Excerpt
TABLE OF CONTENTS
1.0 CHAPTER ONE introduction
1.1 BACKGROUND OF THE STUDY
1.2 EARNINGS MANAGEMENT IN RESEARCH
1.3 STATEMENT OF THE PROBLEM
1.4 THE PURPOSE STATEMENT
1.5 STATEMENT OF OBJETIVES
1.6 RESEARCH QUESTION
1.7 RESEARCH METHODOLOGY
1.8 THE SIGNIFICANCE OF THE STUDY
1.9 NATURE OF THE RESEARCH
1.10 LEVEL OF ANALYSIS
1.11 STAKEHOLDERS CLASSIFICATION
1.12 CONTRIBUTIONS AND INOVATIONS
1.12.1 Contributions
1.12.2 Innovations
1.13 THEORETICAL FRAMEWORK
1.14 LIMITATIONS AND DELIMITATIONS OF THE STUDY
1.14.1 Limitations
1.14.2 Delimitation
1.15 DEFINITIONS
1.16 SUMMARY OF CHAPTER ONE
CHAPTER TWO- LITERATURE REVIEW
2.0 OVERVIEW
PART A -THEORETICAL FRAMEWORK FOR EARNINGS MANAGEMENT AND CORPORATE GOVERNANCE RESEARCH
2.1 EARNINGS MANAGEMENT AND CORPORATE GOVERNANCE THEORIES
2.1.1 Positive Accounting Theory
Positive Accounting Theory provides the theoretical foundation for the empirical studies in earnings management.
2.1.2. Evolution And State Of Positive Accounting Theory
2.1.3 Contemporaneous Positive Accounting Theory
2.1.4 Contribution Of Positive Accounting Theory To The Evolution Of Knowledge On Earnings Management.
2.1.5 Criticisms Of Positive Accounting Theory In Perspective
2.2 CORPORATE GOVERNANCE THEORY: AGENCY THEORY
2.2.1 Agency Theory And Corporate Governance Solutions
2.2.2 Origin And Development
2.2.3 Summary Of Agency Theory
2.2.3.1 Positivist Agency Theory
2.2.4 Agency Cost Theory
2.2.5 Principal-Agent Research
2.2.6 Contributions Of Agency Theory
2.2.7 Agency Theory In Empirical Research
2.2.7.1 Summary of Empirical Studies of Agency Theory
2.2.7.2 Criticism of Agency Theory
PART B REVIEW OF LITERATURE ON CORPORATE GOVERNANCE STUDIES AND EARNINGS MANAGEMENT RESEARCH
2.3 CORPORATE GOVERNANCE
2.3.0 Contemporary Corporate Governance Studies
2.3.1 Definitions Of Corporate Governance
2.3.1.1 OECD Definition of Corporate Governance
2.3.1.2 Financial Times Definition of Corporate Governance
2.3.1.3 Cadbury Report Definition of Corporate Governance
2.3.1.4 BusinessDictionary.com Definition of Corporate Governance
2.3.1.5 Stijn Cleassens Definition of Corporate Governance
2.3.1.6 Keasey and Wright Definition of Corporate Governance
2.3.1.7 Oscar N Onyema- Definition of Corporate Governance
2.3.1.8. Elements and Key Principles of Corporate Governance
2.3.2 The Structure Of Corporate Governance
2.3.3 Determinants Of Corporate Governance
2.3.3.1 Legal Environment in Nigeria
2.3.3.2 Corporate Governance Environment
2.3.3.3 Operating Environment
2.4 CORPORATE GOVERNANCE MECHANISMS
2.4.1 External Corporate Governance Mechanism
2.4.1.1 Market for Corporate Control
2.4.1.2 Capital Structure
2.4.1.3 Competition
2.4.1.4 The Legal System
2.4.2 Internal Corporate Governance Mechanisms
2.4.2.1 Outcome Based Internal Mechanisms
2.4.2.2 Information Economics Based Internal Mechanisms
2.5 EARNINGS MANAGEMENT RESEARCH METHODS
2.5.1 Introduction
2.5.2 Earnings Management Through Managerial Accounting Choice
2.5.3 Earnings Management through Real Transactions
2.5.4 Earnings Management through Accruals
2.5.4.1 Healy (1985)
2.5.4.2 DeAngelo (1986)
2.5.4.3 Jones (1991)
2.5.4.4 Dechow, Sloan, & Sweeney (1995)
2.5.4.5 The Industry Model
2.5.5 Earnings Management Through Specific Accruals
2.5.6 Earnings Management Through Earnings Distribution Approach
2.5.7 Earnings Management through Income-Smoothing
2.5.8 Summary Analysis Earnings Management Research Methods
2.6 MOTIVATION FOR EARNINGS MANAGEMENT
2.7 EFFECTS OF EARNNINGS MANAGEMENT
PART C REVIEW OF LITERATURE ON THE VARIABLES IN THE RESEARCH OBJECTIVES AND RESEARCH QUESTION
2.8 INTRODUCTION
2.8.0 BOARD GOVERNANCE AND EARNINGS MANAGEMENT
2.8.1 Board Size And Earnings Management
2.8.2 Board Independence And Earnings Management
2.8.3 Board Duality And Earnings Management
2.9.4 Board Meetings And Earnings Management
2.8.5 Institutional Ownership Concentration And Earnings Management
2.8.6 Board Interlocking And Earnings Management
2.9 LITERATURE REVIEW ON AUDIT COMMITTEE
2.9.1 Size Of The Audit Committee And Earnings Management
2.9.2 Audit Committee’s Independence And Earnings Management
2.9.3 Competence Of Audit Committee And Earnings Management
2.9.4 Audit Committee Activities And Earnings Management
2.10 LITERATURE RVIEW ON INTERNAL AUDIT FUNCTION
2.10.1 Internal Audit Function Interactions With Audit Committee And Earnings Management
2.10.2 Internal Audit Function Quality And Earnings Management
2.10.3 Competence Of The Head Of Internal Audit Function And Earnings Management
2.11 COMPARATIVE REVIEW OF LITERATURE ON CORPORATE GOVERNANCE AND EARNINGS MANAGEMENT IN THE UK AND CONTINENTAL EUROPE WITH PARTICULAR REFERENCE TO FRANCE
2.11.1 Earnings Management and Corporate Governance in UK
2.11.2 Earnings Management and Corporate Governance in France
2.11.3 Summary of Comparative Literature Review on UK And France
2.12 CRITQUE OF LITERATURE REVIEW
PART D INTEGRATION AND SYNTHESIS OF LITERATURE REVIEW
2.13 CHAPTER TWO PART A
2.13.1 CHAPTER TWO PART B
2.13.2 CHAPTER TWO PART C
2.13.2.1 Board of Directors
2.13.3.2 Audit Committee
2.13.3.3 Internal Audit Function
2.13.4 Summary Of The Integration And Synthesis Of Literature Review
2.14 SUMMARY OF CHAPTER TWO
CHAPTER 3- RESEARCH METHODOLOGY
3.0 OVERVIEW
3.1 APPROPRIATENESS
3.2 RESEARCH DESIGN
3.3 VALIDITY AND RELIABILITY
3.3.1 Validity:
3.3.2 Reliability
3.4 DATA COLLECTION AND TECHNIQUES
3.5 DATA ANALYSIS
3.6 ETHICAL CONSIDERATION
3.7 SUMMARY OF CHAPTER THREE
CHAPTER 4: PRESENTATION OF THE DATA
4.1 PURPOSE STATEMENT
4.2. REVIEW OF RESEARCH METHOD
4.3 REVIEW OF DESIGN AND DATA COLLECTION
4.4 DATA PRESENTATION FOR CONTENT ANALYSIS
4.4.0 PART A - DATA PRESENTATION FOR CONTENTS ANALYSIS
4.4.1 Introduction:
4.4.2 Statistical Measurement of Earnings Management:
4.4.3 Estimating Discretionary Accruals (EDA) Model for 2009
4.4.3.1 Multiple Regression Coefficients:
4.4.3.2 Data Examination:
4.4.3.3 Missing Data Analysis:
4.4.3.4 Outliers Detection:
4.4.3.5 Assumptions of Multiple Regression Analysis:
4.4.3.5.1 Linearity:
4.4.3.5.2 Normality:
4.4.3.5.3 Homoscendasticity:
4.4.3.5.4 Uncorrelated Error Terms:
4.4.3.5.5 Multicollinearity:
4.4.3.6 Pearson Correlation between the Dependent and Independent Variables:
4.4.3.7 Estimating the Regression Coefficients:
4.4.3.8 F Test:
4.4.3.9 The Estimated Discretionary Accrual Model-2009:
4.4.4 Estimating Discretionary Accruals (EDA) Model for 2010
4.4.4.1 Missing Data Analysis
4.4.4.2 Identification of Outliers
4.4.4.3 Assumptions of Multiple Regression Analysis
4.4.4.3.1 Linearity Assumption
4.4.4.3.2 Normality Assumption
4.4.4.3.3 Homoscedasticity
4.4.4.3.4 Uncorrelated Error Terms
4.4.4.3.5 Multicollinearity Assumption
4.4.4.5 Estimating the Regression Coefficients
4.4.4.6 Regression Analysis Model Summary
4.4.4.7 F Test:
4.4.4.8 The Estimated Discretionary Accrual Model-2010:
4.4.5 Estimating Discretionary Accruals (EDA) Model for 2011
4.4.5.1 Missing Data Analysis
4.4.5.2 Identification and Detection of Outliers
4.4.5.3 Multivariate Regression Assumptions
4.4.5.3.1 Linearity Assumption
4.4.5.3.2 Normality Assumption
4.4.5.3.3 Homoscendasticity Assumption
4.4.5.3.4 Uncorrelated Error Terms
4.4.5.3.5 Multicollinearity
4.4.5.4 Pearson Correlation Coefficients Between the Dependent Variable and Independent Variables
4.4.5.5 Estimating the Regression Coefficients
4.4.5.6 Regression Analysis Model Summary
4.4.5.7 F Test:
4.4.5.8 The Estimated Discretionary Accrual Model-2011:
4.4.6.8 Estimating Discretionary Accruals (EDA) Model for 2012
4.4.6.1 Missing Data Analysis
4.4.6.2 Identification and Detection of Outliers
4.4.6.3 Multivariate Regression Assumptions
4.4.6.3.1 Linearity Assumption
4.4.6.3.2 Normality Assumption
4.4.6.3.3 Homoscendasticity Assumption
4.4.6.3.4 Uncorrelated Error Terms
4.4.6.3.5 Multicollinearity
4.4.6.4 Pearson Correlation Coefficients Between the Dependent Variable and Independent Variables
4.4.6.5 Estimating the Regression Coefficients
4.4.6.6 Regression Analysis Model Summary
4.4.6.7 F Test:
4.4.7 Estimating Discretionary Accruals (EDA) Model for 2009-2012
4.4.7.1 Missing Data Analysis
4.4.7.2 Identification of Outliers
4.4.7.3 Assumptions of Multiple Regression Analysis
