businesses. According
to Agrawal (2011), a firm's earnings are the most powerful of the elements that might impact
the movement of a share price in the capital market; he also emphasizes that listed firms must
publish earnings every quarter.
156
MODERATING EFFECT OF AUDIT QUALITY ON VALUE RELEVANCE OF ACCOUNTING INFORMATION OF LISTED
FIRMS IN NIGERIA
SUCCESS, BLESSING EJURA, MUSA, SUCCESS JIBRIN & AGBO EMMAUEL
Kari (2012) tested for the value relevance of financial and non-financial information in hightech industries in Australia with a sample size of 91 companies running through various sectors
of the Australian economy. The Olson (1995), Equity Valuation Model (modified for the
intangible assets disclosure) was explicitly applied to examine the value relevance of financial
and nonfinancial information with overall results that provided evidence that book value is the
most significant factor and earnings are the least significant factor in deciding share prices in
high-tech industries in Australia. This finding of Kari (2012) further supported previous
studies that showed value relevance declined in earnings but increase in book value.
Kpoki (2011) looked at the value relevance of accounting information in Iran from 1996 to
2008, before and after the codification of national accounting standards in 2001, which could
describe the impact of The Iranian Association of Certified Public Accountants codifying the
first national accounting standards. Accounting information in Iran was value relevant, and the
value relevance of Earnings per Share was higher than the book value of equity per share,
according to the results of a combination of regression and portfolio techniques.
Audit Experience
Regarding the aspects and items that describe the efficacy of audit procedures and services,
the idea of audit quality has been widely studied in both theory and practice. In line with the
foregoing, there has recently been a global uptick in research into the areas of accounting and
auditing professionalism and expertise (Gaballa & Ning, 2011) The impact of audit experience
on earnings quality and perceptions of earnings quality has become a focus as a result of this
development, particularly when a corporation is reportedly audited by experienced auditors
(Wang, et al). (2012). This should essentially be a research topic for Nigerian listed companies
as well.
But, according to Lawal (2012), while experience is a good predictor of knowledge, not all
types of knowledge are acquired equally by other people with the same amount of experience,
and not all people with similar experience in a domain are likely to have similar problemsolving abilities. Instead, it depends on the task or client's activities, and different types of
knowledge may be acquired through different specific experiences and training.
Empirical Review
Earnings per share (EPS) is the most commonly used accounting metric in value relevance
studies, which look at how it relates to share price. The majority of studies on the value
relevance of earnings per share and share price results reported to be significant and positive
related to share price, as evidenced by Pathirawasam (2010)'s findings in Sri Lanka, which
found earnings per share to have positive value relevance on the market share price of 129
companies selected from six major sectors listed on the Colombo stock exchange, as well as
other studies conducted by various researchers, including (Tharmila, 2013; Vijitha, &
Namalathan (2014) in Sri-Lanka, (Thompson & Adah , 2012; Olugbenga & Oyerinde, 2014;
Musa; Success & Nwaorgu, 2014) in Nigeria reported the same results. The most important
157
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
component of financial reports is the income statement (Kallunki, 1996) as it indicates the
result of operation of the period.
Several studies have looked into changes in the value relevance of earnings. Collins, et al.
(2019) used a cross-sectional regression over a 40-year period to discover that the incremental
value relevance of earnings decreased from 1953 to 1993. They attributed the drop-in earnings
value relevance to a change in book value relevance from earnings to increasing average
business size. Lev Zarowin (2018) agrees with the result of falling earnings value significance.
Earnings and earnings change are both value relevant, according to Cheng et al. (2017). They
looked at the impact of profits performance on the information content of cash flows using
both levels and changes. They argued that markets look to cash flow as alternative sources of
information where earnings number proves insufficient. They came to the conclusion that
current profit innovations encompassed both future and current equity benefits. The low
earning return association could also be explained by the lack of timeliness for accounting
numbers. The degree to which current profits include current period economic income is
referred to as timeliness (Ball et al., 2016). The demands of accounting standards of objectivity
and verifiability may have an impact on earnings timeliness. As a result of these demands,
earnings are less timely, and the relationship between earnings and stock returns is weaker.
The findings revealed that stock prices are unaffected by earnings surprises.
Easton and Harrist (2017), suggested that while low earnings timeliness may occur in the near
term, if long term data is used, the correlations between earnings and return improve over time.
