TABLE OF
CONTENTS
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
1.2 Statement of
the Problem
1.3 Objectives of the Study
1.4
Research Questions
1.5
Hypotheses of the Study
1.6 Scope of the Study
1.7
Limitations of the Study
1.8 Significance
of the Study
1.9 Operational Definition of Terms
CHAPTER TWO
REVIEW OF RELATED
LITERATURE
2.1 Conceptual
Framework
2.1.1 Financial Statement and their Information Content for Management Decision-Making
2.1.2 Importance
of Accounting Information Systems
2.1.3 Accounting Information and Bank Lending
2.1.4
Financial Statements Usage
2.1.5 Moral Hazard
2.2 Theoretical
Review
2.2.1
Single Person Decision Theory
2.2.2
Information Theory
2.2.2 Stakeholder Theory
2.2.3 Signaling Theory
2.2.4 Efficient Market Hypothesis
2.3 Empirical
Review
2.3.1 Summary
and Gap in Empirical Review
CHAPTER
THREE
METHODOLOGY
3.1 Research Design
3.2 Population of the Study
3.3 Sample and Sampling Procedure
3.4 Method
of Data Analysis
3.5 Method of Data Collection
3.6
Validity and Reliability of the Instrument
3.7 Sources of Data
3.8 Method of Data Analysis
CHAPTER
FOUR
DATA
PRESENTATION AND ANALYSIS
4.1 Data
Presentation
4.2 Data
Analysis
4.3 Test for Hypothesis
CHAPTER
FIVE
SUMMARY,
CONCLUSION, AND RECOMMENDATIONS
5.1 Summary
of Findings
5.2 Conclusion
5.3 Recommendations
REFERENCES
APPENDIX
RESEARCH
QUESTIONNAIRE
CHAPTER ONE
INTRODUCTION
1.1 Background
to the Study
Accounting information by
definition is about provision of financial information needed to take decision
particularly in respect of acquisition and use of scarce corporate resources as
well as the elimination of wastes in the wealth creation chain to maximize
profit. Agbaje, Busari and Adeoye (2014), stated that information as
representing data or knowledge evaluated for specific use. He sees accounting
information as "data organized for the special purpose of decision
making" Oluwolaju and Ogunsan (2016), "information consists of data
that have been retrieved, processed or otherwise used for informative or
inference purpose, argument or as a basis for forecasting or decision
making".
Agbaje, Busari and Adeoye
(2014), Opined that information is not synonymous with data. She stated that
information is to data what a finished product is to the raw materials used in
producing it. In other words data is information in its raw unprepared forms.
She further added that information has become for management, a very valuable
commodity. This is because experts in business management have come to agree
that in today's business environment, where competition has become extremely
keen, available and effective information can indeed become the critical factor
which enables business organization to have that vital edge over its
competitors. Agunbiade and Adeboye (2015), further sees information as "a
fact, datum, observation, perception or any other thing that adds to knowledge.
Information requirements tend to differ with the organizational level. Since
the nature of decision making varies as one move up the organizational pyramid,
managers rely on detailed information that is contained in reports. These
report usually specified in financial terms often originate from the accounting
system.
In mobilizing savings and
allocating scarce resources between competing ends, commercial banks and other
financial institutions occupy a very important position in the Nigerian
economy: In contemporary Nigeria, banking is one industry which has witnessed
unprecedented upsurge in activities as a result of reforms in the economy by
the federal government. At the beginning of the past decade, there were about
89 banks with 3,389 branches located in both rural and urban areas nationwide.
These banks were characterized by structural and operational weaknesses such
as: Low capital base; Dominance of a few banks; Insolvency and illiquidity;
Over dependency on public sector deposits and foreign exchange trading; Weak
corporate governance; A system with low depositor confidence; Banks that could
not effectively support the real sector of the company at 24% of GDP, compared
to Africa average of 78% and 272% for developed countries (Oluwolaju & Ogunsan,
2016).