4.4.7.3.1 Linearity Assumption
4.4.7.3.2 Normality Assumption
4.4.7.3.3 Homoscedasticity
4.4.7.3.4 Uncorrelated Error Terms
4.4.4.3.5 Multicollinearity Assumption
4.4.7.4 Pearson Correlation Between the Dependent and Independent Variables
4.4.7.5 Estimating the Regression Coefficients
4.4.7.6 Regression Analysis Model Summary
4.4.7.7 F Test:
4.4.7.8 Estimating Discretionary Accruals (EDA) Model for 2009-2012
4.4.8 Summary of Earnings Management (EDA) Models for Non-Financial Listed Companies on the Nigerian Stock Exchange
4.4.8.1 Estimating Discretionary Accruals for 2009, 2010, 2011 and 2012
4.4.9 Sectoral Presentation of Earnings Management 2009-2012
4.4.9.1 Earnings Management of Companies in Agriculture Sector
4.4.9.2 Earnings Management of Listed Conglomerates Sector
4.4.9.3 Earnings Management of Firms in the Construction and Real Estate Sector
4.4.9.4 Earnings Management of Listed Companies in Consumer Goods Sector
4.4.9.5 Earnings Management in the listed firms in the Healthcare Sector
4.4.9.6 Earnings Management in Companies Listed in the ICT Sector
4.4.9.7 Earnings Management of Listed Companies in Industrial Goods Sector
4.4.9.8 Earnings Management of Listed Companies in Oil and Gas Sector
4.4.9.9 Earnings Management of Companies in the Natural Resources Sector
4.4.9.10 Earnings Management of Listed Companies in the Services Sector
4.4.9.11 Summary of Sectoral Earnings Management of Nigerian Listed Companies
4.4.10 DATA PRESENTATION FOR CONTENT ANALYSIS: CORPORATE GOVERNANCE
4.4.10.1 Introduction:
4.4.10.2 Corporate Governance Variables and Control Variables
4.4.10.3: Descriptive Statistics of Corporate Governance Variables
4.4.10.4 Data Examination
4.4.10.4.1 Graphical Examination
4.4.10.4.2 Missing Data Analysis
4.4.10.4.4 The Pearson Correlation between the Corporate Governance Variables
4.4.11 INTEGRATION OF DATA PRESENTATION ON EARNINGS MANAGEMENT AND CORPORATE GOVERNANCE
4.4.11.1 Definition of the Research Variables
4.4.11.2 Multivariate Regression Statistical Analysis
4.4.11.2.1 Normality Assumption
4.4.11.2.2 Homoscedasticity Assumption
4.4.11.2.3 Uncorrelated Error Terms
4.4.11.2.4 Multicollinearity Assumption
4.4.11.2.5 Linearity Assumption
4.4.11.3 Summary of Multivariate Regression Statistical Analysis Assumptions
4.4.12 Pearson Correlation between Independent Variables (Corporate Governance Variables) and Dependent Variable (EDA_2009_2012)
4.4.13 Estimating The Regression Model And Assessing The Overall Fit
4.4.13.1 Analysis of the Variate
4.4.13.2 Summary of Regression Analysis
FOLLOW UP INTERVIEWS4.5 PRESENTATIONS OF DATA FROM SEMI-STRUCTURED INTERVIEWS
4.5 PRESENTATIONS OF DATA FROM SEMI-STRUCTURED INTERVIEWS
AND FOLLOW UP INTERVIEWS
4.5.0 REVIEW OF DATA DESIGN AND COLLECTION
4.6 DATA DISTILATION
4.7 category one- frequency of board meetings
4.8 CATEGORY TWO- BOARD OF DIRECTORS’ INFORMAL INTERACTION
4.9 CATEGORY THREE- QUALITY OF BOARD MEETINGS
4.10 CATEGORY FOUR- NOTICE PERIOD FOR CONVEYING A BOARD MEETING
4.11 CATEGORY FIVE- DEGREE OF PREPARATION FOR BOARD MEETINGS
4.12 CATEGORY SIX- FINANCIAL EDUCATION OF NON-FINANCE EXPERT BOARD MEMBERS
4.13 CATEGORY SEVEN- BOARD INDEPENDENCE
4.14 CATEGORY EIGHT- BOARD SIZE
4.15 CATEGORY NINE-BOARD OF DIRECTORS OVERSIGHT ROLES
4.16 CATEGORY TEN- RECRUITMENT OF NEW BOARD MEMBERS
4.17. CATEGORY ELEVEN- MULTIBLE BOARD MEMBERSHIP (BOARD INTERLOCKING)
4.18 CATGORY TWELVE- EFFECT OF BOARD INTERLOCKING
4.19 CATEGORY THIRTEEN- INFLUENCE OF INSTITUTIONAL INVESTORS OWNERSHIP ON CORPORATE GOVERNANCE
4.20 CATEGORY FOURTEEN- BOARD COMMITEES
4.21 CATEGORY FIFTEEN- DESCRIPTION OF THE BOARD CHAIR
4.22 CATEGORY SIXTEEN- AUDIT COMMITTEE CHARTER
4.23 CATEGORY SEVENTEEN- RELATIONSHIP BETWEEN THE AC AND IAF
4.24 CATEGORY EIGHTEEN- IAF ANNUAL WORKPLAN OR ROAD MAP
4.25 CATEGORY NINETEEN- AUDIT COMMITTEE MEETINGS
2.26 CATEGORY TWENTY- AUDIT COMMITTEE MEETINGS SCHEDULING
4.27 CATEGORY TWENTY ONE- INFORMAL INTERACTION BETWEEN AC AND HEAD OF IAF
4.28 CATEGORY TWENTY TWO- APPROVAL PROCESS FOR THE INTERNAL AUDIT CHARTER
4.29 CATEGORY TWENTY THREE- AUDIT COMMITTEE INDEPENDENCE AND COMPLIANCE WITH THE COMPANIES AND ALLIED MATTERS ACT 2004 LAW OF FEDERAL REPUBLIC OF NIGERIA
4.30 CATEGORY TWENTY FOUR- FINANCE EXPERT IN THE AC
4.31 CATEGORY TWENTY FIVE- POLICY ON THE TRAINING OF AC MEMBERS
4.32 CATEGORY TWENTY SIX- AUDIT COMMITTEE SIZE
4.33 CATEGORY TWENTY SEVEN-INTERACTION BETWEEN THE AC AND STATUTORY EXTERNAL AUDITORS
4.34 CATEGORY TWENTY EIGHT-AUDIT COMMITTEES REVIEW OF IAF REPORTS
4.35 CATEGORY TWENTY NINE- THE POWER OF THE AC TO ENGAGE AND DISENGAGE THE HEAD OF INTERNAL AUDIT FUNCTION
4.36 CATEGORY THIRTY- QUALITY OF RELATIONSHIP BETWEEN THE AC AND IAF
4. 37 CATEGORY THIRTY ONE- EXPERIENCE LEVEL OF THE HEAD OF INTERNAL AUDIT FUNCTION
4. 38 CATEGORY THIRTY TWO- PROFESSIONAL QUALIFICATIONS OF THE HEADS OF INTERNAL AUDIT FUNCTION
4. 39 CATEGORY THIRTY THREE- QUALITY OF OTHER IAF STAFF
4.40 CATEGORY THIRTY FOUR-ANNUAL BUDGET OF IAF
4.41 CATEGORY THIRTY FIVE-CONTINUED PROFESSIONAL DEVELOPMENT OF THE HEAD OF INTERNAL AUDIT FUNCTION
4.42 CATEGORY THIRTY SIX- ENGAGEMENT AND DISENGAGEMENT OF THE HEAD OF INTERNAL AUDIT FUNCTION
4.43 CATEGORY THIRTY SEVEN- REPORTING LINE OF THE HEAD OF IAF
4.44 CATEGORY THIRTY EIGHT- ATTENDANCE OF THE HEAD OF IAF AT AUDIT COMMITTEE MEETINGS.
4.45 CATEGORY THIRTY NINE- INFORMAL INTERACTION OF AC MEMBERS AND THE HEAD OF IAF
4.46 CATEGORY FORTY- MEASURING THE INFLUENCE OF EXECUTIVE MANAGEMENT COMMITTEE ON THE ACTIVITIES OF THE IAF
4.47 CATEGORY FORTY ONE- INVOLVEMENT OF IAF IN OTHER ACTIVITIES
4.48 CATEGORY FORTY TWO- APPROVAL LEVEL AND INVOLVEMENT OF AC IN THE IAF ANNUAL WORK PLAN
4.49 CATEGORY FORTY THREE- RESPONSIBILITY FOR THE PREPARATION AND APPROVAL OF INTERNAL AUDIT POLICY MANUAL (IAF CHARTER)
4.50 CATEGORY FORTY FOUR- CONSIDERATION AND REVIEW OF THE WORK OF THE IAD BY THE AC
4.51 CATEGORY FORTY FIVE- QUALITY ASSURANCE FOR IAF WORK
4.52 SUMMARY OF CHAPTER FOUR
CHAPTER FIVE- SYNTHESIS AND INTEGRATION
5.0. OVERVIEW
5.1 REVIEWS OF RESEARCH FINDINGS AND THE RESEARCH OBJECTIVES
5.2. DISCUSSION OF FINDINGS OF QUANTITATIVE RESEARCH
5.2.1 Board of Directors Characteristics
5.2.1.1 Board Size
5.2.1.2 Board Independence
5.2.1.3 Board Meetings
5.2.1.4 CEO Duality
5.2.2 Ownership Structures
5.2.2.1 Institutional Investors’ Ownership
5.2.2.2 Blockholders’ Ownership
5.2.3 Audit Committee Effectiveness
5.2.3.1 Audit Committee Size
5.2.3.2 Audit Committee Independence
5.2.3.3 Audit Committee Meetings
5.2.3.4 Audit Committee Financial Expertise
5.3 DISCUSSION OF THE FINDINGS OF THE SEMI-STRUCTURED AND FOLLOW UP INTERVIEWS
5.3.1 Board of Directors Characteristics
5.3.1.1 Board Meetings
5.3.1.2 Board Independence
5.3.1.3 Board Size
5.3.2 Ownership Structure
5.3.2.1 Institutional Investors Ownership
5.3.3 Audit Committee Effectiveness
5.3.3.1 Audit Committee Size
5.3.3.2 Audit Committee Independence
5.3.3.3 Activities of the Audit Committee
5.3.3.4 Competence of Audit Committee
5.3.4 Internal Audit Function
5.3.4.1 Interaction of the Internal Audit Function and the AC
5.3.4.2 Quality of the Internal Audit Function
5.3.4.3 Competence of Head of the Internal Audit Function
5.4 COMPARATIVE DISCUSSION OF RESEARCH FINDINGS WITH THE EMPIRICAL LITERATURE ON COMPANIES LISTED IN UK AND FRANCE
5.5. MODEL GENERATION
5.6 CONTRIBUTION TO KNOWLEDGE
5.6.1 The Two Layers of SAPEMCG
5.7 SUMMARY OF CHAPTER FIVE
CHAPTER SIX-CONCLUSION AND RECOMMENDATIONS
6.0 REVIEW OF EARNINGS MANAGEMENT AND CORPORATE GOVERNANCE MECHANISMS
6.1 THE SIGNIFICANCE BEHIND THE PRESENT RESEARCH FINDINGS
6.2. POTENTIAL LIMITATIONS OF THE RESEARCH
6.3 CONTRIBUTION TO GENERAL CORPORATE GOVERNANCE AND EARNINGS MANAGEMENT RESEARCH
6.4 RESEARCH VALIDITY AND RELIABILITY
6.5 FUTURE RECOMMEDATIONS
6.6 SUMMARY OF CHAPTER SIX
Bibliography
APPENDIX
APPENDIX I: INTRODUCTORY EMAIL AND APPOINTMENT SETUP
APPENDIX II: HUMAN SUBJECTS APPROVAL FORM
APPENDIX III : CONSENT TO PARTICPATE IN RESEARCH STUDY
APPENDIX IV: QUESTIONNAIRE FOR HEAD OF INTERNAL AUDIT FUNCTION
APPENDIX V: QUESTIONNAIRE FOR MEMBERS OF BOARD
APPENDIX VI: QUESTIONNAIRE FOR MEMBERS OF AUDIT COMMITTEE
APPENDIX VII: FOLLOW UP ON TRANSCRIBED CONVERSATION