Expanding the return interval and earnings gathered over long time intervals, according to the
study. The return-earnings relationship grew stronger. Using long-term accounting data, the
analysis confirmed the association between profits and return increases.
Beaver, et al. (2018), proposed various explanations for the poor earnings returns relationship,
including statistical model misspecification. They claimed that the price-earnings relationship
was a system of simultaneous equations, and that the explanatory variable (earnings) and the
dependent variable (share price) operate as if they are both endogenously determined since
they are both influenced by difficult-to-specify information. They showed that increases in
both variables were endogenous, indicating that single equation bias can be minimized by
using joint estimation. Liu & Thomas (2000), supported the thesis of misspecification of model
as accounting for low Earnings Response Coefficient (ERC). Using a model in which
additional regressors were included in the model in order to reflect information contained in
forecast revisions and discount rate change occurring during the year. Compared to simple
regression model this significantly increases the ERC. Earnings are made up of two
components a cash flow component regarded as an objective part of earnings and accruals
which is more inclined to subjective judgment and thus easily manipulated. Earnings
management refers to the reasonable and legal management decision making and reporting
intended to achieve stable and predictable financial results.
The impact of earnings management on value relevance was explored by Marqardt and
Wicdman (2004). They study how earnings management degrades the value relevance of
158
MODERATING EFFECT OF AUDIT QUALITY ON VALUE RELEVANCE OF ACCOUNTING INFORMATION OF LISTED
FIRMS IN NIGERIA
SUCCESS, BLESSING EJURA, MUSA, SUCCESS JIBRIN & AGBO EMMAUEL
accounting information using a sample of firms for whom there is an a priori assumption of
earnings management. There are typically incentives and possibilities to manage profitability
in instances when managers participate in secondary share issuance. In organizations whose
managers sell shares in a secondary offering, discretionary accruals are notably positive during
the years of the secondary stock offering (Marquardt & Wiedman, 2014).They also showed
that firms whose managers participated in secondary offering had higher discretionary accruals
in the year of secondary offering than firms whose managers did not. During the year of the
secondary offering of shares, the estimated coefficient of net income and R2 for those business
participating managers both decreased significantly (Marquardt & Wiedman, 2014).
According to Christensen, Hoyt, and Patterson, earnings announcements are less useful to
investors when the incentives for earnings management are higher (1999). The results of a
study on the worth of incomes across countries are fascinating. Ball et al. (2016) examined the
value relevance of earnings in seven countries. They showed that accounting earnings
indicated significantly greater timeliness in common law countries relative to code-law
countries, this they attributed to income conservatism.
Ali and Lee-Sheok (2015), investigated the link between country-specific factors and value
relevance metrics. In comparison to countries exhibiting aspects of the continental accounting
model, value relevance was higher in countries exhibiting features of the British-American
model, in which tax policies have an impact on accounting measurements. They also
discovered that countries that invest more in external auditing services have greater value
relevance. In countries with poor shareholder protections, the use of accrual accounting rather
than cash flow accounting results in reduced value relevance. (2000, Mingyi) but for countries
with strong shareholder protection there was no significant negative relationship between the
use of accrual accounting and value relevance of accounting information.
Theoretical Review
Stakeholder Theory (1984)
Edward Stakeholder Theory is a concept proposed by Edward Stakeholder (1984). This
philosophy contends that a company should provide value for all stakeholders, not only
shareholders. The Stakeholder Theory of organizational management and corporate ethics,
which tackles morals and values in managing an organization, was first detailed by Edward
Freeman in 1984. His award-winning book Strategic Management: A Stakeholder Approach
identifies and models the groups that make up a corporation's stakeholders, as well as
describing and recommending strategies for management to consider those groups' interests.
Any individual or group that can affect or is affected by a business organization is referred to
as a stakeholder. Stakeholder Theory discusses whether a company has a greater obligation to
its stakeholders than it does to its shareholders, as well as how to meet these responsibilities.
Milton Friedman stated that a firm must serve the interests of its shareholders, however
proponents of Stakeholder Theory reject this excessively capitalist viewpoint. Managers who
want the organization to realize its maximum potential will consider the interests of
159
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
stakeholders, which will lead to studies on how firms, managers, and stakeholders interact
with one another.
