Corporate Governance and Value Relevance of Accounting Information in Quoted Nigerian Banks

INTRODUCTION

Background to the Study

Accounting provides a vital service to broad and diverse users. Investors use financial accounting information for investment decisions; government agencies need it particularly for tax purposes while regulatory agencies use it to determine whether existing statutory pronouncements are complied with, among others (Kajola and Adedeji, 1999). According to Meyer (2007:2), “accounting plays a significant role within the concept of generating and communicating wealth of companies”. Financial statements still remain the most important source of externally feasible information on companies. Nevertheless, in the wake of the recent accounting scandals and economic meltdown where billions of naira of investment and retirement wealth have disappeared, the very integrity and survivability of the value relevance of this service has been called to question.
Value relevance is defined as the ability of accounting numbers contained in the financial statements to explain the stock market measures (Beisland, 2009). Accounting data, such as earnings per share, is termed value relevant if it is significantly related to the dependent variable, which may be expressed by price, return or abnormal return (Gjerde, Knivsfla and Saettem, 2007).
Studies on value relevance of accounting information are motivated by the fact that listed companies use financial statements as one of the major media of communication with their equity shareholders and public at large (Vishnani and Shah, 2008). For instance, in Nigeria, Companies and Allied  Matters  Act (CAMA), (1990) and the subsequent amendments require the Directors of all companies listed on the Nigerian Stock Exchange to prepare and publish annually the financial statements. Beyond this, the Nigerian Stock Exchange mandates all companies listed on first tier market to submit quarterly, semi-annual and annual statements of their accounts to the Stock Exchange. Companies on second tier market are to submit their statements of accounts annually to Stock Exchange (Osaze, 2007). Accounting information is any data or information obtains from the accounting system of a firm whether contained in a financial statement, a special report, or verbal statement (William, 1968). However, for the purpose of this research, accounting information refers to written information contained in a complete or partial financial report –balance sheet or profit and loss account or  fund flow statement. This study investigates whether these various items of  financial statements are value relevant in the Nigerian Stock Exchange or not.
The Nigerian Stock Exchange (NSE) commenced operation in 1961with only 19 securities worth N80million. As at May 2009, the number of listed securities had increased to 294, made up of 86 Government Stocks with Industrial Loans Stocks and 208 Equity/ Ordinary Shares(including emerging market) with a total market capitalization of N9.45 trillion (The Nigerian Stock Exchange, Factbook, 2009).
However, the Nigerian Stock Exchange still seems to have a long way to go when compared with developed stock markets (Ologunde, Elumilade and Asaolu, 2006). Nigerian Stock Exchange, as a medium of funds mobilization for economic growth may not function well without relevant and reliable accounting information.
 
The researcher is thus motivated to study the extent to which accounting information summarizes stock prices in the Nigerian stock market as an indicator of value relevance. The study of likelihood of the market prices of stock listed in the Nigerian Stock Exchange being a reflection of accounting information is very essential to investors as well as policy makers. Recent evidence shows that stock markets have positive impact on economic growth (Healy and Williston, 2005 and Charles, 2008). In a bid to corroborate or repudiate the afore-mentioned, the perception of institutional and individual investors about value relevance of various items of financial statements for equity valuation is also considered.
 
While there have been a number of studies on this topic in developed countries (Collins, Maydew and Weiss, 1997; Lev and Zarowin, 1999; Francis and Schipper, 1999; Beisland, Hamberg and Navak, 2010), one is not aware of any expansive study that has explored the subject of value relevance of accounting information in Nigeria. It has not been comprehensively researched primarily  because  of problems with data availability (Negah 2008). Literature on capital research in accounting in Nigeria is so scanty and insufficient that it is difficult to determine value relevance of accounting information in this country. In Nigeria, fairly related
 
 
literature are on accounting systems (Jagetia and Nwadike, 1983); corporate financial reporting (Wallace, 1988); Weak Form Efficiency of the Nigerian Stock Market: Further Evidence (Olowe, 1999); communications in accounting: problems and solutions (Adeyemi and Ogundele, 2003); relevance of financial statement to stakeholders’ investment decisions (Kantude, 2005); determinants of upward and downward trending of the stock market prices (Nwude, 2010). The above mentioned studies provide no significant validity of existing empirical evidence of value relevance of accounting information in the developing Nigerian Stock Market.
 
As a result, the study attempts to fill the gap in literature by investigating the ability of accounting information to capture or summarize information that affects equity value by examining the relationship between accounting numbers and share prices in the Nigerian Stock Exchange. This in turn is expected to accelerate development of the Nigerian stock market.

TABLE OF CONTENTS

• CHAPTER ONE: Introduction

• 1.1 Background to the study

• 1.2 Statement of Research Problem

• 1.3 Objectives of the study

• 1.4 Research Questions

• 1.5 Research Hypotheses

• 1.6 Significance of study

• 1.7 Scope of study

• 1.8 Summary of Research Methodology

• 1.9 Sources of Data

• 1.10 Outline of the Chapters

• CHAPTER TWO: Literature Review

• 2.1 Introduction

• 2.2 Conceptual Framework

• 2.2.1 The Information Perspective

• 2.2.2 The Measurement Perspective

• 2.3 Theoretical Framework of the Research

• 2.4 Review of Empirical Literaturr

• 2.5 Equity Valuation and Negative Earnings

• 2.6 Company Size and Value Relevance of Accounting Information

• 2.7 Difference in Accounting Information across the Industries

• 2.8 Nigerian Stock Market Development and Economic Growth

• 2.9 Company and Allied Matters Act 1990, Investment and

• Securities Act 1991 and Financial Statements

• CHAPTER THREE: Research Methods

• 3.1 Introduction

• 3.2 Research Design

• 3.2.2 Sample Size

• 3.2.3 Sampling Technique

• 3.2.4 Data Description

• 3.2.5 Sources and Data Gathering Method

• 3.2.6 Questionnaire

• 3.2.7 Validity of Research Instrument

• 3.2.8 Reliability of Research Instrument

• 3.3 Analytical Framework

• 3.3.1 Accounting Earnings and Equity Valuation

• 3.3.2 Accounting Earnings versus Net Book and Equity Valuation

• 3.3.3 Dividends versus Net Book and Equity Valuation

• 3.4 Model Specification

• 3.4.1 Models

• 3.5 Method of Analysis

• CHAPTER FOUR: Data Analysis and Result Presentation

• 4.1 Introduction

• 4.2 Data Presentation and Analysis of Aggregate Market Reaction to

• Accounting Information

• 4.3 Data Presentation and Analysis of Difference in value

• Relevance of Accounting Information across the Industries

• 4.4 Data Presentation and Analysis of the Value Relevance of Negative of Earning

• 4.5 Presentation of Survey Data

• CHAPTER FIVE: Summary of Findings, Conclusion and Recommendations

• 5.1 Introduction

• 5.2 Summary of Work Done

• 5.3 Summary of Findings

• 5.3.1 Theoretical Findings

• 5.3.2 Empirical Findings

• 5.4 Conclusion

• 5.5 Recommendations and Policy Relevance

• 5.6 Contribution to Knowledge

• 5.7 Suggestions for Further Studies

• Bibliography