ABSTRACT
The study investigates the relationship between firm performance (proxied by profitability and liquidity) and corporate disclosure in Nigerian listed firms. The data used in the study were obtained from the annual reports of 60 companies listed on the Nigerian Stock Exchange from the various sectors of the country’s economy. The study covers the post International Financial Reporting Standards (IFRSs) adoption period of three years (2012 – 2014). Corporate disclosure (dependent variable) was disaggregated into mandatory, voluntary and total disclosure. The data were analysed using both descriptive statistics and the Ordinary Least Squares (OLS) regression. Findings from the descriptive statistics reveal that, contrary to prior findings, there is a steady improvement in mandatory disclosure by Nigerian companies since the country’s adoption of IFRSs. However, voluntary disclosure still remains relatively low. The regression results show no significant relationship between profitability and the three components of corporate disclosure. But liquidity shows a significant positive relationship with mandatory and total disclosure. The combined effect of profitability and liquidity shows no significant relationship with any of the components of corporate disclosure. The findings suggest that improved performance of companies does not necessarily induce them to disclosure more information as widely reported by previous researchers. These findings notwithstanding, the decision to disclose sufficiently and timely must be accorded priority attention by companies, considering the critical role of adequate and timely information disclosure in the global marketplace.
TABLE OF CONTENTS
TITLE PAGE - - - - - - - ii
DECLARATION - - - - - - - - iii
CERTIFICATION - - - - - - - - iv
DEDICATION - - - - - - - - v
ACKNOWLEDGEMENTS - - - - - - vi
CHAPTER
ONE
INTRODUCTION
1.1 Background
to the Study
1.2 Statement
of Problem
1.3 Research
Questions
1.4 Objectives
of the Study
1.6 Scope of the Study
1.7 Significance of the Study
1.8 Limitations of the Study
1.9 Operational Definition of Key Terms
CHAPTER
TWO
LITERATURE
REVIEW
2.1 Conceptual Review
2.1.1 Overview of Corporate Disclosure
2.1.2 Corporate
Disclosure Concept
2.1.3 The
Role of Corporate Disclosure
2.1.4 Types of Corporate Disclosure
2.1.5 Voluntary Disclosure and Financial
Performance
2.1.6 Corporate Disclosures and Financial
Information
2.1.7 Corporate Disclosures and Strategic
Information
2.1.8 Corporate Boards and the need for
Disclosures
2.1.9 Forward-Looking Corporate Information
Disclosure
2.1.10 Corporate Disclosure and Related Risks
2.1.11 Types of Corporate Disclosure Related Risks
2.1.12 Other Risk Related Issues in Corporate Disclosure
2.1.13 Improving Usefulness of Risk Disclosure for Investment Decisions
2.1.14 Corporate
Performance
2.1.15 Measuring Corporate Stock Performance with the
Market Price of Shares
2.1.16 Conceptual Framework
of Corporate Disclosures and Stock Performance
2.2 Theoretical Framework
2.2.1 Political-Economy Theory
2.2.2 Legitimacy Theory
2.2.3 Accountability Theory
2.2.4 Stakeholder Theory
2.2.5 Financial Intermediation Theory
2.2.6 Signaling Theory
2.3 Empirical
Review
2.3.1 Profitability-Related
Disclosures and Stock Performance
2.3.2 Governance-Related
Disclosures and Stock Performance
2.3.3 Dividend-Related
Disclosures and Stock Performance
2.3.4 Social
Responsibility Related Disclosures and Stock Performance
2.4 Summary
of Literature Review
2.5 Literature and
Research Gap
CHAPTER
THREE
RESEARCH
METHODOLOGY
3.1 Research
Design
3.2 Population
of the Study
3.3 Sample
Size
3.4 Sampling
Technique
3.5 Method
of Data Collection
3.6 Technique
for Data Analysis
3.7 Model
Specification
3.9 Definition
of Variables
CHAPTER
FOUR
RESULTS
AND DISCUSSION
4.1
Presentation and Analysis of Data
4.1.1 Presentation
of Data
4.1.2 Descriptive
Statistics
4.2 Diagnostic
Tests
4.2.1 Stationarity
Test Result
4.2.2 Test
for Correlation
4.2.3 Test
for Normality
4.3 Test
of Hypotheses
4.3.1 Test
of Hypothesis One: (Testing the Influence of PRFD on Stock Performance)
4.3.2 Test
of Hypothesis Two: (Testing the Influence of GVRD on Stock Performance)
4.3.3 Test
of Hypothesis Three: (Testing the Influence of DVRD on Stock Performance)
4.3.4 Test
of Hypothesis Four: (Testing the Influence of CSRD on Stock Performance)
4.4 Discussion
of Findings
4.4.1 Influence
of Profit Related Disclosures on Stock Performance of Publicly Traded Firms