Stakeholder theory, according to Mansell (2013), undermines the fundamentals of a market
economy by bringing the political concept of a "social compact" to corporations.
This research is based on stakeholder and signalling theory since it is assumed that when a
corporation is founded, it has a variety of aims, which can be either financial or non-financial.
Because being forewarned is to be forearmed, I'm signalling. The availability of relevant
information influences the rational conduct of investors. Profit maximization, which is subject
to shareholder wealth maximization, is the primary goal of forming a company. Because
shareholders are the company's financiers, they anticipate a larger return on their investment.
Lower returns cause an agency problem between the firm and the corporation, which could
result in a lawsuit
Methodology
Because the study is solely quantitative, it used an Ex-post Facto research design. As of
December 2019, the study population and sampling frame included all 192 listed firms on the
Nigerian Stock Exchange, with 58 serving as the sample size. The stratified sampling
technique was used to pick samples from Nigerian publicly traded corporations. The study
relied on secondary data acquired from all of the examined firms' financial statements during
a twelve-year period (2008-2019). Panel regression analysis was used to assess the study's
hypotheses, employing STATA.13.0 software as the analysis tool.
Model Specification
The study adopted the modified Ohlson (1995). The basic model derived within the Ohlson
(1995) framework, stated as:
MSP = α +β1BV +β2 EPS +ε
The basic model was modified to accommodate cash flow from operations per share (CFOPS),
dividend per share (EPS) and Audit experience (AE); thus, the model is stated as:
𝑀𝑃𝑆𝑖𝑡 = 𝛼 + 𝛽2 𝐸𝑃𝑆𝑖𝑡 + +𝛽7 𝐸𝑃𝑆𝑖𝑡 ∗ 𝐴𝐸 + 𝜀𝑖𝑡
Where α0 is the slope, which is the coefficient of the independent variables, where MSP is
market share price dependent variable while EPS Earning per share and Audit Experience AE
are independent variables.
Data Presentation and Discussion
Descriptive Statistics Results
Table 1 presents the descriptive statistics result in respect of the dependent (security market
performance proxied by Market share price) and independent variables (earnings per
share). Descriptive statistics are used to describe the basic features in the data of the study
which provides simple summaries about the sample and the measurements.
160
MODERATING EFFECT OF AUDIT QUALITY ON VALUE RELEVANCE OF ACCOUNTING INFORMATION OF LISTED
FIRMS IN NIGERIA
SUCCESS, BLESSING EJURA, MUSA, SUCCESS JIBRIN & AGBO EMMAUEL
Table .1: Descriptive Statistics of the Variables
Stats
Max
Min
Mean
Sd
Skewness
Kurtosis
MSP
1485
0.25
37.50935
123.6416
7.891303
74.87875
EPS
5671.528
-93.628
76.2665
497.7474
8.132546
74.5847
EPS*AE
5480.062
-93.628
60.68374
431.5501
8.939372
89.48219
Source: Stata 13 output, 2021.
The results in Table .1 show that the minimum and maximum values of Market Share Price
are 0.25 and 1485 respectively; this indicates that the elements of outlier issues for Market
Share Prices are between 0.25 and 1485. The mean value of 37.51 and standard deviation of
123.64 in the data implies that there is dispersion from the mean value by approximately 124
in the sampled firms. The coefficient of Skewness 7.89 is positive and greater than zero. This
implies that the data shows evident of positive skewness (skewed to the right) and as such, the
distribution of the data is not symmetric. On the other hand, the kurtosis value of 74.88 which
implies that the distribution is leptokurtic. It also shows that most of the values are higher than
the mean, and thus the data did not meet the Gaussian distribution assumption. The presence
of higher kurtosis is the result of infrequent extreme deviations.
This is leptokurtic and has tails that asymptotically approach zero more slowly than the
Gaussian.
For Earnings Per Share, the mean within the period of the study was 76.27. Earnings Per Share
in Nigeria listed firms under study was at its maximum when the value was 5671.53 while the
least Earnings Per Share was when the value was approximately -93.62. The standard deviation
was at 497.75 which display the extent of dispersion of the data series from the mean. Earnings
Per Share show positive skewness at 8.13 which indicates that the data set is highly skewed,
the kurtosis reveals that Earnings Per Share is 74.58.