APPENDIX A: Z- SCORES OF DEPENDENT AND INDEPENDENT VARIABLES
FOR DETECTING DISCRETIONARY ACCRUALS (OUTLIERS)- 2009
APPENDIX B SCATTER PLOTS-2009
APPENDIX C: NORMAL DISTRIBUTION HISTOGRAMS AND CURVES-2009
APPENDIX D: DETECTING DISCRETIONARY ACCRUALS (OUTLIERS)- 2010
APPENDIX E: SCATTER PLOTS-2010
APPENDIX F: NORMAL DISTRIBUTION HISTOGRAMS AND CURVES-2010
APPENDIX G: Z-SCORES FOR THE DEPENDENT AND INDEPENDENT
VARIABLES FOR DETECTING OULIERS – 2011
APPENDIX H: SCATTER PLOTS OF THE DEPENDENT VARIABLE
AND EACH INDEPENDENT VARIABLES-2011
APPENDIX I: NORMAL DISTRIBUTION HISTOGRAMS AND CURVES-2011
APPENDIX J: HISTOGRAM AND NORMAL CURVE OF REGRESSION
STANDARDIZED RESDUALS – 2011
APPENDIX K: Z-SCORES OF DEPENDENT AND INDEPENDENT VARIABLES-2012
APPENDIX L: SCATTER PLOTS- 2012
APPENDIX M: UNIVARIATE NORMAL DISTRIBUTION HISTOGRAMS
APPENDIX O: Z-SCORES OF DEPENDENT AND INDEPENDENT VARIABLES
FOR DETECTING OUTLIERS 2009-2012
APPENDIX L: SCATTER PLOTS 2009-2012
APPENDIX Q: NORMAL DISTRIBUTION HISTOGRAMS AND CURVES- UNIVARIATATE NORMALITY- 2009-2012
APPENDIX R: MULTIVARIATE NORMALITY TEST
APPENDIX S: RESEARCH VARIABLES FOR ESTIMATING DISCRETIONARY ACCRUALS FOR 2009
APPENDIX T: RESEARCH VARIABLES FOR ESTIMATING DISCRETIONARY ACCRUALS FOR 2010
APPENDIX U: RESEARCH VARIABLES FOR ESTIMATING DISCRETIONARY ACCRUALS FOR 2011
APPENDIX V: RESEARCH VARIABLES FOR ESTIMATING DISCRETIONARY ACCRUALS FOR 2012
APPENDIX W: Research and Control Variables Data Obtained from Each Company’s Annual Reports
APPENDIX X: Z-SCORES OF CORPORATE GOVERNANCE VARIABLES
APPENDIX Y: NORMAL DISTRIBUTION HISTOGRAMS AND CURVES- UNIVARIATATE NORMALITY- CORPORATE GOVERNANCE VARIABLES
APPENDIX Z: NORMAL DISTRIBUTION HISTOGRAMS AND CURVES- UNIVARIATATE NORMALITY- DEPENDENT VARIABLE (EARNINGS MANAGEMENT)
APPENDIX AA: NORMAL DISTRIBUTION HISTOGRAMS AND CURVES- MULTIVARIATE NORMALITY
APPENDIX AB: SCATTER PLOTS OF THE DEPENDENT AND INDEPENDENT VARIABLES
APPENDIX AC: RESEARCH VARIABLES FOR ESTIMATING THE DISCRETIONARY ACCRUALS FOR 2009_2012
PRESENTATION OF PARTICIPANTS RESPONSES TO SEMI-STRUCTURED INTERVIEWS
APPENDIX AD: FREQUENCY OF BOARD MEETINGS
APPENDIX AE: BOARD OF DIRECTORS INFORMAL INTERACTION
APPENDIX AF: QUALITY OF BOARD MEETINGS
APPENDIX AG: NOTICE PERIOD FOR BOARD MEETINGS
APPENDIX AH: DEGREE OF PREPARATION FOR THE BOARD MEETINGS
APPENDIX AI: FINANCIAL EDUCATION FOR NON FINANCE EXPERT BOARD MEMBERS
APPENDIX AJ: BOARD INDEPENDENCE AND CONFLICT OF INTERESTS
APPENDIX AK: BOARD SIZE
APPENDIX AL: BOARD OF DIRECTORS OVERSIGHT ROLES
APPENDIX AM: RECRUITMENT OF BOARD NEW MEMBERS
APPENDIX AN: MULTIPLE BOARD MEMBERSHIP
APPENDIX AO: EFFECT OF MULTIPLE BOARD MEMBERSHIP
APPENDIX AP: BLOCK/ INSTITUTIONAL SHAREHOLDING
APPENDIX AQ: BOARD COMMITTEES
APPENDIX AR: LEADERSHIP QUALITIES OF BOARD CHAIR
APPENDIX AT: REPORTING RELATIONSHIP BETWEEN HEAD OF IAF AND AC
APPENDIX AU: ROLE OF AC IN INTERNAL AUDIT ANNUAL WORK PLAN & ROADMAP
APPENDIX AV: AUDIT COMMITTEE MEETINGS
APPENDIX AW: SCHEDULING OF AUDIT COMMITTEE MEETINGS
APPENDIX AX: INFORMAL INTERACTION OF AC AND HEAD OF IAF
APPENDIX AY: AUDIT COMMITTEE AND INTERNAL AUDIT CHARTER
APPENDIX AZ-A: AUDIT COMMITTEE INDEPENDENCE
APPENDIX AZ-B: COMPLIANCE OF THE COMPOSITION OF AUDIT COMMITTEE WITH COMPANIES AND ALLIED MATTERS ACT 2004 LAW OF FEDERAL REPUBLIC OF NIGERIA
APPENDIX BA: AUDIT COMMITTEE FINANCE EXPERTISE
APPENDIX BB: AUDIT COMMITTEE TRAINING POLICY
APPENDIX BC-A: AUDIT COMMITTEE SIZE
APPENDIX BC: ADEQUACY OF AUDIT COMMITTEE SIZE
APPENDIX BD: AUDIT COMMITTEE INTERACTION WITH EXTERNAL AUDITORS
APPENDIX BE: AUDIT COMMITTEE ACTIVITIES
APPENDIX BF: AUDIT COMMITTEE POWER TO HIRE AND FIRE HEAD OF IAF
APPENDIX BG: QUALITY OF RELATIONSHIP BETWEEN AUDIT COMMITTEE AND HEAD OF IAF
APPENDIX BH: YEARS OF EXPERIENCE ON CURRENT ROLE AS HIAF
APPENDIX BH : NO OF AUDIT AND FINANCE RELATED EXPERIENCE PRIOR TO APPOINTEMENT AS THE HEAD OF IAF
APPENDIX BI: PROFESSIONAL QUALIFICATIONS
APPENDIX BJ: NUMBER OF STAFF IN THE INTERNAL AUDIT DEPARTMENT
APPENDIX BJ-B: NUMBER OF STAFF WITH PROFESSIONAL QUALIFICATIONS
AND COMPUTER LITERACY
APPENDIX BK: INTERNAL AUDIT FUNCTION THREE YEARS ANNUAL BUSGET
APPENDIX BL: HOURS OF CPD BY THE HEAD OF IAF
APPENDIX BM: AUTHORITY LEVEL TO ENGAGE AND DISENGAGE THE HEAD OF IAF
APPENDIX BN: REPORTING LINE OF THE HEAD OF IAF
APPENDIX BO: FREQUENCY OF AC MEETING ATTENDANCE BY THE HEAD OF IAF
APPENDIX BP: INFORMAL INTERRACTION BETWEEN AC MEMBERS AND THE HEAD OF IAF
APPENDIX BQ-A: INFLUENCE OF EXCO ON THE ACTIVITIES OF THE IAF
APPENDIX BQ-B: ACCESS TO DOCUMENT AND INFORMATION BY IAF
APPENDIX BR: INVOLVEMENT OF HEAD OF IAF IN OTHER ACTIVITIES
APPENDIX BS: APPROVAL LEVEL FOR ANNUAL INTERNAL AUDIT WORKPLAN
APPENDIX BS-B: DEGREE OF AC INPUT INTO THE ANNUAL IA ROADMAP
APPENDIX BT: AUTHORITY LEVEL FOR PREPARATION AND APPROVAL OF INETRNAL AUDIT MANUAL (CHARTER)
APPENDIX BU: AUDIT COMMITTEE CONSIDERATION OF IAF REPORTS
APPENDIX BV: QUALITY ASSURANCE OF THE IAF WORK
THE FOLLOW UP INTERVIEWS
APPENDIX BW: FREQUENCY OF BOARD MEETINGS
APPENDIX BX: BOARD OF DIRECTORS INFORMAL INTERACTION
APPENDIX BY: QUALITY OF BOARD MEETINGS
APPENDIX BZ: NOTICE PERIOD FOR BOARD MEETINGS
APPENDIX CA: DEGREE OF PREPARATION FOR THE BOARD MEETINGS
APPENDIX CB: FINANCIAL EDUCATION FOR NON FINANCE EXPERT BOARD MEMBERS
APPENDIX CC: BOARD INDEPENDENCE AND CONFLICT OF INTERESTS
APPENDIX CD: BOARD SIZE
APPENDIX CE: BOARD OF DIRECTORS OVERSIGHT ROLES
APPENDIX CF: RECRUITMENT OF BOARD NEW MEMBERS
APPENDIX CG: MULTIPLE BOARD MEMBERSHIP
APPENDIX CI: EFFECT OF MULTIPLE BOARD MEMBERSHIP
APPENDIX CJ: BLOCK/ INSTITUTIONAL SHAREHOLDING
APPENDIX CK: BOARD COMMITTEES
APPENDIX CL: LEADERSHIP QUALITIES OF BOARD CHAIR
APPENDIX CM: AUDIT COMMITTEE CHARTER
APPENDIX CN: REPORTING RELATIONSHIP BETWEEN HEAD OF IAF AND AC
APPENDIX CO: ROLE OF AC IN INTERNAL AUDIT ANNUAL WORK PLAN & ROADMAP
APPENDIX CP: AUDIT COMMITTEE MEETINGS
APPENDIX CQ: SCHEDULING OF AUDIT COMMITTEE MEETINGS
APPENDIX CR: INFORMAL INTERACTION OF AC AND HEAD OF IAF
APPENDIX CS: AUDIT COMMITTEE AND INTERNAL AUDIT CHARTER
APPENDIX CT-I: AUDIT COMMITTEE INDEPENDENCE
APPENDIX CT-II: COMPLIANCE OF THE COMPOSITION OF AUDIT COMMITTEE WITH COMPANIES AND ALLIED MATTERS ACT 2004 LAW OF FEDERAL REPUBLIC OF NIGERIA
APPENDIX CU: AUDIT COMMITTEE FINANCE EXPERTISE
APPENDIX CV: AUDIT COMMITTEE TRAINING POLICY
APPENDIX CW-I: AUDIT COMMITTEE SIZE
APPENDIX CW-II: ADEQUACY OF AUDIT COMMITTEE SIZE
APPENDIX CX: AUDIT COMMITTEE INTERACTION WITH EXTERNAL AUDITORS
APPENDIX CY: AUDIT COMMITTEE ACTIVITIES
APPENDIX CZ: AUDIT COMMITTEE POWER TO HIRE AND FIRE HEAD OF IAF
APPENDIX DA: QUALITY OF RELATIONSHIP BETWEEN AUDIT COMMITTEE AND HEAD OF IAF
APPENDIX DB-I: YEARS OF EXPERIENCE ON CURRENT ROLE AS HIAF
APPENDIX DB-II : NO OF AUDIT AND FINANCE RELATED EXPERIENCE PRIOR TO APPOINTEMENT AS THE HEAD OF IAF
APPENDIX DC: PROFESSIONAL QUALIFICATIONS
APPENDIX DD-I: NUMBER OF STAFF IN THE INTERNAL AUDIT DEPARTMENT
APPENDIX DD-II: NUMBER OF STAFF WITH PROFESSIONAL QUALIFICATIONS AND COMPUTER LITERACY
APPENDIX DE: INTERNAL AUDIT FUNCTION THREE YEARS ANNUAL BUSGET
APPENDIX DF: HOURS OF CPD BY THE HEAD OF IAF
APPENDIX DH: AUTHORITY LEVEL TO ENGAGE AND DISENGAGE THE HEAD OF IAF
APPENDIX DI: REPORTING LINE OF THE HEAD OF IAF
APPENDIX DJ: FREQUENCY OF AC MEETING ATTENDANCE BY THE HEAD OF IAF
APPENDIX DK: INFORMAL INTERRACTION BETWEEN AC MEMBERS AND THE HEAD OF IAF
APPENDIX DL-I: INFLUENCE OF EXCO ON THE ACTIVITIES OF THE IAF
APPENDIX DL-II: ACCESS TO DOCUMENT AND INFORMATION BY IAF
APPENDIX DM: INVOLVEMENT OF HEAD OF IAF IN OTHER ACTIVITIES
APPENDIX DN-I: APPROVAL LEVEL FOR ANNUAL INTERNAL AUDIT WORKPLAN
APPENDIX DN-II: DEGREE OF AC INPUT INTO THE ANNUAL IA ROADMAP
APPENDIX DO: AUTHORITY LEVEL FOR PREPARATION AND APPROVAL OF INETRNAL AUDIT MANUAL (CHARTER)
APPENDIX DP: AUDIT COMMITTEE CONSIDERATION OF IAF REPORTS
APPENDIX DQ: QUALITY ASSURANCE OF THE IAF WORK
ACKNOWLEDGEMENTS
All praise and honour is to God the almighty for making it possible for me to undertake this doctoral study. I am grateful to the almighty God for supplying me with good health, the strength, the patience, the perseverance, the humility and the courage to complete this thesis.