In recent times, strong
emphasis on the need for information to be transparent has provoked thoughts to
further understand the creditors’ use of accounting information. Yap (2017) in
his study on the need for cash flow statements concluded that accounting
information take a central role in a creditor's decision to lend or not.
An entity's accounting information (AI) act as
important tools that provide vital information that helps its users in making
different business decisions. The usefulness of the information derived from
these financial statements by its user determines whether the accounting
information is of good quality or not. It is for this reason that has given
rise to early studies on the usefulness of information from financial
statements.
Getahun (2014) noted that
lending is probably one of the most important service provided by commercial
banks, advances are the most important assets held by banks, and bank lending
provides the bulk of bank income. Over the years, commercial banks loan to the
private sector in Nigeria have increased significant. Although, the Structural
Adjustment Program led to stiff competition in the banking industry, it equally
made new opportunities manifest in all sectors of the Nigerian economy. In
order to maximize available lending opportunities in the economy, commercial
banks require adequate accounting information to evaluate the probability of
loan repayment, estimate the potential loss if the borrower does not pay, and
decide on, the terms of the financing if a loan is to be made (Konter, 2009).
The information often required are those that deal with solvency, liquidity and
profitability of the firm seeking credit. Gohen (2008) stated that, the
evaluation procedures involve three related steps: Obtaining information on the
applicant; Analyze this information to determine the applicant's credit-worthiness
and making the credit decision.
Hence, this study is
specifically aimed at evaluating the effect of this accounting information on
the lending decisions of diamond bank CAS branch, to verify how effective
accounting information has helped in the lending process of the bank and also
the relevance and predictive power of accounting ratios in taking lending
decision in diamond bank CAS. This is based on the assumption that financial
statements are provided or made available by the credit seeker.
1.2 Statement of the Problem
Commercial banks are the most important savings, mobilization
and financial resource allocation institutions. Consequently, these roles make
them an important phenomenon in economic growth and development of a country.
In performing these roles, it must be realized that banks have the potential,
scope and prospects for mobilizing financial resources and allocating them to
productive investments (Ruggeri,
Leotta & Rizza, 2018). Currently the
banking business is so sensitive because more of their income (revenue) are
been generated from credit (loan) given to their customers (Jeoitta, 2017).
This credit creation process exposes the banks to high credit risk which leads
to loss; as such credit management becomes the core of the entire operations of
the banking industry. However, the numerous and varied risks in lending .system
form many factors that can lead to the nonpayment of obligations when they are
due (Edward, 2016). In fact, the prompt repayment of loan and interest thereon
determine the “profitability of a bank. Many problems are encountered in
commercial banks' lending, some of these which this study is concerned with
are: because of the high rate at which loans go bad and also due to ineffective
regulations guiding against loan defaulters in Nigeria.
Severally, lending officers complain bitterly about the rate
at which loans go bad. Some bank chief executives do give out loans to their
clients and relatives on the ground of trust, which if it goes bad boomerangs
on the bank and its operations (Daniela, Antonio & Carmela, 2018). The relationship between accounting information and bank
lending decisions form the fact that financial statements are among the most
important sources of credit information available to bank lending officers.
Hence, the main thrust of this study is to empirically investigate the effect
of accounting information on the lending decisions of banks in Nigeria and how
this has helped to avert/curb the risks associated with lending, taking Diamond
bank CAS branch as a study.
1.3 Objectives of the Study
The broad objective of the study was to investigate the
effect of accounting information on the lending decisions of Banks, with
special reference to Diamond Bank CAS branch. The following constitutes the
specific objectives of the study, they are as follows;
i.
To determine effect of accounting
information about assets on loan decision at Diamond
Bank CAS branch.
ii.
To find out the effect of accounting
information about Liquidity position on the lending decision at Diamond Bank CAS branch.
iii.
To verify the effect of accounting
information about profitability on the lending decision at Diamond Bank CAS branch.
1.4 Research Questions
The following research questions will be addressed in the
course of this study, they are as follows;
i.
What is the effect of accounting
information about assets on the lending decision at Diamond Bank CAS branch?
ii.