For Audit Experience (AE), is a dummy variable whose mean within the period of the study
was 1. Audit Experience (AE) in Nigeria listed firms under study was at its maximum when
the value was 1while the least Audit Experience (AE) was when the value was approximately
0. The standard deviation was at 0 which displays the extent of dispersion of the data series
from the mean. Audit Experience (AE) because of its dummy nature does not show sign of
kurtosis and skewness. This is also affected the mean, minimum, maximum and standard
deviation.
For Earnings Per Share moderated by Audit Experience (EPS*AE) the mean within the period
of the study was 76.27. Earnings Per Share moderated by Audit Experience (EPS*AE) in
Nigeria listed firms under study was at its maximum when the value was 5671.53 while the
least Earnings Per Share moderated by Audit Experience (EPS*AE) was when the value was
approximately -93.63. The standard deviation was at 51 which displays the extent of dispersion
of the data series from the mean. Earnings Per Share moderated by Audit Experience
161
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
(EPS*AE) show positive skewness at 8.13 which indicates that the data set is highly skewed,
the kurtosis reveals that Earnings Per moderated by Audit Experience (EPS*AE) is 74.58.
process and would not affect the result of this study.
Unit Root Test of the Variable
The study used Fisher panel unit root test based on Augmented Dickey-Fuller (ADF) to
examine the stationarity of the panel data. That is, to test if the panel series contains a unit
root. The null hypothesis of the Fisher ADF panel unit root test assumed that all panels contain
a unit root. As N tends infinity, the number of panels that do not have a unit root should grow
at the same rate as N, under the alternative hypothesis. Table .2 shows the summary results of
the Fisher ADF panel unit root test.
Table 4.2: Result of Augmented Dickey-Fuller (ADF) unit root test of the variables
Variables
Inverse chisquared P
Inverse
Normal Z
Inverse logit
L*
MSP
EPS
EPS*AE
566.8616
457.7590
457.7590
-22.3430
-19.6799
-19.6799
-45.4717
-36.7199
-36.7199
Modified
Inv.
Chisquared Pm
78.3553
62.6077
62.6077
p-values
Order
of
Integration
0.0000
0.0000
0.0000
I(0)
I(0)
I(0)
Source: Author’s compilation from the result of Fisher ADF unit root Test
Table .2 shows the result of Fisher ADF unit root test of the variables. The Fisher ADF panel
unit root test combines the p-value from the pane-specific unit root tests using the four methods
proposed by Choi (2001). Three of the methods differ in whether they use the inverse 𝜒 2 ,
inverse normal, or inverse log transformation of p-values, and the fourth is a modification of
the inverse 𝜒 2 transformation that is suitable for when N tends to infinity. The inverse normal
and inverse logit trans formations can be used whether N is finite or infinite.
However, it could be observed from table .2 that all the four tests of the Fisher ADF panel unit
root strongly reject the null hypothesis that all the panels contain unit roots. This is because
the inverse logit L* test typically agrees with the inverse normal Z test. More so, the inverse
𝜒 2 P test also agrees with the modified inverse 𝜒 2 Pm test. The P-values of all the variables
indicate that they are all significant at levels and as such, are integrated of order zero (i.e. I
(0)).
Correlation Results
Table .3: Correlation Matrix
MSP
EPS
EPS*AE
MSP
EPS
EPS*AE
1.0000
-0.0102
-0.0102
1.0000
1.0000
1.0000
Source: Stata output, 2021.
The result shows that there is a negative but weak effect between Market Share Price in the
model and Earning Per Share with correlation coefficient of -0.0102, at 5% level of
significance, (p-value 0.05). This result implies that an increase in Earning Per Share would
162
MODERATING EFFECT OF AUDIT QUALITY ON VALUE RELEVANCE OF ACCOUNTING INFORMATION OF LISTED
FIRMS IN NIGERIA
SUCCESS, BLESSING EJURA, MUSA, SUCCESS JIBRIN & AGBO EMMAUEL
result to an insignificant decrease in Market Share Price and a decrease in Earning Per Share
would result to an insignificant increase in Market Share Price.
The result shows that there is no significant negative effect between Market Share Price in the
model and Earning Per Share moderated by Audit Experience (EPS*AE) with correlation
coefficient of -0.0102, at 1% level of significance, (p-value 0.342). This result implies that as
Earning Per Share moderated by Audit Experience (EPS*AE) increases, Market Share Price
will decrease but without any significant effect or changes and when Earning Per Share
moderated by Audit Experience (EPS*AE) decreases, Market Share Price will increase but
without any significant effect or changes.