I am extremely grateful to my supervisor, my mentor, a professor of professors, my role model, Professor Dr. Donald Oxford York, Ph.D. I cannot find an adequate expression to convey the depth of my gratitude to him for the faith he has in me right from the first meeting I had with him and all through the challenging moments of carrying out this research. Professor Dr. Donald Oxford York is always there to provide me with the guidance, encouragement and support that I needed to complete the research. Professor Dr. York consistently offers me insightful comments and direction on my work. He is patient, understanding, very meticulous and has an unusual key to make me carry on. All credits to him for his encouragement and patience which has undoubtedly resulted in a significant contribution to the development of this thesis. I am very fortunate to have Professor Dr. York as my supervisor. I have acquired a great deal of knowledge from his academic expertise and his friendship. May God bless him and all that are his abundantly. Amen and Amen.
I will like to thank my academic reader, Prof. Dr. Norman Madarasz, Ph.D, D.Litt, the Chief Academic Officer at UGSM-Monarch Business School and the Dean of the School of Philosophy at UGSM-Monarch Business School Switzerland, for his patience, support and useful comments from the start through the process of completing this research. I am very grateful for his insights and academic expertise at each and every doctoral residency program which has helped me in no small measure in arriving at the focus and form of this thesis.
Special thanks to Prof.Dr. Jeffery Shawn Henderson, D.Phil, the Dean of Faculty and Studies at UGSM-Monarch Business School, for his encouragement, support and insightful presentations and guidance at the doctoral residency workshops, which have been extremely helpful to me from the beginning of this research to the successful completion of this thesis. I am also grateful to Prof. Dr. Henderson for accepting to be the Second Reader and to be on the Dissertation Committee. I must confess that, I have acquired tremendous knowledge from his academic expertise and his friendship. Professor Dr. Henderson, I am sincerely grateful.
I will like to thank Prof. Dr. Hassan Qudrat-Ullah, Ph.D, Professor of Research Methodology at UGSM-Monarch Business School Switzerland, for accepting to be the Third Reader and for his insightful comments throughout the period of this research.
I will like to thank Dr. Ayotunde Adebayo, Ph.D. of the Department of Social Sciences Education, University of Lagos for all his continual help, encouragement, mentoring and guidance during the present work while at UGSM-Monarch Business School. I am equally very grateful to Professor Olusegun, O. Matanmi, Ph.D, the Dean of Postgraduate School, Lagos State University for his encouragement and support throughout the course of this research. I am grateful to Professor Adefemi Isumonah, Ph.D of the Department of Political Science, University of Ibadan for his encouragement and assistance throughout the duration of this research. Also, I am sincerely grateful to Professor Semiu Babatunde Adeyemi, Ph.D, of the Department of Accounting, University of Lagos for his encouragement and support.
Moreover, I will like to thank the officials of the Nigerian Stock Exchange, particularly, the Branch Manager of Abeokuta Branch, Mrs. Comfort Ogunsanya for her assistance throughout the field work in accessing the annual reports of all the listed companies on the Exchange.
I am grateful to my brothers: Olalekan, Moronkeji, Adeyemi, Omoniyi, Opeyemi, Akinwunmi, Ayobami, and my sisters: Dorcas, Omolade, Patience, Elizabeth, and Folashade for their love, prayers and support.
Special thanks to the research participants, the members of the board of directors, the audit committee members and the professional accountants holding brief as the head of Internal Audit Function of their various organizations. All the support, guidance and encouragement you gave me from the initial contact with you to the final phases of the research helped me to develop a thorough understanding of the subject of corporate governance and earnings management. Words will fail me, if I have to express how grateful I am for giving me the opportunity to carry out this research on corporate governance and earnings management practices in the Nigerian listed companies. Without your interest and concerted support, I doubt if this dissertation would have recorded a success.
I owe my family a deep gratitude for their understanding, support, love and prayers. I am grateful for the love, support and prayers of my children: Simon (Jnr.), Stephen, Shulamite and Susana. I love you so much. The period of undertaking this research was one of the most challenging moments for us as a family, yet, you showed me your unparalleled love, care, understanding and support without which, it would have been impossible for me to concentrate and focus on completing this research. I deeply appreciate you and I love you so much.
This acknowledgment will be incomplete without a special mention of the woman behind the success of this research. I am indebted to the love of my life, the mother of our children, a woman of unparalleled faith, a courageous woman, a woman who sees a vision with her husband and is ready to stand by the husband to actualize the vision, a virtuous woman, a wife like no other, my pillar and support, my beloved wife, Adenike Olubunmi Akinteye. Without her love and support, undertaking this doctoral study would have been practically impossible. I thank her for her love, understanding, prayers, support, encouragement, perseverance, endurance, patience, humility, relentless and tireless efforts in keeping the home together and in making the home a haven of peace and love for me and our children. I thank her for her complete and total support of me. May God continue to bless her and together we shall live forever. Amen and Amen. Thank you, Mrs. Adenike Olubunmi Akinteye for your continual love, prayers, support and encouragement. I love you so much.
Needless to say, none of the very special people acknowledged here share any responsibility for any error either of fact or judgment that may have occurred in this work.
TABLE OF FIGURES
TABLE 1.2A SELECTED EARNINGS MANAGEMENT AUTHORS
TABLE 1.2B SELECTED EARNINGS MANAGEMENT AND CORPORATE GOVERNANCE AUTHORS
FIGURE 1.7 METHODOLOGICAL STRUCTURE
FIGURE 1.7B MONARCH STANDARDIZED RESEARCH PROCESS FLOW
FIGURE 1.8 BIBLIOMETRIC REVIEW OF EARNINGS MANAGEMENT
TABLE 1.10 LEVEL OF ANALYSIS AND STAKEHOLDERS SCHEMA
TABLE 1.11 CLASSIFICATION OF STAKEHOLDERS
TABLE 2.0 OVERVIEW OF LITERATURE REVIEW
TABLE 2.0 SEMINAR AUTHORS ON POSITVE ACCOUNTIN THEORY
TABLE 2.2.2 CONTRIBUTORS TO THE ORIGIN OF AGENCY THEORY
TABLE 2.2.3 AGENCY THEORY OVERVIEW
TABLE 2.2.3.1 AGENCY THEORY
FIGURE 2.2.3.1A POSITIVIST AGENCY THEORY
FIGURE 2.2.4 INFLUENCERS OF AGENCY COST THEORY
TABLE 2.2.7 SUMMARY OF EMPRICAL RESEARCH ON AGENCY THEORY
FIGURE 2.3.1.8 CORPORATE GOVERNANCE ELEMENTS
FIGURE 2.3.1.8A CORPORATE GOVERNANCE PRINCIPLES
FIGURE 2.8 ARCHITECTURE OF BOARD GOVERNANCE
FIGURE 2.8.3 FIRM STRUCTURE UNDER AGENCY THEORY
FIGURE 2.8.3A FIRM STRUCTURE UNDER STEWARDSHIP THEORY
FIGURE 2.9 OVERVIEW OF AUDIT COMMITTEE REVIEW
FIGURE 2.10 OVERVIEW OF INTERNAL AUDIT FUNCTION
FIGURE 2.10.1 AUDIT COMMITTEE OVERSIGHT CHECKLIST
FIGURE 2.10.2 INSTRUMENT OF MEASURING IAF QUALITY
FIGURE2.10.2 MEASURING INTERNAL AUDIT QUALITY
FIGURE 2.11.3 COMPETENCE FRAMEWORK FOR CEA
FIGURE 3.0 OVERVIEW OF RESEARCH METHODOLOGY
FIGURE 3.2A FRAMEWORK FOR RESEARCH DESIGN
TABLE 3.2A POPULATION COMPOSITION OF NSE LISTED FIRMS
TABLE 3.2B SAMPLING DISTRIBUTION TABLE
FIGURE 3.2B INITIAL RESEARCH DESIGN
FIGURE 3.2C FURTHER STEPS ON RESEARCH DESIGN
TABLE 3.4 VARIABLES, DEFINITIONS AND SOURCES
TABLE4.3 DETERMINATION OF SAMPLE SIZE
TABLE 4.4.3.1 INDEPENDENT AND DEPENDENT VARIABLES
TABLE 4.4.3.3 MISSING DATA ANALYSIS
TABLE 4.4.3.5.3 SCATTER PLOTS
TABLE 4.4.3.5.4 DURBIN WATSON STATISTICS
TABLE 4.4.3.5.5 MULTICOLLINEARITY DIAGNOSIS
TABLE 4.4.3.6 PEARSON CORRELATIONS
TABLE 4.4.3.7A REGRESSION COEFFICIENTS
TABLE4.4.3.7B MODEL SUMMARY
TABLE 4.4.3.8 ANOVA
TABLE4.4.4.1 MISSING DATA ANALYSIS
TABLE 4.4.4.3.2 HISTOGRAM OF REGRESSION RESIDUALS
FIGURE 4.4.4.3.3 SCATTER PLOTS
TABLE 4.4.4.3.4 DURBIN WATSON STATISTICS
