THE QUALITY OF CORPORATE FINANCIAL DISCLOSURE IN BANKING INDUSTRY IN NIGERIA
CHAPTER ONE
1.1 INTRODUCTION
The roles of commercial banks in our modern economy cannot be over emphasized, commercial banks in Nigeria as a financial institution helps in financing the exporting sector of the economy, by lending out short-term loans to those into manufacturing, exporting, trading and industries. Lack of bank credit (loan and advances) in our economy has brought about low rate of economic growth and diversification of most industries in Nigeria. The availability of bank credits to those in trade determines what is produced and how much of that product is produced. Therefore, commercial banks perform their important role of financial assistance by rendering important services by granting (loans and advances) to various sectors of the Nigerian economy. Commercial banks support the economy by serving the credit needs of their customary and providing a safe place for the cash balance. Of individual credit activities on the export sector of the Nigerian economy, there are general statements which guide or channel actions in decision making about the export sector advance and investment of commercial bank. Every year, the Central Bank as part of their duty in controlling monetary policy, publish credit policy guidelines for the fiscal year.
The aspect of the guidelines that the commercial bank covered are as follows:
i. Aggregate credit ceiling
ii. Sectoral allocation of commercial bank activities on the export sector (loan and advances)
iii. Capital fund adequacy
iv. Reserve requirement
v. Interest rate on export sector
vi.Commercial bank equity holding in company
The importance of export trade to economic growth cannot be overemphasized, this trade goes beyond the national boundaries of moving goods from a country to another in order to earn foreign exchange. Export are the goods and services which a country sends to other countries abroad in return for some payment made in foreign exchange. Over the years, Nigeria has engaged herself in international trade (export trade), which is very important in earnings of foreign exchange, which helps to contribute to the growth and development of the economy. In some economy, export trade has been found to perform as the engine of growth especially through high productivity export, a nation can take advantage of international division of labour and procure desired goods and services from abroad at considerable savings in term of inputs of productivity resources, thereby helping to increase the efficiency of export industry.
A study in sub-Saharan shows that economic growth is stimulated by export trade, the federal government in 1979, created a package of incentive for the export sectors, these include directive to bank to streamline credit facilities to exporters, apart from the commercial banks granting credit to exporting sectors (oil and non-oil sector) in Nigeria, there are other institutional bodies put to engage in financing export trade in Nigeria such as Nigeria Export-Import Bank (NEXIM), Nigeria Export Promotion Council (NEPC), the Nigeria Export Processing Zone Authority (NEPZA) and others. Commercial bank has played a very crucial role in financing the exporting sector especially the preferred sector of the economy that is non-oil export (agricultural and manufacturing) sectors.
1.2 STATEMENT OF RESEARCH PROBLEM
Export trade makes significant contributions to most economies, since credit is vital be trade, this study is designed to analyze the impact of commercial banks credit in Nigeria. Export trade provides foreign exchange for the country. However in recent years the performance of non-oil export (agricultural and manufacturing) trade has decline. This was due to exploration of crude oil, which is now Nigeria’s main source of foreign exchange.
This research is faced with the following problems which include these questions:
1. What impact has the contribution of Commercial banks credit have on the growth and development of the Nigerian economy?
2. How has bank credit aided trade in the exporting sector?
3.Has the performance accorded the non-oil export (agricultural and manufacturing) sector by way of directing the commercial bank to grant more loan to them, really boosted their output.
4. How can bank credit be utilized by the exporting sector (oil and non-oil export trade) so as to achieve or attain desired economic development?
5. What is the relationship between economy growth and total credits of the commercial bank on export in Nigeria between 1983 to 2009?
1.3 OBJECTIVES OF STUDY
The essence of commercial bank credit is to give loans and advances to help investors or customers finance their project. Commercial bank credit stands to bridge the gap created by low domestic savings and income. The main objective of the study is to examine or analyze the impact of which commercial bank credit has on the Nigerian export trade. Therefore this study is thus to achieve the following objective.