4.4.2 Influence
of Governance Related Disclosures on Stock Performance of Publicly Traded Firms
4.4.3 Influence
of Dividend Related Disclosures on Stock Performance of Publicly Traded Firms
4.4.4 Influence
of CSR Related Disclosures on Stock Performance of Publicly Traded
CHAPTER
FIVE
SUMMARY
OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary
of Findings
5.2 Conclusion
5.3 Recommendations
5.4 Contribution to Knowledge
5.5 Suggested
Areas for Further Study
References
APPENDIX
1: Summary of Stock Price for Selected
Public Firms
APPENDIX
2: Summary of Profit Related Disclosures for
Selected Public Firms
APPENDIX
3: Summary of Profit Related Disclosures for
Selected Public Firms
APPENDIX
4: Summary of Dividend Related Disclosures
for Selected Public Firms
APPENDIX
5: Summary of CSR Related Disclosures for
Selected Public Firms
LIST OF TABLES
Table 4.2: Descriptive Statistics of Data Collected on all Variables
Table 4.3 Summary of Unit Root Test Result (Data Corrected at Level)
Table 4.4 Correlation Matrix
Table 4.6 Regression Result from Model
Table 4.7 Regression Result from Model
Table 4.8 Regression Result from Model
Table 4.10 Regression Result from Model
CHAPTER ONE
INTRODUCTION
1.1 Background
to the Study
The
stock market works by the nature of information that flows through it on a
daily basis, be it information about stocks, firms’ performance, firms’
decisions, firms’ financial disclosures and non-financial disclosures,
regulatory pronouncements as well as observations and predictions from
financial analysts. These informations help investors and other stock market
players make decisions relating to buying/selling/holding of stocks and
securities with the ultimate aim of maximizing the returns on their investments
(Li, Lin & Zhang, 2018). Generally, stock
market return is simply the aggregate returns/yields obtained by investors over
a given trading period. It is the value “in stock price” earned by investors as
difference between what was spent to acquire a security and what would be
received as proceed if such security should be sold today. According to Leuz and Wysocki (2016), an effective stock market
is one where stock prices are actively driven by new information, thereby
ensuring that firms’ stock prices are accurately valued at every point in time.
It is important to highlight the fact that the greatest amount of information
upon which stock market activities are driven are financial and non-financial
disclosures by publicly traded firms (Qizam &
Fong, 2019). Disclosures relating to financial performance and/or
profitability, financial position and/or net worth, cash flow and/or fund
application, corporate governance and/or leadership, and corporate social
responsibilities and/or environmental involvement among others have been
emphasized in a number of studies as key areas of disclosures that influence
the buy/sell/hold decision of investors and other stock market players.
Now, having
highlighted the importance of information in stock market, the absence of
information causes a great disconnection between investors and preparers of
financial reports- this is referred to information asymmetry. When the problem
of information asymmetry is not addressed speedily, it culminates into a more
complex problem known as the agency conflict. According to Sahore and Verma
(2017), corporate disclosures have played a very key role through its attempt
to address the problems of information asymmetry and agency conflict. Corporate
disclosure is aimed at ensuring that more information is made available in
order to ensure lesser risk and greater protection for investors and other
stock market players. The concept of corporate disclosure in this context
covers all forms of statutory and voluntary financial reporting disclosures
made by firms (Tian & Chan, 2019). Studies like Walter (2016), Velashani
and Mehdi (2018) among others have argued that corporate disclosures are
critical for the effective working of an efficient stock market. The market
forces of demand and supply usually exerts pressure on managers and preparers
of corporate reports, such that are compelled to disclose only relevant and
accurate information that will in turn, drive reasonable prices for their
stocks, while the hope for higher returns by investors will be leveraged by
these firms in order to get capital from the market (Lim, 2016).