TABLE 4.4.4.3.5 MULTICOLLINEARITY DIAGNOSIS
TABLE 4.4.4.4 PEARSON CORRELATIONS
TABLE 4.4.4.5 REGRESSION COEFFICIENTS
TABLE 4.4.4.6 REGRESSION ANALYSIS MODEL SUMMARY
TABLE 4.4.4.7 ANOVA: F-STATISTICS
TABLE 4.4.5.1 MISSING DATA ANALYSIS
TABLE 4.4.5.3.3 SCATTER PLOTS
TABLE 4.4.5.3.4 DURBIN WATSON STATISTICS
TABLE 4.4.5.3.5 MULTICOLLINEARITY DIAGNOSIS
TABLE 4.4.5.4 PEARSON CORRELATIONS
TABLE 4.4.5.5 MULTIVARIATE REGRESSION COEFFICIENTS
TABLE 4.4.5.6 REGRESSION ANALYSIS MODEL SUMMARY
TABLE 4.4.5.7 ANOVA: F-TESTS
TABLE 4.4.6.1 MISSING DATA ANALYSIS
FIGURE 4.4.6.3.3 SCATTER PLOTS
TABLE 4.4.6.3.4 DURBIN WATSON STATISTICS
TABLE 4.4.6.3.5 MULTICOLLINEARITY DIAGNOSIS
TABLE 4.4.6.4 PEARSON CORRELATIONS
TABLE 4.4.6.5 MULTIVARIATE REGRESSION COEFFICIENT
TABLE 4.4.6.6 REGRESSION ANALYSIS MODEL SUMMARY
TABLE 4.4.6.7 ANOVA: F-STATISTICS
FIGURE4.4.7.3.3 SCATTER PLOTS
TABLE 4.4.7.3.4 DURBIN WATSON STATISTICS
TABLE 4.4.7.3.5 MULTICOLLINEARITY DIAGNOSIS
TABLE 4.4.7.4 PEARSON CORRELATIONS
TABLE 4.4.7.5 REGRESSION COEFFICIENTS
TABLE 4.4.7.6 REGRESSION ANALYSIS MODEL SUMMARY
TABLE 4.4.7,7 ANOVA: F-STATISTICS
TABLE 4.4.8 SUMMARY OF EARNINGS MANAGEMENT MODELS
TABLE 4.4.8.1 ESTIMATING THE EDA FOR 2009,2010,2011,2012
TABLE4.4.9.1 EARNINGS MANAGEMENT: AGRIC SECTOR
TABLE 4.4.9.2 EARNINGS MANAGEMENT: CONGLOMERATES
TABLE 4.4.9.3 EARNINGS MANAGEMENT: REAL ESTATE
TABLE 4.4.9.4 EARNINGS MANAGEMENT:CONSUMER GOODS
TABLE 4.4.9.5 EARNINGS MANAGEMENT: HEALTHCARE
TABLE 4.4.9.6 EARNINGS MANAGEMENT:ICT
TABLE 4.4.9.7 EARNINGS MANAGEMENT: INDUSTRIAL GOODS
TABLE 4.4.9.8 EARNINGS MANAGEMENT: OIL AND GAS
TABLE 4.4.9.9 EARNINGS MANAGEMENT: NATURAL RESOURCES
TABLE 4.4.9.10 EARNINGS MANAGEMENT: SERVICES
TABLE 4.4.9.11 EARNINGS MANAGEMENT: SUMMARY 2009-2012
TABLE 4.4.10.2 CORPORATE VARIABLES DEFINITIONS
TABLE 4.4.10.3 DESCRIPTIVES STATISTICS OF CG VARIABLES
TABLE 4.4.4.10.4.2 MISSING DATA ANALYSIS
TABLE 4.4.10.4.4 PEARSON CORRELATION OF CG VARIABLES
TABLE 4.4.11.1 DEFINITION OF INDEPENDENT VARIABLES
FIGURE4.4.11.2.2 SCATTER PLOTS
TABLE 4.4.11.2.3 DURBIN WATSON STATISTICS
TABLE4.4.11.2.4 VARIANCE INFLATION FACTORS OF CG VARIABLES
TABLE 4.4.12 PEARSON CORRELATIONS
TABLE 4.4.13A VARIABLE ENTERED AND REMOVED
TABLE 4.4.13B MODEL SUMMARY
TABLE 4.4.13C REGRESSION COEFFICIENTS
TABLE 4.4.13.1A RESIDUAL STATISTICS:CONTROL VARIABLES
TABLE 4.4.13.1B RESIDUAL STATISTICS:NO CONTROL VARIABLES
TABLE 4.6A PARTICIPANTS PROFILE: BOARD OF DIRECTORS
TABLE 4.6B PARTICIPANTS PROFILE: AUDIT COMMITTEE
TABLE 4.6C PARTICIPANTS PROFILE: HEAD OF INTERNAL AUDIT
TABLE 4.7.1A FREQUENCY OF BOARD MEETINGS
TABLE 4.7.1B FREQUENCY OF BOARD MEETINGS TALLY
TABLE 4.8.1A INFORMAL INTERACTIONS OF BOARD MEMBERS
TABLE 4.8.1B INFORMAL INTERACTION OF BOARD TALLY
TABLE 4.9.1A FINANCIAL UNDERSTANDING OF BOARD
TABLE 4.9.1B FINANCIAL UNDERSTANDING OF BOARD TALLY
TABLE 4.10.1A DAYS NOTICE FOR BOARD MEETINGS
TABLE 4.10.1B DAYS NOTICE FOR BOARD MEETINGS TALLY
TABLE 4.11.1A CIRCULATION OF BOARD PAPERS
TABLE 4.11.1B CIRCULATION OF BOARD PAPERS TALLY
TABLE 4.12.1A POLICY ON BOARD FINANCIAL LITERACY
TABLE 4.12.1B POLICY ON BOARD FINANCIAL LITERACY TALLY
TABLE 4.13.1A BOARD INDEPENDENCE
TABLE 4.13.1B BOARD INDEPENDENCE TALLY
TABLE 4.13.2A POLICY ON CONFLICT OF INTEREST
TABLE 4.12.2B POLICY ON CONFLICT OF INTEREST TALLY
TABLE 4.13.1A BOARD SIZE
TABLE 4.13.1B BOARD SIZE TALLY
TABLE 4.15.1A BOARD OVERSIGHT ROLES
TABLE 4.15.1B BOARD OVERSIGHT ROLES TALLY
TABLE 4.16.1A RECRUITMENT OF NEW DIRECTOR
TABLE 4.16.1B RECRUITMENT OF NEW DIRECTORS TALLY
TABLE 4.17.1A MULTIPLE BOARD MEMBERSHIP
TABLE 4.17.1B MULTIPLE BOARD MEMBERSHIP TALLY
TABLE 4.18.1A EFFECTS OF MULTIPLE BOARD MEMBERS
TABLE 4.18.1B EFFECTS OF MULTIPLE BOARD MEMBERS TALLY
TABLE 4.19.1A INFLUENCE OF INSTITUTIONAL INVESTORS
TABLE 4.19.1B INFLUENCE OF INSTITUTIONAL INVESTORS TALLY
TABLE 4.20.1A BOARD COMMITTEES
TABLE 4.20.1B BOARD COMMITTEES TALLY
TABLE 4.21.1A QUALITIES OF BOARD CHAIR
TABLE 4.21.1B QUALITIES OF BOARD CHAIR TALLY
TABLE 4.22.1A AUDIT COMMITTEE CHARTER
TABLE 4.22.1B AUDIT COMMITTEE CHARTER TALLY
TABLE 4.23.1A RELATIONSHIP BETWEEN THE AC AND HIAF
TABLE 4.23.1B RELATIONSHIP BETWEEN THE AC AND HIAF TALLY
TABLE 4.24.1A ANNUAL IAF WORK PLAN OR ROAD MAP
TABLE 4.24.1B ANNUAL IAF WORK PLAN TALLY
TABLE 4.25.1A FREQUENCY OF AC MEETINGS
TABLE 4.25.1B FREQUENCY OF AC MEETINGS TALLY
TABLE 4.25.2A IAF ATTENDANCE AT AC MEETINGS
TABLE 4.25.2B IAF ATTENDANCE AT AC MEETINGS TALLY
TABLE 4.26.1A AUDIT COMMITTEE MEETINGS SCHEDULE
TABLE 4.26.1B AUDIT COMMITTEE MEETINGS SCHEDULE TALLY
TABLE 4.27.1A INTERACTION BETWEEN AC AND IAF
TABLE 4.27.1B INTERACTION BETWEEN AC AND IAF TALLY
TABLE 4.28.1A APPROVAL OF IAF CHARTER
TABLE 4.28.1B APPROVAL OF IAF CHARTER TALLY
TABLE 4.29.1A AUDIT COMMITTEE INDEPENDENCE
TABLE 4.29.1B AUDIT COMMITTEE INDEPENDENCE TALLY
TABLE 4.29.1A COMPLIANCE OF AC COMPOSITION WITH CAMA
TABLE 4.29.1B COMPLIANCE OF AC COMPOSITION TALLY
TABLE 4.30.1A FINANCIAL LITERACY OF AC MEMBERS
TABLE 4.30.1B FINANCIAL LITERACY OF AC MEMBERS TALLY
TABLE 4.31.1A TRAINING OF AC MEMBERS
TABLE 4.31.1B TRAINING OF AC MEMBERS TALLY
TABLE 4.32.1A AUDIT COMMITTEE SIZE
TABLE 4.32.1B AUDIT COMMITTEE SIZE TALLY
TABLE 4.32.2A ADEQUACY OF AC SIZE
TABLE 4.32.2B ADEQUACY OF AC SIZE TALLY
TABLE 4.33.1A INTERACTION OF AC AND EXTERNAL AUDITORS
TABLE 4.33.1B AC AND EXTERNAL AUDITOR INTERACTION TALLY
TABLE 4.34.1A AC REVIEW OF IAF REPORTS
TABLE 4.34.1B AC REVIEW OF IAF REPORTS TALLY
TABLE 4.35.1A ENGAGEMENT AND DISENGAGEMENT OF HIAF
TABLE 4.35.1B HIAF ENGAGEMENT AND DISENGAGEMENT TALLY
TABLE 4.36.1A RELATIONSHIP BETWEEN AC AND HIAF
TABLE 4.36.1B RELATIONSHIP BETWEEN AC AND HIAF TALLY
TABLE 4.37.1A EXPERIENCE LEVEL OF HIAF
TABLE 4.37.1B EXPERIENCE LEVEL OF HIAF TALLY
TABLE 4.37.2A PRE-HIAF APPOINTMENT EXPERIENCE
TABLE 4.37.2B PRE-HIAF APPOINTMENT EXPERIENCE TALLY
TABLE 4.38.1A HIAF PROFESSIONAL QUALIFICATION
TABLE 4.38.1B HIAF PROFESSIONAL QUALIFICATION TALLY
TABLE 4.39.1A IT PROFICIENCY OF IAF STAFF
TABLE 4.39.1B IT PROFICIENCY OF IAF STAFF TALLY
TABLE 4.39.2A PROFESSIONAL QUALIFICATION OF IAF STAFF
TABLE 4.39.2B IAF STAFF PROFESSIONAL QUALIFICATION TALLY
TABLE 4.40.1A ANNUAL BUDGET OF IAF
TABLE 4.40.1B ANNUAL BUDGET OF IAF TALLY
TABLE 4.41.1A 12 MONTHS CPD OF HIAF
TABLE 4.41.1B 12 MONTHS CPD OF HIAF TALLY
TABLE 4.41.2A 24 MONTHS CPD OF HIAF
TABLE 4.41.2B 24 MOTHS CPD OF HIAF TALLY
TABLE 4.42.1A HIRING OF HAIF
TABLE 4.42.1B HIRING OF HIAF TALLY
TABLE 4.43.1A HIAF REPORTING LINE
TABLE 4.43.1B HIAF REPORTING LINE TALLY
TABLE 4.44.1A ATTENDANCE OF HIAF AT AC MEETINGS
TABLE 4.44.1B ATTENDANCE OF HIAF AT AC MEETINGS TALLY
TABLE 4.45.1A INFORMAL INTERACTION OF AC AND HIAF
TABLE 4.45.1B INFORMAL INTERACTION OF AC AND IAF TALLY
TABLE 4.46.1A INDEPENDENCE OF IAF
TABLE 4.46.1B INDEPENDENCE OF IAF TALLY
TABLE 4.46.2A IAF ACCESS TO INFORMATION
TABLE 4.46.2B IAF ACCESS TO INFORMATION TALLY
TABLE 4.47.1A OTHER ACTIVITIES OF IAF
TABLE 4.47.1B OTHER ACTIVITIES OF IAF TALLY
TABLE 4.48.1A AC INVOLVEMENT IN IAF WORK PLAN
TABLE 4.48.1B AC INVOLVEMENT IN IAF WORKPLAN TALLY
TABLE 4.48.2A AC INPUT INTO IAF ANNUAL WORK PLAN
TABLE 4.48.2B AC INPUT INTO IAF ANNUAL WORKPLAN TALLY
TABLE 4.49.1A RESPONSIBILITY FOR IAF CHARTER
TABLE 4.49.1B RESPONSIBILITY FOR IAF CHARTER TALLY
TABLE 4.50.1A REVIEW OF IAF REPORTS BY AC
TABLE 4.50.1B REVIEW OF IAF REPORTS BY AC TALLY
TABLE 5.51.1A QUALITY ASSURANCE OF IAF WORK
TABLE 5.51.1B QUALITY ASSURANCE OF IAF WORK TALLY
TABLE 5.1` OVERVIEWS OF RESEARCH OBJECTIVES AND
RESEARCH FINDINGS
FIGURE 5.1 SCHEMATIC FRAMEWORKS FOR DISCUSSIONS
INTEGRATION AND SYNTHESIS OF FINDINGS OF
QUALITATIVE AND QUANTITATIVE RESEARCH
TABLE 5.2 RESEARCH HYPOTHESIS
FIGURE 5.5 PROCESS FOR GENERATION OF PROTOTYPICAL
MODEL OF EARNINGS MANAGEMENT AND
CORPORATE GOVERNANCE
FIGURE 5.6 SIMON AKINTEYE PROTOTYPICAL MODEL OF
EARNINGS MANAGEMENT AND CORPORATE
GOVERNANCE
LIST OF ABBREVIATIONS
Abbildung in dieser Leseprobe nicht enthalten
NOTES ON TERMINOLOGY
Within the dissertation, the terminology ‘Head of Internal Audit Function or Head IAF and Chief Audit Executive or CAE are used interchangeably and frequently. It should be taken that these terms refer to the person occupying the office of the head of internal audit department of a firm. It should also be noted that the usage of these words is gender neutral. Furthermore, the male pronoun such as, he, his, him or himself should be read with both genders in mind.