1. To examine and find out the impact of commercial bank credit on the Nigeria export trade.
2. To examine the structure and impact of the Nigeria export trade (oil and non-oil) export sector of the economy.
1.4 HYPOTHESIS OF THE STUDY
Null Hypothesis (Ho): The credit made by commercial banks has no significant impacts on export trade in Nigeria’ economy.
Alternative Hypothesis (H2): The credit made by commercial banks has a significant impacts on export trade in Nigeria’ economy.
1.5 SIGNIFICANCE OF THE STUDY
This study is relevant to the government in the sense that, it enable the government to know the necessary policy that will enhance export.
This study is also beneficial to the exporter because it will help them know how to get the necessary credit to enhance their exporting activities.
Finally, it is also relevant to the banking industry because it will enable them to know the amount of credit to channel to the exporting sector.
1.6 METHODOLOGY OF RESEARCH
This work will be carried out through theoretical analysis of statistical data, econometric model using the following
i. Single regression analysis form involving equation.
ii.The T-test which is used to test the level of significance of correlation coefficient.
The study is also carried out using secondary data. The major source of secondary data to be used are journal, financial newspaper, magazine, Federal Office of Statistics, various business and bank journals and also text books.
1.7 ORGANIZATION OF THE STUDY
This study consist of five chapters, chapter one focuses on the general introduction to the study, chapter two is basically on the literature review, chapter three focuses on the methodology, i.e. specification of model, chapter four deals with data presentation and interpretation of regression result, while chapter five focuses on the recommendation, summary and conclusion.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
In any Business entity, whether profit or non-profit making, has sets of objectives. It mobilizes resources from various sources to achieve the set goal at the end of the period. This is necessary to determine how well these resources have been utilized. Where there is separation of ownership from management, the owners will want to know how judiciously these resources have been used. This is the stewardship function of accounting. This function is discharged by the presentation of a report of the activities to owners by management. Such reports are usually conveyed by means of financial statements. Statement of Accounting. Standard 2 (Information to be disclosed in Financial Statement) and Section 334 (2) of Companies and Allied Matters Acts provide that financial statement shall include the following:
· Profit and loss account,
· Statement of account policies,
· Balance sheet,
· Notes to the accounts,
· Auditors report,
· Directors report,
· Value added statement and
· Five year financial summary.
The financial statements must accurately represent the underlying economic activities of the organization. It is possible to have a discontinuity between the activities of an organization. When this occurs, the credibility of such statement induces doubt and uncertainty in the minds of the various users of the statement. This therefore means that, the information asymmetry (i.e. lack of uniformity) between information available to management and information available to the investing public.
There are two sources of information asymmetry as regards to financial statements.
1. Management’s understanding of underlying activities may not be accurately represented in financial statements.
2. Investing publics understanding or perception of information represented in financial statement may be different from that which has been documented.
Financial statements more or less make a case for reporting entity in their quest for invisible funds. Where a reporting unit creates uncertainty in the minds of investors, it is perceived as risky. The effect is that investors demand a compensation for a perceived level of risk. This result to an increase in cost of capital of such economic unit. This is known as “Capital Need Hypothesis”. Choi (2013) suggest that a prime motive for disclosure is to raise capital at the lowest cost. Cooke (2011) posits that “a number of explanations can be advanced for this hypothesis”. In order to raise capital from the market, he says that companies must increase their voluntary disclosure and increase their compliance with mandatory disclosure. Disclosures in financial statement determine the level of transparency of such entities. Hitherto, prior response of international investors has been adduced to lack of transparency not only of government, but also of private economic Sectors. Regulatory agencies such as Central Bank of Nigeria (CBN) and (SEC), have been perceived as ineffective. This perception has been accentuated especially in the banking industry, but the increases in the value of distress especially in situations where such banks have been given a clear bill of health by auditors. What this translates to is an economic environment characterized by lack of trust.
Since lack of trust and unfaithfulness are variables that endanger investment, this study attempts to evaluate the quality of disclosure of annual reports within the banking industry using past model like: Buzby (2012), Lerf (2011), and Snighvi and Desai (2011) and Cooke (2013). The idea is to examine financial statements of selected banks and rank them according to these models.