Diagnostic test
In order to ascertain the validity of the findings and to avoid making wrong inferences,
diagnostic test was carried out. The overall result of the correlation analysis shows that no two
(2) variables are so highly correlated to disturb the results as there is not greater than 0.8.
(Stephen 2008)
Multicollinearity test
Table.4: Multicollinearity test
Variable
VIF
1/VIF
EPS
1.24
0.804687
Mean VIF
1.24
Multicollinearity is a statistical phenomenon in which two or more predictor variables in a
multiple regression model are highly correlated when taken together. In this situation, the
coefficient estimates may change erratically in response to small changes in the model or the
data. The study conducted multicollinearity test using variance inflation factor (VIF) and its
reciprocal (1/VIF) or (TOLERANCE) in order to assess the presence of multicollinearity or
otherwise. The benchmark for VIF if at 5%, collinearity is suspected; at over 10 multi
collinearity is assumed to be present. On the other hand, the closer TOLERANCE is to 1, the
greater the evidence that the regressors are not collinear. The results of multicollinearity test
from Table 4.4 indicate absence of multicollinearity. This is confirmed from the statistical
result that shows all the VIF are not closer to 10 and TOLERANCE are respectively closer to
1. The mean value of VIF is 1.19. All these suggests absence of multicollinearity among the
independent variables.
Hausman Test for Model Selection
The decision is to reject the null hypothesis if the probability Chi-square value of Hausman
test is less than 0.05. Otherwise, the null hypothesis should not be rejected at 0.05 level of
significance.
163
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Table .5: Result of Hausman Test
(b)
(B)
Fe
EPS
EPS*AE
re
.0032996
.0132258
.0030811
.0140743
(b-B)
Difference
sqrt(diag(V_b-V_B))
S.E.
.0002184
-.0008486
.0020601
.0041196
Source: Author’s compilation from the result of Hausman test
b = consistent under Ho and Ha; obtained from xtreg
B = inconsistent under Ha, efficient under Ho; obtained from xtreg Test: Ho: difference in
coefficients not systematic (random effect is the best model) chi2(7) = (b-B)'[(V_b-V_B)^(1)](b-B) =
2.29
Prob>chi2 =
0.9422
Table .5 shows the result of Hausman test conducted. It could be observed that the probability
Chi-square (0.0965) of Hausman test conducted is greater than 0.05. This implies that the null
hypothesis of difference in coefficients not systematic cannot be rejected at 0.05 level. This
therefore means that random effect model is the best model for this study.
Regression Analysis
Regression analysis is analyzed below:
Table 6: Random Effect Regression results
MSP
Coef.
Std. Err.
z
P>z
[95% Conf.
Interval]
EPS
.0030811
.0208895
0.15
0.883 -.0378616
.0440238
EPS*AE
.0140743
.0071443
1.97
0.049 -.0660704
.0379217
_cons -76.42016
29.89376
-2.56 0.011
-135.0109
-17.82947
sigma_u
0
sigma_e 135.62692
rho
0 (fraction
of variance due to u_i)
Wald chi2(8)
= 29.60
corr(u_i, X) = 0 (assumed)
Prob > chi2
= 0.0002
Source: Stata 13 output, 2021.
Table 6 show the result of random effect of the moderating effect of audit quality on value
relevance of accounting information in Nigeria listed firms. This model was estimated under
the assumption if zero correlation between the explanatory variables in the model and the
stochastic error term (i.e. corr(ui, X) = 0). Looking at the general model, it could be observed
that with Wald Chi2 (8) = 29.60 and the probability Chi-square (Prob > chi2 = 0.0002) less
than 0.05, the entire model is significant. This implies that any policy judgment made from the
result of the model estimation is valid at 5 percent level.
Test of Hypotheses (Result)
The hypothesis formulated for this study was tested using Coefficient and P-Value.
