ABSTRACT
The study evaluated on the effect of corporate attributes on financial disclosure of listed manufacturing companies in Nigeria for the period 2014 to 2019. Data were collected from the financial statement of fifty-five (55) listed manufacturing companies in Nigeria. Longitudinal and ex-post factor research design were adopted. Content analysis of the annual reports of a cross sectional sample of listed companies for six years was conducted, collected data were scrutinized and analyzed by employing the Structural Equation Modeling technique (SEM) using Smart PLS. The results comprehensively revealed that corporate attributes have significant effects on financial disclosures of listed manufacturing firms in Nigeria. Specifically, the result further revealed that firm size, audit committee size and firm growth have a significant effect on mandatory, voluntary and total disclosures while firm age, profitability and leverage have no significant relationship. Also, the result shows that there is a significant relationship between corporate attributes and financial disclosure. Conclusively, it is obvious that studies on disclosure practices are more prevalent in developed countries than developing countries, it is evident that in Nigeria, relatively few attempts have been made to investigate accounting attributes and financial disclosure, therefore the study moved a step further by examining not only the measurement model which captures the individual relationships, but the structural model outlook which captures the combined effect of corporate attributes on financial disclosures. Furthermore, the researcher dis-aggregated financial disclosure into three components. They include mandatory disclosure, voluntary disclosure and total disclosure. This was to allow for the determination of the association between corporate attributes and financial disclosure variant of manufacturing companies. The study therefore recommends that government should encourage smaller manufacturing companies by promoting the development of IT in Nigeria. Every organization should be able to afford state-of-the-art IT tools. This will reduce information cost and encourage the disclosure of adequate financial information. Again, that adequate steps should be taken by regulatory bodies to ensure full disclosure with relevant international accounting disclosure requirements by all listed manufacturing firms in Nigeria. Also, effective enforcement programmes should be put in place to protect the interest of the diverse user groups. Stringent reward/punishment programme should be introduced in order to ensure that all listed manufacturing companies comply with the mandatory accounting standards in Nigeria. Finally, in other to increase the extent of disclosure by manufacturing companies as ascertained in the results, government should pave way for easy access to credit facilities by companies since any credit facility given to companies will increase their disclosure index and stability which will invariably increase investor’s confidence.
TABLE OF CONTENTS
Cover
page
Title
Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgments v
List
of Tables ix
Appendices xi
Abstract
xii
CHAPTER 1:
INTRODUCTION
1.1
Background to the Study 1
1.2 Statement
of the Problem 3
1.3 Objectives
of the Study 5
1.4 Research
Questions 5
1.5 Research
Hypotheses 6
1.6 Significance
of the Study 6
1.7 Scope of the Study 7
1.8 Operational definition of Terms 8
Chapter 2:
Review of related literature
2.1 Conceptual
Framework 10
2.1.1 Accounting
attributes and firm’s disclosure 10
2.1.2 Significance
and determinants of corporate disclosure 16
2.1.3 Cost
and drivers of corporate disclosure 17
2.1.4 Mandatory
and voluntary disclosures 19
2.1.5 Accounting
reporting standards disclosure overview 23
2.1.6 Summaries
of standards and interpretations 25
2.1.7 Reasons for disclosure 39
2.2 Theoretical
Framework 42
2.2.1. Agency
theory 42
2.2.2 Signaling
theory 43
2.2.3 The
positive accounting theory 44
2.3 Empirical
Review 51
2.3.1 Summary
of empirical literature 73
2.4 Gap
in Literature 86
CHAPTER 3:
METHODOLOGY
3.1 Research
Design 90
3.2. Population of the Study 90
3.3 Sample Size 91
3.4 Data
sources / Methods of Data Collection 91
3.5 Reliability and Validity 96
3.6 Model Specification 99
3.7 Data Analysis Techniques 101
CHAPTER 4: DATA
PRESENTATION, ANALYSIS AND DISCUSSION OF FINDINGS
4.1 Data
Presentation 102
4.2 Data
Analysis 102
4.3 Test of hypotheses 105
4.4 Discussion of findings 107
CHAPTER
5: SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary
of Findings 113
5.2 Conclusion 114
5.3 Recommendations 114
5.4 Contribution to Knowledge 115
References 117
List
of tables
3.1.