Given
that corporate disclosure is the totality of what is reported, how it is
reported and when it is reported, as well as the fact that corporate
disclosures drive stock market activities in an emerging economy, it is safe to
agree with the argument of Nwangi and Nwiti (2015) that, the greater a firm’s
level of disclosures about its true state of affairs, the greater its chances
of mitigating obligations to existing and potential investors, hence, driving
higher stock returns to investors, as well as higher performance for the stock
market as a whole. Qizam (2021) argued that disclosed financial information is
key to timely and accurate investment decision by investors, as they are able
to efficiently allocate their scarce resources, as well as assess various
investment options. Firms in Nigeria are statutorily required by regulators to
follow the national disclosure standards (i.e. Nigerian GAAP) as well as the
IFRS reporting template in order to safeguard the interest of the investing
public. However, the demand for greater disclosures from the investing public
has driven firms to adopt “voluntary disclosure” in a bid to ensure increased
transparency and decreased information asymmetry and agency conflict. According
to Guillaume (2017), this step by firms is aimed to reduce the agency cost
which is a product of information asymmetry a problem whereby investors
(existing and potential) undervalue a firm’s stock as a result of perceived
information inadequacy.
1.2 Statement
of Problem
Corporate
disclosures play a very vital role in defining stock market behaviours and the
interaction between market players. The totality of what is disclosed by firms
(i.e. reported information), how it is disclosed (i.e. information quality) and
when it is disclosed (i.e. timeliness) all work together in a manner that
influence the buy/sell/hold decision of investors and other players in the
market. However, the increase in investors’ demand for more information in recent
years have revealed the existence of a large information gap between preparers
and users of corporate reports- owing to the problem of information asymmetry,
at least at its very simplest form. This problem is simply the disconnection
between what is disclosed by firms (i.e. available information) and what is
required by investors for efficient participation in the stock market.
From the
perspective of the investors, information is key to making efficient investment
decisions that will drive the best returns, hence, their demand for greater
disclosure; while from the perspective of the managers, what is disclosed is
key to attracting investors to the firm’s stock, thereby driving up their stock
prices as well as their chances of raising greater capital from the market. At
the point where these two perspectives meets raises the research question about
how corporate disclosures influence stock market returns, and what relationship
exists between corporate disclosures and stock price performance. Empirically speaking,
why investors expect a wide range of corporate disclosures in relation to their
stock market-related decisions remains a mystery despite the attempts by
existing literatures to explain this so far.
In
the case of emerging economies like Nigeria, a number of studies have been
conducted in relation to corporate disclosures by firms and how these
disclosures influence overall stock market returns and the performance of
individual firms’ stock prices. However, the existing literatures have shown
that most of the existing studies have focused only on “voluntary disclosures”,
while others have only provided evidence attempting to connect corporate
disclosures to firms’ performance. Hence, the literature for emerging economies
like Nigeria has not adequately addressed the relationship between corporate
disclosures and stock market returns especially in recent years. For this
aforementioned observations, this study is therefore set to investigate how
corporate disclosures by publicly traded firms in Nigeria influences overall
stock price as well as the performance of individual firms’ stocks.
1.3 Research
Questions
For the purpose of
this study, the following research questions are addressed in line with the
objectives of the study.
1. To what
extent do profitability-related disclosures influence stock performance?
2. What
influence do governance-related disclosures have on stock performance of quoted
firms in Nigeria?
3. To what
extent do dividend-related disclosures affect stock performance of quoted firms
in Nigeria?
4. What is
the effect do social responsibility related disclosures have on stock
performance of quoted firms in Nigeria
1.4 Objectives
of the Study
The
aim of this study is to investigate how corporate disclosures influence overall
stock performance, but the specific objectives include the following;
1. To
examine the influence of profitability-related disclosures on stock performance
of quoted firms in Nigeria.
2. To
determine the influence governance-related disclosures influence stock
performance of quoted firms in Nigeria.
3. To
examine effectof dividend-related disclosures on stock performance of quoted
firms in Nigeria.
4. To
examine the effect of social responsibility related disclosures on stock
performance of quoted firms in Nigeria.
1.5 Research
Hypotheses
For the purpose of
this study, the following research hypotheses have been formulated in line with
the objectives of the study.