164
MODERATING EFFECT OF AUDIT QUALITY ON VALUE RELEVANCE OF ACCOUNTING INFORMATION OF LISTED
FIRMS IN NIGERIA
SUCCESS, BLESSING EJURA, MUSA, SUCCESS JIBRIN & AGBO EMMAUEL
Hypothesis One
H0: Value relevance of Earning Per Share moderated by Audit Experience has no
significant effect on market share price of listed firms in Nigeria,
Decision Rule: The decision is to reject the null hypothesis if the probability value of Earning
Per Share moderated by Audit Experience is less than 0.05. Otherwise, the
null hypothesis is not to be rejected at 5 percent level.
Based on the result in Table 6, the random effect regression coefficients result, using the
coefficient value and P-value which are 0.014 and 0.049 respectively, the study concludes that
Earnings Per Share has positive and statistically significant effect on the Market Share Price
of Nigeria listed firms because the parameter of Earnings Per Share at P-value of 0.049 which
is less than 5% or 0.05 level of significance, this means that Earnings Per Share has positive
and statistically significant effect on the Market Share Price of Nigeria listed firms on a short
run. Therefore, the study reject the null hypothesis (H01) which stated that “Value relevance
Earnings per share moderated by Audit Experience has no significant effect on market share
price of Nigeria listed firms” and accepts the alternative hypothesis (H11) which stated that
Value relevance Earnings per share moderated by Audit Experience has a significant effect on
market share price of Nigeria listed firms
Discussion of Findings
The study revealed that Market Share Price and Earning Per Share are positively related with
correlation coefficient of -0.0102. This result implies that an increase in Earnings Per Share
does not guarantee and decrease in Market Share Price and a decrease in Earnings Per Share
does not also guarantee increase in Market Share Price. It was further revealed that Earnings
Per Share has positive and statistically insignificant effect on the Market Share Price of Nigeria
listed firms because the parameter Earnings Per Share has a P-value of 0.883 which is greater
than 5% or 0.05 level of significance. This finding is contrary to the views of Najjar (2012),
Tornyeva and Wereko (2012) as well as that of Tukur & Bilikisu(2014), stating that firm with
moderate audit experience act more efficiently in the activities which would increase share
price of a company.
Based on the facts and figures from table 6, the Regression Coefficients results show that the
Coefficient value and P-value which are 0.003 and 0.888 or 88.8% respectively, the study
concludes that Earning Per Share has positive and statistically insignificant effect on the
Market Share Price of Nigeria listed firms because the parameter Earning Per Share has a Pvalue of 0.888 which is greater than 5% or 0.05 level of significance, this means that Earning
Per Share has positive and statistically insignificant effect on the Market Share Price of Nigeria
listed firms on a short run while Earning Per Share moderated by Audit Experience (EPS*AE),
has a coefficient of 0.014 and a p-value of 0.049, indicates that Earning Per Share moderated
by Audit Experience (EPS*AE), has a positive and statistically significant moderating effect
on Market Share Price (MSP) in the short-run period at the 5% level of significance.
165
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Conclusion and Recommendations
The findings of this study revealed that adhering to accounting regulations for the reporting of
a company's financial statements improves the decision usefulness of accounting information
by improving the quality of the information in the financial reports and also gives credibility
to the financial statement, encouraging equity share investors to rely on the financial reports
for investment decisions. Accounting information is generally agreed to be extremely
important, especially when filtered by audit experience (an audit quality factor).
The study recommends that all listed companies in Nigeria should prepare and disclose
additional information on the financial accounting indicators used for investment decisions
alongside with the mandatory financial statements. This is expected to provide clearer
information about the dividend per share and financial performances of companies to equity
share investors. Results of the study also showed that dividend is a strong predictor of
market price. Liberal dividend policy is recommended and it is suggested that companies pay
regular dividends. This policy will affect market price of share in positive direction.
References
Agrawal, S., M. (2011). Surprise higher dividends are higher earnings growth. Financial
Analyst journal, 6(2), 70–87.
Ahemen, E.A. (2011). The impact of dividend policy and earnings on stock prices of Nigeria
banks. A dissertation submitted to the Department of Banking & Finance, Faculty of
Business Administration, University of Nigeria, Nsukka.
Ali, T., N. & Lee-Sheok K., L. (2015). Corporate disclosure practices, institutional investors
and stock return volatility, Journal of Accounting Research (studies on accounting
information and the economics of the firm), 171-202.
Ball, A. J., & Brown, G. (2016). Value relevance of accounting information: An empirical
study of selected Indian firms. International Journal of Scientific and Research
Publications, 4(10), 1-6.