CHAPTER ONE
INTRODUCTION
1.0 CHAPTER ONE introduction
1.1 BACKGROUND OF THE STUDY
Financial reporting has a powerful influence on a firm’s full range of activities and decision making by the users of financial information, the shareholders and potential investors. An earning as reported in the financial statements is a key consideration of how investors evaluate the firm, the firm’s financial leverage and how the managers are compensated. There is a strong incentive for managers to adjust earnings figures in order to maintain a desirable level in different contexts. (Rezaei & Roshani, 2012). Rezaei & Roshani (2012) documented that managers can use Earnings Management to deliver some useful and superior information in their possession about the firm’s performance to shareholders, bondholders and long term creditors. In this context, Earnings Management may be harmless to shareholders and the public. On the other hand, the beginning of the 21st Century has witnessed a number of accounting scandals across the United States and Europe. Goncharov (2005) documented that earnings management is at the core of accounting scandals involving: Enron, HealthSouth, Parmalat, Tyco, WorldCom and Xerox. Rezaei & Roshani (2013) argued that these accounting scandals changed the nature of earnings management towards an opportunistic view. Arya, Glover, & Sunder (2003) documented that, managers have the opportunist behavioral tendencies and often manage earnings for their own benefits and not for the benefits of the shareholders. This finding is consistent with the findings of Hao & Yao (2010) and Jiraporn, Miller, Yoon, & Kim (2008).
There appears to be no single accepted definition of the term “earnings management” in academic literature. However, Healy & Wahlen (1999) provide one of the most referenced definitions in literature. Healy & Wahlen (1999) expressed earnings management as:
“a phenomenon where managers use discretions in financial reporting and in the structuring of transactions to alter a financial report with the intention to either mislead some stakeholders about the underlying economic performance of the company or to influence contractual outcomes that depend on reported accounting numbers’’.
Managers do arbitrage on the flexibility offered by the Generally Accepted Accounting Principles (GAAP) of accrual accounting to engage in the manipulation of accounting earnings. Accrual accounting is defined by the FSAB (1985) as:
“ an attempt to record the financial effect on an entity of transactions and other events and circumstances that have cash consequences for the entity in the periods in which they occur rather than only in the period in which cash is received or paid by the entity”.
Shah, Nousheen, & Tahir (2009) argued that accrual accounting principle makes it possible for managers to exercise control over the timing of recognition of expense and revenue in the financial statements which can result in the manipulation of the actual earnings of a firm for a given period (Johari, Saleh, Jaffer, & Hassan, 2008).
Earnings manipulation has attracted serious attention of regulators, the media and the academic research. Levitt (1998) stated that earnings management has adverse effects on the US capital market. He further argued that earnings management impaired the reliability of financial reporting and weakened investors’ confidence. He thus advocated that the Security and Exchange Commission should be committed to taking serious action against the occurrence of earnings management in a firm. The destructive consequences of earnings management leads to the following questions: How can we constrain the adverse effects of earnings management to improve the quality of financial reporting? What are the potential roles of corporate governance mechanisms in constraining earnings management?
It is observed from a careful review of the seminar authors on earnings management that, the impact of corporate governance mechanisms on earnings management is downplayed and inadequately addressed. Researchers have concentrated more efforts and focus on opportunistic earnings management, investigating and researching the incentives for earnings management and very little of how earnings management and its negative effects can be constrained (Hassan & Ahmed , 2012). The present research intends to fill this identified gap in the existing literature on earnings management and corporate governance research.
In some emerging economies, some scholars have examined the influence of corporate governance on the quality of financial reporting as a proxy for earnings management. In the study of nine Asian countries, Shen & Chih (2007) found that the occurrence of earnings management is less in firms with sound corporate governance. Sarkar, Sarkar, & Sen( 2008) investigated the board of directors’ characteristics and opportunistic earnings management in India and argued that diligent boards have a negative correlation with lower earnings management. Al-khabash & Al-thuneibat (2009) established that the existence of internal governance structure exerts a significant influence on the practice of illegitimate earnings management among the companies listed on the Jordanian Stock Exchange. Kamel & Elbana (2010) found that greater reliance on corporate governance mechanisms has a combating effect on earnings management in the companies listed on Cairo Stock Exchange. However, the above studies focus on the monitoring roles of the board and board attributes and ignore the audit committee equation, arguing that the audit committee members are also members of the board (Soliman & Ragab, 2013).
A careful search of the literature indicates that there has been relatively few studies on earning management practices and the influence of internal corporate governance mechanisms on earnings management in Nigeria. This is consistent with the findings of Hassan & Ahmed ( 2012) with regards to earnings management research within the context of Nigerian listed companies. A careful search of Google scholar, Ebsco Host library and JStor library indicated that there is no published research on earnings management practices within the Nigeria context with a similar scope and the depth of the current research. Thus, this research extends the existing knowledge in the field of earnings management with the inclusion of the effects of the Audit Committee and Internal Audit Function on earnings management practices. It is believed that the scope of this research will lead to the discoveries of new or modified knowledge or understandings (Uadiale, 2012).
The primary focus of the present research is to investigate the influence of internal corporate governance mechanisms on earnings management in the companies listed on the Nigeria Stock Exchange. The scope of this research provides an opportunity to contribute original knowledge to the field of earnings management and corporate governance literature. The present research integrates the opportunistic earnings management with the corporate governance mechanisms alongside the relevant literature on earnings management and corporate governance theories to fill and bridge the gaps while responding to the main research question. It is believed that the scope of this research does not appear to have been completed elsewhere, which provides opportunity to contribute original knowledge to the domain of Earnings Management and Corporate Governance research.
Quality Corporate Governance encompasses a broad spectrum of internal and external mechanisms intended to mitigate the incentives for earnings management (Ram10; Gursory & Aygodan, 2002; Conyon & Schwalback, 2000) . Internal corporate governance mechanisms are functioning and processes established to oversee and influence the actions of a firm’s management (Davidson, Goodwin-Steward, & Kent, 2005). After an extensive review of literature on corporate governance, Ramly & Rashid (2010) identified the internal corporate governance mechanisms as : the board of directors, the audit committee and internal audit function. The previous mentioned mechanisms ensure that financial reports comply with mandatory reporting requirements and uphold the credibility of the information contained in the financial statements (Dechow, Sloan, & Sweeney, 1995).
Earnings Management and Corporate Governance seem to be a field with a considerable amount of available research. However, this does not appear to be the case when isolating for geographic issues with respect to Nigeria, African Culture and the developing economies. It is believed that any research conducted on Earnings Management and Corporate Governance mechanisms with respects to Nigeria and business within African culture will be important and critical in further development of this academic field.
The present research fills the existing gaps in the literature in two major ways: First, it fills the existing gap in the knowledge of earnings management with respects to the companies listed on the Nigerian Stock Exchange. Secondly, the present research addresses the gap on what should be the appropriate corporate governance framework that could effectively constrain the negative effects of earnings management. This study is intended to evolve a new or modified conceptual model of corporate governance attributes that could effectively mitigate the opportunistic earnings management practices.
In the subsequent sections, this paper presents an overview of the terms, earnings management and corporate governance, a brief description of previous academic literature on the subject and finally, the importance and purpose of carrying forth the present research.
1.2 EARNINGS MANAGEMENT IN RESEARCH
Earnings Management has been a subject of research since the 1970s and early 1980s. A large number of studies on this subject found that managers can leverage on accounting latitudes to exercise discretion through the choice of accounting methods or policies (Sun & Rath, 2010). The most commonly used method of detecting earnings management in the financial statements by various researchers is by breaking accruals into two components: discretionary and non-discretionary accruals. This method has been a subject of research and in the process, some researchers have suggested different modifications to the accrual method of detecting earnings management. Thus, there seems to be no general consensus on a universal method of detecting earnings management leaving this to further development in theory and research designs of earnings management studies (Liu, 2011).
In Table 1.2, some of the frequently cited scholars on earnings management are presented showing how the study of earnings management has developed over time.
TABLE 1.2 A
SELECTED EARNINGS MANAGEMENT AUTHORS
Abbildung in dieser Leseprobe nicht enthalten
Source: Simon Ademola Akinteye, 2013
Some eminent scholars have carried out extensive research within the domain of earnings management and corporate governance generally from a theoretical point of view. On the other hand, a number of researchers have carried out research on earnings management and corporate governance on jurisdictional basis. Table 1.2B contains a summary of some of the eminent scholars on this subject.
