THE STANDARD OF CORPORATE FINANCIAL DISCLOSURE IN THE NIGERIAN BANKING INDUSTRY
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THE STANDARD OF CORPORATE FINANCIAL DISCLOSURE IN THE NIGERIAN BANKING INDUSTRY
ABSTRACT
The research took an interest in studying an empirical analysis on the quality of corporate financial disclosures in the Nigeria banking sector as a result of the study on corporate reports in the banking industry.
The first chapter includes the introduction, problem statement, purpose of the investigation, hypothesis statement, scope of the study, overview of research methods, limitations of the study, and importance of the study.
The second chapter addresse annual report and corporation disclosure requirements for financial information. It entails a review of the pertinent literature.
The third chapter covered research methodology, research design, population and sample size, sample and sampling methodologies, data sources, research instrument description, hypotheses, and data analysis.
The fourth chapter dealt with data presentation, analysis, and interpretation.With the use of data analysis, the four hypotheses were analysed and tested.The fifth chapter offers a synopsis of the research findings, conclusions, and suggestions.
INTRODUCTION TO CHAPTER ONE
1.1 BACKGROUND OF THE STUDY
Any business firm, whether for profit or not, has a set of objectives. It gathers resources from diverse sources in order to meet the deadline at the end of the time. This is required to determine how well these resources were used.
When there is a split of ownership and management, the owners will want to know how these resources were spent wisely. This is the accounting stewardship function. This role is carried out by management presenting an activity report to the owners.
Financial statements are commonly used to transmit such reports. Accounting Statement. Financial statements must include the following information, according to Standard 2 (Information to be reported in Financial Statements) and Section 334 (2) of the Companies and Allied Matters Acts:
Profit and loss,
Account policies statement
A balance sheet is a financial statement that shows how much money you have.
Accounting notes,
Auditors have reported that,
Directors submit their reports,
Statement of value and
Financial summary for the previous five years.
The financial statements must accurately reflect the organization’s underlying economic activity. It is conceivable for an organization’s activities to be interrupted. When this happens, the trustworthiness of the statement causes doubt and ambiguity in the eyes of the statement’s various users.
As a result, there is an information asymmetry (i.e. a lack of consistency) between information available to management and information available to the investing public.
When it comes to financial accounts, there are two forms of information asymmetry.
1. Financial statements may not accurately reflect management’s understanding of underlying activities.
2. The investing public’s comprehension or perception of financial statement information may differ from what has been documented.
Financial statements essentially provide a case for reporting entities in their pursuit of intangible funds. A reporting unit is seen as risky when it raises uncertainty in the minds of investors. As a result, investors expect compensation for a perceived level of risk. As a result, the cost of capital for such an economic unit rises. The “Capital Need Hypothesis” describes this.
According to Choi (1973), one of the primary motivations for disclosure is to raise capital at the lowest possible cost. According to Cooke (1991), “a number of explanations can be advanced for this hypothesis.” He claims that in order to raise capital from the market, corporations must enhance their voluntary disclosure as well as their compliance with obligatory disclosure.
The extent of transparency of such businesses is determined by disclosures in financial statements. Prior responses from overseas investors have been attributed to a lack of openness not only by the government, but also by the private economic sectors.
Ineffective regulatory agencies include the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission (SEC). This impression has been heightened, particularly in the banking business,
but the value of distress has increased, particularly in cases where such banks have been granted a clean bill of health by auditors. This results into an economic climate marked by a lack of confidence.
Because lack of trust and unfaithfulness are factors that jeopardise investment, this study seeks to assess the quality of disclosure of annual reports in the banking industry utilising historical models such as Buzby (1972), Lerf (1961), Snighvi and Desai (1971), and Cooke (1993). The goal is to study chosen banks’ financial statements and score them using these models.
1.2 STATEMENT OF THE PROBLEM
Financial statements are primarily used to convey managerial activity. When these financial statements raise uncertainties in the eyes of shareholders and potential investors, the firm’s continuing survival is jeopardised since it lacks critical finances.
The presence of information asymmetry, which causes investor uncertainty, can be reduced through properly crafted corporate reports that capture as much as possible of a firm’s underlying economic operations.
The purpose of this research is to use the develop model to solve the following problems:
What is the quality of corporate disclosure in the banking business according to the above-mentioned model?
(a) What is the recognised gap in corporate report quality in the banking industry?
(b) Are there statistical disparities in the quality of corporate reports produced by first and second generation banks?
1.3 OBJECTIVES OF THE STUDY
In any economy, the banking business is strategic. A healthy banking sector initiates the critical trade of every contemporary economy. Banks, like every other organisation, publish an annual report on their operations. The trustworthiness of these reports is critical to the smooth operation of the financial industry and the economy.
When financial statements published by banks lack trust, as demonstrated by the recent distress crisis in Nigeria’s banking system, they have the detrimental effect of inhibiting investment.
Any endeavour targeted at strengthening corporate reporting operations in the banking industry will have the effect of increasing investor trust and economic activity. The primary goal of this study is to assess the quality of corporate reports in the banking industry. Other goals will include:
(a) to identify the issue in the current company reports
(b) to detect the quality gap in corporate reports in the banking industry.
(c) to determine whether there are any statistical differences between first and second generation banks.
1.4 SCOPE OF THE STUDY
This research looks at corporate reports in the banking business. Corporate reports of interest in this study will be those specified in CAMA 2004 Section 334(2).
The financial statements required under paragraph (1) of this section must include the following, subject to subsection (3) of this section:
(a) A statement of accounting policies;
(b) The balance sheet as at the end of the fiscal year;
(c) A profit and loss account for the year, or, if the company does not make a profit, an income and expeditor account.
(d) Takes note of the account,
f) The auditors’ report,
(f) The report of the director,
(g) A statement of the fund’s source and application;
(h) A value added statement for the fiscal year,
(i) A five-year financial summary, as well as
(j) The group financial statements in the case of a holding firm.
The research is confined to Nigeria and banks listed on the Nigerian stock exchange. These banks are divided into two generations: First Bank and United Bank for Africa (UBA), and two generations: Guaranty Trust Bank and Zenith Bank. This study was conducted between 1999 and 2004, prior to the merger.
1.5 SIGNIFICANCE OF THE STUDY
This research endeavour, along with any answers or conclusions that may emerge, will be valuable to some specific groups of people or otherwise for varied reasons in accordance with their varying demands.
(i) The Industry in General and Banks: It will assist financial managers in banks in focusing their attention on some contentious issues while developing or amending their disclosure policy.
(ii) Investors and Interested Parties: Financial reports are useful to investors when making investment decisions. This study will serve as a guide for investors to look for in order to identify banks that have sufficiently disclosed all critical and necessary information. This will help them make sound decisions.
1.6 THE HYPOTHESES’ STATEMENT
The hypotheses are provided in their alternative form for the sake of clarity. They are as follows:
H0: The rate of return and earnings margin leverage are not important elements in bank financial reports.
H1: The rate of return, earnings margin, and number of shareholders are all crucial variables in bank disclosure.
Ho: There is no association between a corporation’s financial leverage and its earnings per share (EPS).
H1: There is a link between a company’s financial leverage and its profits per share (EPS).
Ho: There is no association between a company’s financial leverage and its dividend per share (DPS).
Ho: There is a link between a company’s financial leverage and its dividend per share (DPS).
DEFINITION OF TERMS IN BUSINESS
CBN stands for Central Bank of Nigeria.
N.S.E. stands for Nigerian Stock Exchange.
S.A.S. stands for Statement of Accounting Standard.
The Companies and Allied Matters Act (C.A.M.A.)
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