Beaver, G., McAnnally, F., V. & Stinson, Q.,S. (2018). Value relevance of accounting
information. Journal of Financial. Accounting. Management. 2(1), 16-26.
Bepari, L., K. (2013). The Value Relevance of Earnings in a transition economy: evidence
from Romanian stock market, Annales Universitis Apulensis series economica, 14 (1).
Bo, Y. (2009) International Financial Reporting Standards (IFRS) and Value Relevance of
Accounting information: Evidence from Bahrain and United Arab Emirates Stock
Markets, African Journal of Social Sciences 1(1), 101-114
Cheng, A. A. & Akani, D. (2017). IFRS adoption and Accounting Quality of Quoted
Manufacturing Firms in Nigeria: A Cross Sectional Study of Brewery and Cement
Manufacturing Firms, European Journal of Accounting, Auditing and Finance Research.
3(8), 77-85.
Collins, R., B Maydew, U., I. & Weisis, Y. (2019). The value relevance of intangibles noncurrent assets in different economic conditions. International Review of Business
Research Papers, 4 (2), 316-337.
166
MODERATING EFFECT OF AUDIT QUALITY ON VALUE RELEVANCE OF ACCOUNTING INFORMATION OF LISTED
FIRMS IN NIGERIA
SUCCESS, BLESSING EJURA, MUSA, SUCCESS JIBRIN & AGBO EMMAUEL
Easton, R., N. & Harrist, F. (2017). The relationship between financial accounting information
and market values of quoted firms in Nigeria. Global Journal of Contemporary Research
in Accounting, Auditing and Business Ethics (GJCRA), 1(1), 22 -30.
Edwards, F., B. & Bell, I. (1984). IFRS adoption and value relevance of financial statements
of Nigerian listed banks. International Journal of Finance and Accounting, 4(1), 1-34.
Hartono, O. O. (2000). The relationship between dividend policy and shareholder's wealth:
evidence from Pakistan. Economics and Finance Review 2(2), 55-66
Igbinosa, H., J. (2012). Corporate dividend decisions: evidence from Saudi Arabia. Journal of
Risk Finance, 11(1), 41-56.
Kallunki, J. (1996). Stock returns and earning announcements in Finland. Journal of European
Accounting Review, 5(2), 199-216.
Kari, E. (2012). The relationship between dividend payout and firm profitability: a study of
listed hotels and restaurant companies in Shri Lanka. International Journal of Scientific
and Research Publications, 3(6), 1-20.
Kehinde, D., E. (2012). How does dividend policy affect performance of the firm on Ghana
Stock Exchange? Investment Management and Financial Innovations, 4(2), 103-112.
Kocenda R., S. &Svejnar, G (2012). Value Relevance of Accounting Information of Listed
New economy Firms in Nigeria: An Empirical Investigation using Ohlson Model.
Kothari, A., A. (2001). Impact of dividend policy on shareholder’s wealth. International
Review of Management and Business Research, 4(1), 89-95.
Kpoki, G. (2011 The impact of dividend policy on firm value: a panel data analysis of
Romanian listed firms. Journal of Public Administration, Finance and Law, 4(2), 38-46.
Kwon, G., U. (2019). The Impact of Firms' Characteristics on market Value of Quoted
Manufacturing firms in Nigeria, Unpublished M.Sc. thesis, Ahmadu Bello University,
Zaria.
Lawal, W., A. (2012). Value relevance of accounting information and share prices in the
Nigerian banking and manufacturing sectors: a comparative analysis: International
Journal of Humanities and Social Science, 4(9), 1-19.
Liu, K. & Thomas, B. N. (2000). An investigation into the suitability of the International
Accounting Standards to the United Arab Emirates environment. International Business
Review, 15, 505–526
Marqardt, S. & Wicdman, K., L. (2004). Determinants of Equity Share Prices of the Listed
Banks in Amman Stock Exchange: Quantitative Approach. International Journal of
Business and Social Sciences.5 (1), 91- 104.
Mingyi U., (2000). Empirical evidences of the effect of European accounting differences on
the stock market valuation of earnings and book value. The European Accounting
Review, 11, 573–599
167
JOURNAL OF ACCOUNTING VOL. 11 (1) January - June 2022
Mirza, T. Malek,Y. N. & Abdul-Hamid, E.,O. (2012). Dividend Policy, Growth and the
Valuation of shares, Journal of Business, 34(2), 411-433.