TABLE 1.2 B
SELECTED EARNINGS MANAGEMENT AND CORPORATE GOVERNANCE AUTHORS
Abbildung in dieser Leseprobe nicht enthalten
Source: Simon Ademola Akinteye, 2013
These authors appear to be frequently cited for their innovations and theories within earnings management and corporate governance research. In spite of the contributions of these scholars, the research on earnings management has not provided the desired coverage on the influence of the corporate governance mechanisms on earnings management. The question which has not been extensively studied in the literature borders on how individuals or the constituents of internal corporate governance mechanisms interact with one another to constrain opportunistic earnings management? A careful search of the pertinent research and scholastic databases suggests that little research has been conducted in this area. This present research will advance knowledge in this area. With this in mind, the importance of the knowledge of earnings management and how each constituent of internal corporate governance mechanisms can constrain earnings management introduces us to the problem statement at hand.
1.3 STATEMENT OF THE PROBLEM
The subject of earnings management appears to be covered within the academic literature in the domain of accounting, finance and management research. Earnings management as a term is a regular topic of interest within the research community, the regulators and the stock exchanges. This is particularly true, especially in the context of opportunistic earnings management. However, there seems to be an insignificant quantity of research on the effect of corporate governance mechanisms on earnings management in the domain of management, accounting and finance research (Ramly & Rashid, 2010).
One noted observation from the review of the pertinent literature is that much of the research in the domain of earnings management focuses on the opportunistic earnings management (Arya, Glover, & Sunder, 2003; Hao & Yao, 2010; Jiraporn P. , Miller, Yoon, & Kim, 2008; Guay, Kothari, & Watts, 1996; Healy & Palepu, 1993). The concentration of many scholars on opportunistic earnings management presents a gap that raises a number of issues that are of significant interest to this research:
1. How do we mitigate the agency risks, which the existing academic literature argued, is at the root of earnings management?
2. How do we effectively monitor the actions of management and limit the managerial opportunistic behavior?
3. How do we increase the firm’s information flow in the context of ownership and control?
4. What is the new conceptual model or modified approach that will constrain and limit the managerial opportunistic earnings management?
The present research will seek to resolve the managerial dilemma elicited by the above issues. The following section will elaborate on the purpose behind the present research within the domain of earnings management and corporate governance.
1.4 THE PURPOSE STATEMENT
The present research seeks to examine the following within the context of the companies listed on the Nigerian Stock Exchange:
To discover to what extent the presence of internal corporate governance mechanisms mitigates agency risks, increases the monitoring of managers' actions, limit the managers’ opportunistic behavior and improve the quality of the firms’ information flow in the companies that are listed on the Nigeria Stock Exchange.
1.5 STATEMENT OF OBJECTIVES
Arising from the purpose of the study, the objectives of the present study are identified and highlighted below:
1. To examine the field of Earnings Management research and Earnings Management characteristics of publicly listed companies in Nigeria;
2. To examine the relationship between Earnings Management and Board of Directors characteristics in publicly listed companies in Nigeria
3. To examine the relationship between Earnings Management and Audit Committee characteristics in publicly listed companies in Nigeria
4. To examine the relationship between Earnings Management and Internal Audit Function in publicly listed companies in Nigeria
5. To compare the findings of the present research with the existing academic literature to determine whether or not the characteristics of Earnings Management and Board of Directors characteristics, Audit Committee characteristics and Internal Audit Function attributes are universal and applied in practice;
6. To generate a conceptual model of Corporate Governance that can be used to control, reduce and mitigate the occurrence of Earnings Management in publicly listed companies in Nigeria.
7. To examine how the relationship between corporate governance mechanisms and earnings management in Nigerian listed firms compare with the relationship between corporate governance mechanisms in the firms listed in UK and Continental Europe with particular reference to French listed firms.
1.6 RESEARCH QUESTION
As earlier stated, the aim of this research is to bring increased focus to the effect of corporate governance mechanisms on earnings management within the context of the companies listed on the floor of the Nigeria Stock Exchange.
Research Question:
“What is the new conceptual framework for corporate governance mechanisms that can be used by publicly listed companies in Nigeria to control, minimize and mitigate the degree of earnings management?
1.7 RESEARCH METHODOLOGY
The contemplated research will employ a mixed-method research methodology. Mixed methods research combines both the qualitative and quantitative research methods to data collection to produce greater insight than would be gained by a single method (Lorelei, Mathieu, & Wendy, 2008).
FIGURE 1.7 A
Methodological Structure
Triangulation of Data
Abbildung in dieser Leseprobe nicht enthalten
Source: UGSM-Monarch Business School Switzerland
Figure 1.7 shows that the aim of the present research is to respond to the research question by way of a triangulation of research data, being: (1) Literature review of existing seminal academic authors (desk research); (2) Content analysis of existing corporate data (desk research), and, (3).Interviews with primary stakeholders in industry (field research).
FIGURE 1.7B
Monarch Standardized Research Process Flow
Abbildung in dieser Leseprobe nicht enthalten
Source: UGSM-Monarch Business School Switzerland
Figure 1.7B illustrates the steps within the Monarch Standardized Research Process Flow that will be followed within the contemplated research, as:
1. In-depth Literature Review-Part 1 : In-depth review of the seminal authors within the domain of Earnings Management and Internal corporate governance mechanisms will be the first step completed in order to provide a solid academic foundation for the research.
2. Content Analysis: An analysis based on data obtained from annual reports, white papers, supporting commercial documents and other commercial data sources will be examined.
3. Two-step Semi-Structured Interview Process:
Step 1. Preliminary Interviews: The development of preliminary interview questions will be informed by and synthesized from the review of the literature and content analysis. Stakeholders to be interviewed will be industry participants considered knowledgeable with respect to the research at hand. A minimum sample of thirty (30) unique participants will be interviewed. Interviews will be held in person at a location amenable to the subjects and are expected to be approximately thirty (30) minutes in length. Telephone interviews will be used in the case that physical interviewing is impossible due to resource or time constraints. Interviews will be tape recorded unless objected to by the participant in which case, manual notes will be taken.
Step 2. Follow-up Interviews: of a more specific and narrow view informed by the first round of interviews, content analysis and literature review will be concluded with a smaller sub-set of 15 respondents obtained from the first round sample. These interviews will seek to uncover deeply held personal beliefs and understandings on the research subject that will further uncover important aspects in responding to the provisional research question.
4. Step 4-In-Depth Literature Review-Part 2 : A second more in-depth literature research review will be completed to further refine the scope and consideration of the existing knowledge within the academic field to add more expertise and specificity to the research analysis.
5. Step 5 & 6 Triangulation of the Data & Gap Analysis: A triangulation of the data will be considered and analyzed in order to determine whether or not the existing academic knowledge is congruent with the practical application of the field on a commercial basis. The result of this analysis should dictate whether or not a “Knowledge Gap” exists between the academic (theoretical) and the practical (applied) domains.
6. Step 7: Development of New Model: Building on the Gap Analysis a thorough analysis of the existing frameworks within the academic domain will be made. This analysis will inform whether or not the existing frameworks sufficiently address the requirement for practical application within the industry and whether or not they may be further improved or modified.
1.8 THE SIGNIFICANCE OF THE STUDY
As reflected in the academic literature, it is believed that new research on the impact of corporate governance mechanisms on earnings management should prove to be a valuable knowledge in the development of the existing body of knowledge within the domain of earnings management and corporate governance research (Cornett, McNutt, & Tehrainian, 2009). Hassan & Ahmed (2012), argue that there has not been significant research carried out on earnings management characteristics of publicly listed companies and how each of the components of internal corporate governance mechanisms interact to limit earnings management and improve the quality of financial reporting in Nigeria.
In Table 1.8, a bibliometric review was generated using two referencing databases: Google Scholar and JSTOR. These two databases have been selected in order to further support the argument that there is a lack of sufficient research on earnings management and corporate governance mechanisms through an empirical analysis of the publicly listed companies in Nigeria.
TABLE 1.8
BIBLIOMETRIC REVIEW OF EARNINGS MANAGEMENT
Abbildung in dieser Leseprobe nicht enthalten
Source: Simon Ademola Akinteye, 2013
Table 1.8 is crucial for clear appreciation that earnings management and corporate governance research are currently an understudied area when it is related to the phenomenon of the publicly listed companies in Nigeria which is the focus of this present research. It is essential to note that the search results may not contain any direct association with the subject matter of EM and CG as each of these totals have not been filtered to extract non-significant results.
In addition, the search results contain all formats such as journals, articles and books. It is interesting to note that when searched separately, the term ‘Earnings Management’ and ‘Corporate Governance’ produced a large amount of search results. However, when EM and CG are combined, the search results give a fewer occurrence.
With the bibliometric review presented in Table 1.8, there is an obvious lack of sufficient scholarly research on earnings management and corporate governance mechanisms when it is related to the publicly listed companies in Nigeria. Since earnings quality is important to the investors, because investors’ interest is not protected when earnings are manipulated, the focus of this present research is important. Though there are research on earnings management and corporate governance, the linkage of both elements accommodates very insignificant amount of research. It is in this context that there is the opportunity for the research presented within this manuscript. This will provide further illumination into the domain of earnings management and corporate governance research.
The scope of this research does not appear to have been completed elsewhere. Accordingly, the void gives an excellent opportunity to contribute new knowledge which will facilitate a clearer understanding on earnings management. The research integrates the historical work of accomplished and erudite scholars with more recent seminar literature on earnings management and corporate governance theories in order to bridge the gap identified. It is believed that the present research will lead to new understandings which will be useful to the stakeholders. The next section will expound on the stakeholder analysis and the nature of the present research.
1.9 NATURE OF THE RESEARCH
As earlier mentioned, it is believed that the existing literature on earnings management is not sufficient (Hassan & Ahmed, 2012; Ramly & Rashid, 2010). The existing literature contains few studies on the effect of corporate governance mechanisms on opportunistic earnings management. This appears to be an overlooked phenomenon. In addition, it appears that more research is needed to clarify and establish the new models of corporate governance mechanisms capable of mitigating the agency problems and the tendency to manipulate earnings for maximization of their personal benefits.
The present research examines the relation between the attributes of internal corporate governance mechanisms and earnings management. Internal corporate mechanisms have been identified as “the internal audit function, the board of directors and the audit committee” (Ram10). The attributes of the board of directors to be studied are: board composition vis-a-vis the proportion of independent directors, the competence of the independent directors, the size of the board, board duality and the frequency of board meetings. The attributes of the audit committee are: expertise of the audit committee members, independence of the audit committee and the frequency of the meetings of the audit committee. The attributes of the internal audit function will be measured by the level of interaction between audit committee and head of internal audit function as stated by (Mat-Zain & Subrammaniam, 2007)are: (1) internal auditor view of reporting line and other communication with the audit committee, (2) frequency of meeting between internal audit function and audit committee and (3) the degree of audit committee contribution to the depth and breadth of the schedule of the activities of the internal audit function.
Earnings Management is measured as discretionary current accruals using the Modified Jones Model. The model is chosen for the detecting earnings management in publicly listed companies in Nigeria, based on extensive reviews of the potency and strength of various accruals detecting models. As explained by Dechow, Sloan, & Sweeney (1995), the Modified Jones Model of measuring discretionary accruals is the most powerful in detecting the occurrence of earnings management. This is because this model addresses the shortfall in other models and take care of the effect of the volume and timing of payment of account receivables.
There are 106 companies listed on the Nigeria Stock Exchange with a total market capitalization value of N10.99 trillion (Approximately US$ 70 billion) as at April 5, 2013 (The Punch, 2013). It is believed that Nigeria Stock Exchange is the second largest stock exchange in the African continent and the largest stock exchange in the Sub-Saharan Africa. It is also believed that Nigeria Stock Exchange is a destination of choice for institutional investors from Europe and United States of America. With this in mind, the discovery of new insights and understanding in the field of earnings management and internal corporate governance research will have implications beyond the audience within the Nigeria. The new findings from this research will also be of interest to a wider stakeholder group as explained in the subsequent paragraphs.