Factor analysis 97
3.2. Construct reliability and convergent
validity 98
3.3. Discriminant Validity – Fornell-Larcker
Criterion 98
3.4. Discriminant Validity – Heterotrait-Monotrait-Ratio
(HTMT) 98
3.5. Operationalization of Variables 100
4.1:
Descriptive Statistics 103
4.2 Correlation Analysis 103
4.3 Multicollinearity 104
4.4 Path
Coefficients 105
Appendices
I MANDATORY
DISCLOSURE CHECK LIST 131
II VOLUNTARY
DISCLOSURE CHECKLIST QUESTIONNAIRE 133
III DATA
PRESENTATION 134
IV VOLUNTARY DISCLOSURE COMPILATION 153
V MANDATORY
DISCLOSURES COMPILATION 164
VI LISTED
MANUFACTURING COMPANIES 184
VII MANDATORY
DISCLOSURE CHECK LIST DERIVATION 187
VIII VOLUNTARY DISCLOSURE CHECK LIST
DERIVATION 191
IX SMART
PLS REPORT 198
CHAPTER 1
INTRODUCTION
1.1 BACKGROUND
TO THE STUDY
Globally, there have been many cases of corporate
scandals and financial crisis like Waste Management in 1998, Enron in 2001,
WorldCom in 2002, Tyco in 2002, HealthSouth in 2003, Freddie Mac in 2003,
American Insurance in 2005, Lenman Brothers in 2008, Saytam in 2009, Banco
Espirito Santo (BES) in 2014, Toshiba in 2015 and Turing Pharmaceutical in 2015
(Modugu & Eboigbe, 2017). All these have raised serious concerns about
corporate reporting globally. Similar scandals in companies such as African
Petroleum in 2011, Afribank, Cadbury and Unilever in 2014 were also recorded in
Nigeria. The common features of these scandals include suppression of losses,
inflation of income, understatement of expenses, wrong classification of
transactions, and concealment of vital corporate information.
Corporate attributes refer to firm characteristics or
specific features that distinguish one company from another. corporate
attributes are numerous, it could be the size, profitability, leverage,
industry type, geographical location, nature of the business, corporate
governance mechanism and any other feature that distinguish one company from
the other. These features normally influence company decisions and information
disclosure in the financial report. (Habbash, 2016; Sadou, Alom & Laluddin,
2017; Yasser, Mamun & Ahmed, 2017).
Obviously, corporate stakeholders demand reliable,
regular, complete and comparable information for making decisions. To this end,
companies publish their annual reports conforming to the provisions of
International Financial Reporting Standards (IFRS) and the Companies and Allied
Matters Act, 2011 as amended at the end of every accounting period.
Conventionally, annual reports contain the chairman’s statement, directors’
report, reports by auditor, position and income statements, cash flow
statement, funds flow statement, notes to accounts and statement of financial
position, among others. In recent years, company’s annual reports are widening
their scope by disclosing additional voluntary information such as economic
value added information, inflation accounting, human resource accounting,
environmental and social responsibility information. Enhanced disclosure
decreases information asymmetry between the stakeholders and managers. ‘Full
disclosure’ means that an annual report should include all economic information
related to the accounting entity that is important to effect the decisions of
informed users of annual reports. It further means that all the users of
financial statements should be treated the same while preparing the annual
reports. And ‘adequate disclosure’ refers to that disclosure which gives the
answer to some questions i.e. why, to whom, how much, what and when the
information is to be disclosed.
Adequate disclosure depends on the quantum and
qualitative characteristics of the information that is disclosed; the form in
which the information is depicted; frequency and timeliness of reporting.