HO1: Profitability-related disclosures have no
significant influence on stock performance of quoted firms in Nigeria
HO2: Governance-related disclosures do
not significantly influence stock performance of quoted firms in Nigeria
HO3: Dividend-related disclosures have
no significant influence on stock performance of quoted firms in Nigeria
HO4: Social responsibility related disclosures
have no significant influence on stock performance of quoted firms in Nigeria.
1.6 Scope
of the Study
This
study focused on investigate the how corporate disclosures influence the
performance of stock market. Given the peculiarity of the aim of this study,
emphases were laid on four areas of disclosure including profitability-related
disclosures (proxy by the ratio of profit disclosures to total disclosures),
governance-related disclosures (proxy by the ratio governance disclosures to
total disclosures), dividend-related disclosures (proxy by the ratio of
dividend disclosures to total disclosures), and social responsibility related
disclosures (proxy by the ratio of CSR disclosures to total disclosures). For
the purpose of capturing stock market performance emphases were laid on the
overall stock market returns as well as stock price performance. To achieve the
set objectives, this study focused on firms publicly traded on the Nigerian
Stock Exchange (NSE). This study covers a period of ten (10) years, spanning
from 2012 to 2021. Firms were selected across all key sectors represented on
the NSE.
1.7 Significance
of the Study
This
study is significant in a number of stakeholders including the following;
Investors:
This
study enlightens investors, brokers and other stock market players on how
corporate disclosures interact with the stock market variables that define
demand and supply in an open stock market. The outcome of this study helps to
demystify the working of the stock market in relation to corporate disclosures
among participating firms.
Regulators:
This study
uniquely highlights various aspects of corporate disclosures into
profitability-related, governance-related, dividend related and social
responsibility-related. This is aimed at providing evidence on how market
indicators react to various aspects of corporate disclosures, and this will
help regulators and analysts to understand and estimate market expectations.
This
study, if completed, will provide national regulators like the SEC and the FRCN
with the basic requisite knowledge of how the stock market works; the
indicators of stock market activities and the relationship between these
indicators and corporate disclosures. An understanding of how market returns
are defined by corporate disclosures will inspire regulators towards ensuring
higher and more quality disclosures.
Future Researchers:
The
completion of this study adds significantly to knowledge by providing empirical
evidence on the relationship between corporate disclosures and stock market
performance in Nigeria. The scope of this study is designed to provide evidence
on the relationship between corporate disclosures and stock market returns as
well as stock price performance for quoted firms.
1.8 Limitations
of the Study
In the course of
carrying out this study, the researcher encountered some external and
unavoidable factors that may pose limitations on the study and its findings.
Highlighted below are some of the factors deemed by the researcher as
limitations to the study;
The adoption of
quantitative data from the annual reports of the selected firms is not without
certain the risks of accounting errors. However, the number used for computing
and deriving data adopted for the purpose of data analysis in this study is
limited to accuracy of the accounting figures reported in the financial
statements of the selected firms.
Another
factor here is the limitation on the generalization of findings from this
study. This is because the sample was drawn from only quoted firms in Nigeria. Hence,
findings from this study may not validly apply to all firms in Nigeria as a
whole. It is limited to firms quoted on the Nigerian Exchange Group(NGX).
1.9 Operational
Definition of Key Terms
Corporate Disclosures:
This is
the communication of information about the firm’s performance, position, and
governance to people outside the firm through financial and non-financial
reports at specific intervals.
Profit-related Disclosures
These
are disclosures related to the firm’s financial performance in terms of profits
earned over a given period of time. This disclosure can be done on a quarterly
basis or halt-year basis depending on each firm.
Governance-related Disclosures
These
are disclosures related to governance structure in terms of its leadership and
changes in leadership over a given period of time. This disclosure are often
done on a yearly basis, except during period of crises where emergency changes
must be communicated.
Dividend-related Disclosures
These
are disclosures related to the firm’s dividend to investors over a given period
of time. This disclosure is usually dependent on the firm’s profitability;
hence, it is often made on a half-year or yearly basis.
Social Responsibility Disclosures
These
are disclosures related to the firm’s social responsibilities in terms of how
the firm is contributing towards the development of the environment within
which it operates over a given period of time.
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