1.10 LEVEL OF ANALYSIS
The contemplated research will maintain a level of analysis methodology that seeks to focus on critical considerations with reference to the above stakeholders as compartmentalized within the following schema:
TABLE 1. 10
Levels of Analysis & Stakeholders Schema
Abbildung in dieser Leseprobe nicht enthalten
Source: UGSM-Monarch Business School Switzerland
As indicated by the different colours in Table 1.9B and due to limited resources and time available, the focus of the contemplated research shall solely be on the Meso and Micro levels of analysis. The contemplated research will ignore aspects that are specific to the macro level of analysis. This focus is intended to provide the needed attention on individuals within the stakeholder schema that are believed to be gatekeepers, key players, and decision makers in corporate governance.
It is further believed that a focus on the individual internal corporate governance mechanism within the Micro or Meso level of analysis will provide a robust view and understanding of the critical nature of the operations of corporate governance mechanisms on earnings management in financial statements reporting. It will therefore provide an original perspective to this domain of knowledge. It is believed that there presently lacks sufficient study of the phenomenon of the operation and interactions of internal corporate governance mechanisms on earnings management by way of triangulation of data among the three primary groups within the contemplated research, which are: individual heads of internal audit function, audit committee members and the board of directors (Cornett, McNutt, & Tehrainian, 2009). It is believed that this lack of focus and integration in existing literatures represents a gap in knowledge within the domain and within the territory studied and as such provides the basis for the possibility to uncover and identify unique, modified or new understandings.
1.11 STAKEHOLDERS CLASSIFICATION
There are a number of entities who through their activities are stakeholders in the financial statements reporting of companies listed on the Nigeria Stock Exchange. The stakeholders of a corporation are expressed by James E. Post, Lee E. Preston & Sybille Sachs (2002) as:
“the individuals and groups of people that contribute, either willingly or unwillingly, to its ability to create wealth through different activities and as a consequence become the potential bearer of both its risks and benefits.” (Post, Preston, & Sachs, 2002).
The stakeholder categories found in academic literature are delineated across primary, secondary, social and non-social as illustrated in table 1.11 below:
TABLE 1. 11
CLASSIFICATION OF STAKEHOLDERS
Abbildung in dieser Leseprobe nicht enthalten
Source: Adapted from (Wheeler & Silanpaa, 1997)
When applied to the contemplated research, the stakeholders of primary importance are identified as: institutional investors (foreign and local), shareholders, board of directors, academic community, external auditors, individual audit committees members of listed companies, regulators ( e.g. Central Bank of Nigeria, Nigerian Stock Exchange, Securities and Exchange Commission, National Insurance Commission, National Investment Promotion Commission) and Government.
1.12 CONTRIBUTIONS AND INOVATIONS
1.12.1 Contributions
1 . Enrich the research on internal corporate governance mechanisms and earnings management:
Based on the current stage of Nigeria’s capital market development, this research attempts to do a systematic empirical research on internal corporate governance mechanisms of listed companies and earnings management. It is expected that the outcome of this research can provide effective evidence for understanding how internal corporate governance mechanisms will impose constraints on earnings management, thereby enriching the knowledge in the field of corporate governance and earnings management and earnings management research.
2 Provide a benchmark for companies listed on the Nigerian Stock Exchange on the attributes of the internal corporate governance mechanisms, effectively constraining earnings management and improving transparency of accounting information in the financial statements.
It is the expectation of this paper that the understanding of practical situation of internal corporate governance mechanisms and earnings management of Nigerian listed companies will be enhanced, with a view to promoting improved corporate governance characteristics that will effectively constrain earnings management, and improve the credibility, reliability and transparency of accounting information published by listed companies.
1.12.2 Innovations
The existing empirical studies on earnings management on Nigerian listed companies, mainly focus on earnings management in order to avoid regulatory constraints and market regulations. The present research intends to discover the incentives for earnings management in the companies listed on the Nigerian Stock Exchange and to provide evidence for effective supervision of securities market transactions.
Furthermore, on the subject of internal corporate governance mechanisms, the majority of the scholarly articles investigated the effects of board governance and audit committee on the performance of listed companies (Placeholder1). When the effects of internal audit function on earnings management is considered, there are very few studies found in the existing literature. It appears, therefore, that systematic research on corporate governance mechanisms and earnings management is not sufficient, especially lacking in the analysis of the effect of each component of internal corporate mechanisms on earnings management.
The present research aims to fill this identified gap in the existing literature through an in-depth analysis of earnings management characteristics exhibited by the companies listed on the Nigerian Stock Exchange. This will be reviewed alongside Board of Directors characteristics, Audit Committee characteristics and Internal Audit Function attribute. It is expected that the outcome of the juxtaposition of earnings management characteristics with each component of internal corporate governance mechanisms in a triangulated manner will lead to a modified or new knowledge on corporate governance framework for Nigeria.
The next section will examine the views of eminent scholars on the theoretical framework for the present research.
1.13 THEORETICAL FRAMEWORK
This topic will review the views of eminent authors on the variables in the research objectives and the theoretical framework for corporate governance and earnings management. The theoretical framework for corporate governance is predicated on “Agency Theory”. Agency theory can be traced to as far back as 1776 when the famous Scottish economist, Adam Smith described the problem as a conflict that occurs when someone controls the resources that he does not own personally (Volunte, 2012). Berle & Mean (1932) addressed the agency concerns and expressly related it to modern corporations to the typical characteristics of separation of ownership and control. The industrial revolution of the 19th century and its accompanying technological advances coupled with the capital intensive nature of mass production processes has increased the optimal size of many firms (Jensen & Meckling, 1976). The greater production capacity necessitated the increased need for funding beyond what can be provided by a single person or a single family. As a consequence, former sole proprietors gave way to public corporation with dispersed ownership, where the liability of the providers of the funds is limited (Holderness, 2003). These providers of funds invest their wealth in risky firm with the expectation of a return once all expenses including the managers’ compensations have been paid. The entitlement of the shareholders is the claims on the residual earnings. This creates a potential conflict of interest between the shareholders and the managers.
Jensen & Meckling (1976) argued that this conflict of interest between shareholders and managers is the ‘principal-agent problem’ and the cause of agency costs. The principal-agent problem arises when a principal employs and agent to act on his behalf and both parties being rational and self-interested may have divergent interests. When this is applied to corporations, it describes the problems between shareholders (principals) and managers (agents). The principal-agent problems are the basis for ‘principal-agent theory’. Jensen & Meckling (1976) divided principal-agent theory into ‘positive’ and a ‘normative’ school of thoughts. For the purpose of this research, the focus of the researcher shall be on ‘positive’ principal-agent theory because of its dominant role in the corporate governance debate.
One of the main elements of the principal-agent theory is the difficulties the shareholders have in evaluating the actions of managers as a result of asymmetric distribution of information. According to Schmidt & Terberger (1997), there is a need to streamline the interest of the agent who has an informational advantage over the principal with the interest of the principal- who is at an informational disadvantage. The result of this is agency costs. Jensen & Meckling, (1976) provide substantiating argument that agency costs represent the difference in equity value for a firm with and without a monitoring system for the management.
Another element of principal-agent-theory is the concept of ‘agency costs’.. Agency costs accrue when managers behave in a way that is different from the desire of the suppliers of equity finance (Volunte, 2012). The concept of agency theory is rooted in property rights theory (Demsetz, 1967). When this theory is applied, the contractor and supplier of the input factors represent the shareholders while the users of the input factors represent the managers. It is the expectation of the shareholders that managers will use their resources in a productive ways by investing in a positive net present value projects to increase the present value of the firm and consequently the residual claims for the shareholders (Ramly & Rashid, 2010; Volunte, 2012). On the other hand, the shareholders expect that if there are no positive net present value projects, then management should return their money to them. In real life, a complete contract between shareholders and managers to dissolve every possible conflict is impossible; managers often take a decision at the expense of shareholders (Volunte, 2012) . Thus, according to Jensen & Meckling (1976), it is imperative to establish a structure to monitor the management and streamline managers’ action with the objectives of the shareholders.
Executive compensation further intensifies the conflict of interest between shareholders and managers. The financial incentives of shareholders are different from that of the managers’. While shareholders participate in gains when the value of the firm increases, managers are remunerated by fixed compensation. Volunte (2012) argued that this difference in financial incentives can motivate managers to invest shareholders money in activities that enhances their private benefits. Incentive alignment may provide the solution to agency problems and reduce managers’ opportunistic tendencies and consequently, earnings management (Ramly & Rashid, 2010).
1.14 LIMITATIONS AND DELIMITATIONS OF THE STUDY
Limitations are required to identify the potential weaknesses and threats that may affect the internal validity of the research. On the other hand, delimitations are cardinal in providing an explanation on the specific nature of the research and how it is restricted within its limits. The subsequent paragraphs will address the limitations and delimitations of the present research on earnings management and internal corporate governance mechanisms.
1.14.1 Limitations
First the estimates for discretionary accruals are based on the Modified Jones Model. According to this model, discretionary accruals are measured by subtracting non-discretionary accruals from total accruals. This is consistent with previous studies and will provide an equitable basis for comparison (Jones J. , 1991; Dechow, Sloan, & Sweeney, 1995; Klein A. , 2002; Xie, Davidson III, & DaDalt, 2003; Guay, Kothari, & Watts, 1996). The Modified Jones Model has been demonstrated by Dechow, Sloan, & Sweeney (1995) and Guay, Kothari, & Watts (1996) as the most effective accrual model of detecting earnings management. In addition, other scholars within the domain of earnings management studies have employed the use of Modified Jones Model in their various studies on earnings management. (DeFond & Subramanyam; Guidry, Leone, & Rock, 1999). However, many studies argued that abnormal accruals correlate to firms’ performance (Lin & Shih, 2005; Ashbaugh, LaFond, & Mayhew, 2003). The effect of this is that the result of this thesis may be biased.
In addition, the board of directors and audit committees in Nigeria listed firms are male dominated. An imbalance of gender perspective between male and female research participants can have an effect on the results because of the gender differences in both the board and audit committee members. There is also a possibility that the selected participants have not given honest answers to the questions asked. It is also possible that participants may feel uncomfortable with certain questions, thus imposing limitation on the full potential of the results. Other variables that may have impacted the results of the present research include: the years of experience, age and educational background of the participants.
Another limitation has to do with the time constraints with regards to the fieldwork, which may disrupt the data collection process. Furthermore, non participation of the target research population may pose some difficulties to data collection. In addition, board and audit committee members often serve in multiple boards, thus leading to busy schedules and fatigue, there is a possibility that there may be some aspects of the board and audit committee characteristics that will not be revealed by the initial interview process. This may affect the results of this research.
1.14.2 Delimitation
The present research may contain the personal bias of participants in the area of study. There may also be a measure of limitation in the area of interpretation of intensity of responses. As the board and audit committee members of the listed companies are male dominated, the research may over-represent male point of view because of the lack of balance by an equal number of women participants. Furthermore, the age and length of experience of the participants on the board or as member of the audit committee may have an influence on the responses of the participants.
In addition to the foregoing, semi-structured interviews will be employed to minimize the obtrusiveness. This presents a huge opportunity for the development of conceptual models or frameworks that can be utilized in earnings management and corporate governance research and industry application. It is the opportunity to examine the attributes of corporate governance mechanisms or attributes that constraint or enhances the earnings management in the future.
[...]
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- Ademola Akinteye (Author), 2015, Earnings Management and Corporate Governance. An Investigation of Financial Statement Reporting of Publicly Listed Companies in Nigeria, Munich, GRIN Verlag, https://www.grin.com/document/505458
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