Today, corporate firms does not confine to more disclosure of mandatory
information in the annual reports but they disclose additional information on a
voluntary basis to gain competitive advantage in the capital market. The large
publicly traded companies have surpassed the minimum requirements set by the
regulatory bodies and are setting higher disclosure standards for others to
follow (Deepa & Isha, 2017).
Nigeria had since 2012 joined other countries in
reporting their financial statements under the International Financial
Reporting Standards (IFRS). In order to examine the extent of companies’
compliance with the standards, a study on accounting disclosure following the
adoption of the global reporting standards is imperative. Therefore, this study
is undertaken to examine the effect of corporate attributes on financial
disclosures of listed manufacturing firms in Nigeria.
1.2 STATEMENT OF THE PROBLEM
The disclosure of vital information in corporate
annual reports have attracted considerable attention by researchers in recent
years. Despite this concern, most of the available empirical studies which
capture most of the corporate attributes were done in advanced economies. Also,
available studies have noted that quite a number of companies do not engage in
complete disclosure of information as most companies comply with the mandatory
disclosure requirements while leaving behind the voluntary disclosure, these
cases have increase dearth of investors’ confidence particularly in Nigeria.
Although, the Enron scandal saw major reforms in
corporate governance and reporting practices such as the enactment of
Sarbanes-Oxley (SOX) Act (2002); compulsory certification of fairness of
financial reporting by Chief Executive Officers (CEOs) and Chief Financial
Officers (CFOs); establishment of Public Companies Accounting Oversight Board
(PCAOB); improvements in accounting and auditing standards; prescription of
serious sanctions for violation of regulatory requirements; and the
international cooperation among professional accounting bodies, corporate
managers have continued to devise newer means of subverting the systems. These
scandals as well as the continuous breaches by CEOs and CFOs have negatively
affected investors’ confidence resulting in demand for more transparency in the
financial statements. Hence, additional disclosure via annual reports leads to
higher accountability, transparency, enhances credibility, boosts up investors’
confidence and increases marketability of the shares. It also helps investors
and regulators understand and manage the risk taken by the corporate decision
makers. This continuous demand for credible corporate reports by stakeholders
is occasioned by the primacy of corporate report as a principal tool for the
communication of information to external users, assessment of economic
performance and condition of an enterprise in order to monitor management’s
actions and enhance the quality of decision making (Deepa & Isha, 2017;
Shamsuddeen & Muhammad, 2018).
In line with the foregoing, it becomes of’ utmost
importance to trace the root cause of lack of total or complete disclosure in
companies and determine the reason for their lagging behind. Could it be as a
result of mere ignorance or the fact that they have something to hide or simply
because the performance achieved is not commensurate with the expectations of’
stakeholders? Voluntary disclosure is an issue which has come into the
forefront and attracted much interest in accounting literature in recent times.
What lies behind this interest is the aim to identify the factors which
underpin the voluntary disclosure of information by the firms to inform the
decision makers about financial information and those who prepare and use this
information (Agca & Onder. 2007).
Again, the emergence of International Accounting
Standards and International Financial Reporting Standards (IFRS) have posed
several issues particularly, rudimentary disclosure issues which generate
different reporting styles when compared to the old local standards which makes
the need for harmonization eminent.
1.3 OBJECTIVES OF THE STUDY
The
broad objective of the study is to examine the effect of corporate attributes
on financial disclosure of listed manufacturing companies in Nigeria.
The
specific objectives of the study are as follows:
i.
To ascertain the
association between corporate attributes (firm size, firm age, firm growth,
audit committee size, profitability and leverage) and mandatory
disclosure.
ii.
To estimate the
association between corporate attributes (firm size, firm age, firm growth,
audit committee size, profitability and leverage) and voluntary
disclosure.
iii.
To ascertain the
association between corporate attributes (firm size, firm age, firm growth,
audit committee size, profitability and leverage) and total disclosure.
iv.
To determine the
association between corporate attributes and financial disclosure.