1.2 STATEMENT OF THE PROBLEM
Principally, management activities are conveyed by means of financial statements. Where these financial statements introduce elements of doubts in the minds of shareholders and potential investors, the effect is that the continued survival of the firm is threatened as it is starved of needed funds. The presence of information asymmetry that produces uncertainty in the minds of investors can be minimized by meticulously prepared corporate reports that capture as much as possible the underlying economic activities of a firm.
This research work is aimed at using the develop model in solving the following problems: What is quality of corporate disclosure in the banking industry using the model identified in above?
(a) What is the gap identified in the quality of corporate reports in the Banking industry?
(b) Is there any statistical differences in the quality of corporate reports between first generation and second generation banks?
1.3 OBJECTIVES OF THE STUDY
The banking industry is strategic in any economy. The vital exchange of any modern economy is initiated by a strong banking sector. Banks like any other organization issue annual report of their activities. The credibility of these reports is essential for the proper functioning of the banking industry and economy. Where financial statements issued by banks lack credibility as exemplified by the recent distress phenomenon, within the banking industry in Nigeria, they have the negative effect of discouraging investment. Any effort aimed at improving corporate reporting activities in the banking industry will have effect of enhancing confidence of investors and it will increase economic activities. This study has its key objective of evaluating the quality of corporate reports within the banking industry. Other objective will include:
(a) To identify the problem in the present corporate reports
(b) To identify the gap in the quality of corporate reports in the banking industry.
(c) To find out whether there is any statistical differences in the first generation and second generation banks.
1.4 SCOPE OF THE STUDY
This study focuses on corporate reports in the banking industry. Corporate reports of interest in this study will be those items listed in Section 334(2) of CAMA 2004.
Subject to sub section (3) of this section, the financial statements required under subsection (1) of this section shall include:
(a) Statement of the accounting policies;
(b) The balance sheet as at last ray of the year;
(c) A profit and loss account a, in the case of a company not trading profit, an income and expeditor account for the year.
(d) Notes the account,
(e) The auditors’ report,
(f) The director’s report,
(g) A statement of the source and application of fund;
(h) A value added statement for the year,
(i) A five-year financial summary, and
(j) In the case of a holding company, the group financial statements.
The study is limited to Nigeria and to banks quoted on Nigeria stock exchange. These banks comprise of two first generation banks viz., First Bank and United Bank for Africa (UBA) and two second generation banks: Guaranty Trust Bank, and Zenith Bank. Time frame for this study is year 1999-2004, before the merger
1.5 SIGNIFICANCE OF THE STUDY
This research work on its conclusion, together with whatever solutions or findings may arise, will prove useful to some particular groups of persons or otherwise for various reasons in accordance with their varying needs.
(i) The Industry in General and Bank: It will help the financial manager in banks to focus their attention on some controversial items when formulating or revising their disclosure policy.
(ii) Investors and Interested Parties: Financial reports are considered useful by investors in making investment decisions. This research will serve as an indicator to investors for items to watch out for in order to identify banks that have adequately disclosed all important and necessary information. This will aid them in making wise decision.
1.6 STATEMENT OF THE HYPOTHESES
For the purpose of simplicity, the hypotheses are stated in their alternative form. They includes:
H0: The rate of return and earnings margin leverage are not significant variables to financial disclosures of banks.
H1: The rate of return and earnings margin are number of shareholders are significant variables i.e. is very important in disclosure of banks.
Ho: There is no relationship between the financial leverage of a corporation and its earnings per share (EPS).
H1: There is a relationship between the financial leverage of a corporation and its earnings per share (EPS).
Ho: There is no relationship between the financial leverage of company and its dividend per share (DPS).
Ho: There is a relationship between the financial leverage of company and its dividend per share (DPS).
OPERATIONAL DEFINITION OF TERMS
C.B.N Central Bank of Nigeria
N.S.E Nigerian Stock Exchange
S.A.S Statement of Accounting Standard
C.A.M.A Companies and Allied Matter’s Act
THE QUALITY OF CORPORATE FINANCIAL DISCLOSURE IN BANKING INDUSTRY IN NIGERIA