What is the effect of
accounting information about liquidity on the lending decision
at Diamond Bank CAS branch?
iii.
What is the effect of
accounting information about
profitability on the lending decision at Diamond Bank CAS branch?
1.5 Hypotheses of the Study
The main arguments of the study were synthesized into the
following hypotheses and they are as follows;
Hypothesis
One
H0: Accounting information about assets has no
effect on the lending decision at Diamond
Bank CAS branch.
Hi: Accounting information about assets has
significant effect on lending decision at Diamond
Bank CAS branch.
Hypothesis
Two
H0: Accounting Information on liquidity has
no effect on the lending decision
at Diamond Bank CAS branch.
Hi: Accounting Information on liquidity has
significant effect on the lending
decision at Diamond Bank CAS branch.
Hypothesis Three
H0: Accounting Information about profitability has
no effect on the lending decision at Diamond
Bank CAS branch.
H1: Accounting Information about profitability has
significant effect on the lending decision at Diamond
Bank CAS branch.
1.6 Scope of the Study
The scope of the study is strictly on accounting information
and lending decision in Diamond Bank CAS branch Abakaliki, Ebonyi State. The
choice of diamond bank is because it has remain the only consistent commercial
bank operating within the confined of the Ebonyi State University, as such it
is believed that it would have carried out several loan and or lending
activities. Hence, the criteria and conditions to which the lending activities
were done is what this study seeks to analyze and justify.
1.7 Limitations of the Study
This study is limited to the fact that it tends to focus it
study on just a branch of Diamond Bank which is one of numerous type of
commercial bank in operation in the Ebonyi state, Nigeria. Another major
limitation is that associated with sourcing of information with respect to data
for this study from the bank under consideration, tends to pose a problem as
they feel reluctant to release information. Hence, it takes time to convince
them that the documents are sourced for academic purpose only.
1.8 Significance of the Study
Banks are one of the contributors of a country's growth through
lending money to investors and the business community. Lending also has
important function for commercial banks. Its contribution to asset and income
portfolio is very high in banking industry. Therefore, accounting information
will help enhance the lending decisions of banks.
As such, the study will help management of banks to make them
aware and to give due attention about the factors that affect lending. The
findings of this study will also be of importance to understand the behavior
and tendencies of commercial banks in distributing loans and credits to the
public.
Also, the study will have great contribution to the existing
knowledge in
the area of accounting information and bank lending decisions in
the Nigerian context. This in turn will contribute to the well-being of the
financial sector of the economy and the society as a whole. Hence, other
beneficiaries from this study will be commercial banks, regulatory bodies, the
academic staff of
the country
and the society as a whole in the country. Finally, this study
will also be used as a basis for any future study that will need to be explored
on some other concerns which was not covered in this study.
1.9 Operational Definition of Terms
The following terms used in this study are defined for purpose
of clarification and they are as follows;
Financial Institution: A financial institution is an establishment that conducts
financial transactions such as investments, loans and deposits. Almost everyone
deals with financial institutions on a regular basis. Everything from
depositing money to taking out loans and exchanging currencies must be done
through financial institutions (Olowolaju & Ogunsan, 2016).
Insolvency: Insolvency is defined as a financial condition or state
experienced when: A legal entity or a person's liabilities (debts) exceeds
their assets, commonly referred to as 'balance-sheet' insolvency (Minh, 2015).
Illiquidity: Illiquid refers to the state of a security or other asset
that cannot easily be sold or exchanged for cash without a substantial loss in
value. Illiquid assets may also be hard to sell quickly because of a lack of
ready
and willing
investors and speculators to purchase the asset (Shahabi, 2015).
Recapitalization: Recapitalization is a financial strategy used by a company
to change its financial structure in order to weather through a rough financial
situation or to help improve the company's financial stability (Olowolaju &
Ogunsan, 2016).
Consolidation: Consolidation or amalgamation is the merger and acquisition
of many smaller companies into a few much larger ones. In the context of financial
accounting, consolidation refers to the aggregation of financial statements of
a group company as consolidated financial statements (Musyoka, 2016).
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