1.4 RESEARCH QUESTIONS
The research objectives are guided by
the following research questions:
i. To
what extent do corporate attributes (firm size, firm age, firm growth, audit
committee size, profitability, leverage) relates to mandatory
disclosure?
ii. To
what degree do corporate attributes (firm size, firm age, firm growth, audit
committee size, profitability, leverage) relates to voluntary
disclosure?
iii. To
what extent do corporate attributes (firm size, firm age, firm growth, audit
committee size, profitability, leverage) associate with total
disclosure?
iv. To
what extent do corporate attributes associate with financial disclosure?
1.5
RESEARCH HYPOTHESES
The research hypotheses were stated in the null form:
i.
Corporate attributes
(firm size, firm age, firm growth, audit committee size,
profitability, leverage) do not have any significant association on mandatory
disclosure.
ii.
Corporate attributes
(firm size, firm age, firm growth, audit committee size,
profitability, leverage) do not have any significant association on voluntary disclosure.
iii.
Corporate attributes
(firm size, firm age, firm growth, audit committee size,
profitability, leverage) do not have any significant association on total
disclosure.
iv.
There is no significant
association between corporate attributes and financial disclosure.
1.6 SIGNIFICANCE OF THE STUDY
Disclosures are indispensable for efficient
functioning of financial markets as market participants while making investment
decisions seek relevant information in the annual report of a company. The
present study is of immense benefit to diversified groups such as:
Manufacturing
firms: They will rely on the result to ascertain the
extent at which each stated corporate attribute variables will affect both
financial and non-financial performance and also ascertain their strength and
weaknesses towards making strategic decision of the companies.
Investors: This work will assist them to make informed and timely decision about
how, when and which company to invest in order to maximise the shareholding
wealth.
Regulatory
Authorities: The work will help government of
the day to make efficient and effective policies cum policy statements geared
towards revitalizing the economy.
Academics: It will serve as backing for future academic works and referencing
especially as it patterns to the review of literature and empirical results.
1.7 SCOPE OF THE STUDY
This
study focused on the effect of corporate attributes on financial disclosures of
listed manufacturing firms in Nigeria. The justification for the scope is due
to the dearth of literature regarding corporate attributes and disclosures in
manufacturing firms in Nigeria and also approved specified scope of study.
There are 55 listed manufacturing firms in Nigeria as at September, 2019, they
are made up of five (5) sectors to include agriculture, conglomerate, consumer
goods, healthcare and industrial goods (Nigeria Stock Exchange, September,
2019). corporate attributes which is the independent variable proxied by firm
size, firm age, firm growth, audit committee size, profitability and leverage
while the dependent variable; financial disclosure was measured by: mandatory,
voluntary and total disclosures. The study period was be six (6) years ranging
from 2014- 2019.
1.8 OPERATIONAL
DEFINITION OF TERMS
Corporate
Attributes: This can be defined as a unique
characteristic that best describe all brands or businesses in the market place
which could be the firm size, firm age, company growth, audit committee size,
profitability and leverage
Company
Growth: This is the extent at which the company
generates significant positive cash flows or earnings, which increases at
significantly faster rates than the overall economy
Firm age: This is the incorporation year of a firm
Firm size: natural Logarithm of Total assets.
Audit Committee Size: This majorly represent the audit type which
is expected to be among the ‘Big 4’. They are subset of the corporate board of
directors and has the responsibility of enhancing internal control procedures,
overseeing a firm's financial reporting process, external reporting and the
risk management of companies
Leverage: This is the long-term debt divided by capital equity.
Profitability – This is measured by Return on Asset (ROA) which is the net income
divided by total assets.
Financial
disclosure includes mandatory, voluntary and total
disclosures.
Mandatory
disclosure: This is disclosure required by law which
companies must report in their financial statement.
Voluntary
disclosure: This is disclosure not necessarily required
by law but are at the free choice of management company for decision making by
the users of annual reports.
Total
disclosure: This the summation of both mandatory and
voluntary disclosure index
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