Musa, S.J; Success, B.E and Nwaorgu, I. A (2015) System of payroll in the public sector
administration. Asian Development Policy Review, Vol. 3, issue 1.
Musa, S.J; Success, B.E and Nwaorgu, I. A (2014) the Public Procurement Reforms in Nigeria:
Implementation and Compliance Challenges. Journal of Asian Business Strategy. 4(12)
Musa, S.J; Ifurueze, S.M and Bernard, O.A (2013). Fiscal federalism and the issue of resource
control in Nigeria: The challenges, options & strategies, European Journal of economics,
finance and administrative sciences. Vol. 15.
Musa, S.J; Ifurueze, S.M and Success, B.E (2013). The impact of monetary and fiscal policies
on the Nigerian exchange rate between 1990 and 2009. Asian economic and financial
review, Vol. 3, issue 9.
Ohlson (1995). Ohlson Models for Equity Valuation: Evidence from the British
Telecommunications sector www.eefs.eu/conf/Warsaw/Paper/672.doc Retrieved on 14
June, 2021
Onuha, B. Y. (2016). Significance of Accounting Information on Corporate Values of firms
in Nigeria, research Journal in Organizational Psychology & Educational Studies, 1(2),
105-113
Pathirawasam O., J. (2010). IAS/IFRS and financial reporting quality: Lessons from the
European experience. China Journal of Accounting Research, 6(5), 247-263.
Tahat , T., U.& Alhadab, D.,J.( 2017). The impact of IFRS adoption on the quality of
consolidated financial reporting. Procedia - Social and Behavioral Sciences 109(1), 976
– 982.
Takacs, D.,D. (2012). Significance of accounting information and corporate values of firms
in Nigeria. Research Journal in Organisational Psychology and Educational Studies.
2012;1(2), 105-133.
Takiah, R., R. (2014). Accounting information in the petroleum marketing industry. Tropicsal
Focus. 2005;6(3), 173–193.
Tamrin,H., Mus,K., Sudirman,T & Arfah, S. (2017). Ownership structure and value of the
largest European firms: The importance of owner identity. Strategic Management
Journal. ;21(6), 689-705
.Tharmila, E. E. (2013). How financial statements lost their relevance. Journal of Accounting
Research.;37(2)319-353.
Thompson, U. & Adah, M. (2012). The association between accounting information and stock
prices. EFI Stockholm School of Economics, Ph.D. dissertation.
Titilola, Y. (2014). Biases and lags in book value and their effects on the ability of the bookto-market ratio to predict book return on equity. Journal of Accounting Research;
38(1)127-148.
168
MODERATING EFFECT OF AUDIT QUALITY ON VALUE RELEVANCE OF ACCOUNTING INFORMATION OF LISTED
FIRMS IN NIGERIA
SUCCESS, BLESSING EJURA, MUSA, SUCCESS JIBRIN & AGBO EMMAUEL
Titman, I. & Trueman,G. (2016). The relevance of the value relevance literature for financial
accounting standard setting. Journal of Accounting and Economics.; 31(2), 3-75.
Tornyeva, O. & Wereko,U. (2012). The value relevance of financial reporting in Norway
1965-2004. Scandinavian Journal of Management.; 27(5), 113-128.
Tukur, K. & Bilikisu, L. (2014). Is the value relevance of accounting information consistently
underestimated? The Open Business Journal.; 3(1), 1-19.
Vichitsarawong, K., L.(2011). Factors Affecting the Value Relevance of Accounting
Information. international Journal of Academic Research in Accounting, Finance and
Management sciences, 2(2), 76-84.
Vilitha, Z., J. & Nimalathasan, W., E. (2014). Value relevance of accounting information in
the United Arab Emirates. International Journal of Economics and Financial
Issues.1(2), 33-45
Wang, E. Yu, U,. Zhang, E., & Zhao, R.R. (2012). Value relevance of published financial
statements with special emphasis on impact of cash flow reporting. International
Research Journal of Finance and Economics.; 17(1), 1450-2887.
Whelan, X,., F. & McNamara, I., I. (2004) Value Relevance of Financial Statement
Information: with Special Reference to the listed Companies in Colombo stock
exchange, University of kelaniya, Srilanka.
169