THE EFFECT OF CORPORATE GOVERNANCE MECHANISM ON THE QUALITY OF EARNINGS AMONG NIGERIAN DEPOSIT MONEY BANKS
OZIWELE JAMES ISAAC
Being Seminar Paper presented to the Department of Accounting, Ahmadu Bello University, Zaria in partial fulfillment of the requirements for the award of Ph.D in Accounting and Finance
This paper examines whether corporate governance mechanism variable – Board Size, Board Composition, Ownership Concentration, Institutional Shareholders, Dividend Payment, Firm Size have significant impact on the quality of earnings of Nigerian deposit money banks as measured by modified (McNicols and Wilson, 1998), (Gred and Clarke, 2004) and (Chang, 2008) model of specific industry discretionary accruals as against (Dichow and Dichev, 2002), though widely accepted but is hardly industry specific. Secondary data are extracted from the annual reports of 15 banks that form the sample of the study within the period between 2006-2011. Multiple regression was used as a tool for analysis. The result reveals that corporate governance mechanisms affects earnings quality of Nigerian money deposits banks. All the corporate governance examined are positive except for the control variable firm size signifying that none of the explanatory variables is inversely related to quality of earnings amongst Nigerian money deposits banks. It is therefore recommended that amongst others that shareholders of Nigerian DMBs to ensure the inclusion of about 50% outside directors in the board and ensuring a good quantum of both institutional and block holders in the equity holdings of the banks. Keywords: Earnings, Discretionary, accruals, manipulation, monitoring, quality. Introduction
The rising number of corporate failures, scandals and crises such as Enron, WorldCom, Global Crossing, HIH Insurance, Ansett, Pan Pharmaceuticals, Lever Brothers, Cadbury, and Afri bank has precipitated the growing interest on the governance structures of firms by academics, practitioners, the investment community, regulatory agencies, policy makers, national and multilateral government bodies and host of other stakeholders (Tsegba, 2011). Corporate governance is about building credibility, ensuring transparency and accountability as well as maintaining an effective channel of information disclosure that would foster good corporate performance (Matama, 2008). Income smoothing and earnings quality popularly called earnings management can be regarded as two of the attractive and challenging issues in studies related to accounting because investors pay attention to amount of income as an important factor in decision making. It has long been recognized that financial statements play an important role in assessing managers’ performance by the board of directors outside investors and external regulators. It is therefore, not unlikely that managers will manipulate financial reports in order to produce a good image of themselves and the firms that they manage (Shehu and Abubakar, 2012). There are a lot of qualitative empirical studies exist on the relationship between corporate governance mechanisms and earnings quality. However, quantitative studies supporting the existence of a link between corporate governance mechanisms and earnings quality are relatively scanty and inconclusive. Besides the scanty nature of quantitative literature, most of the existing ones are more concerned about the overall quality of corporate governance mechanisms rather than particular features or practices of such governance. In addition, most of the studies are cross-sectional in nature. There is none of these studies that examine either the overall or particular features of corporate governance mechanisms and earnings quality of the banking industry in isolation. The peculiar and sensitive nature of the banking industry as well as the reforms it has continued to undergo indicates the need for special attention. This study attempts to address that omission by...
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