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TRENDS IN
EARNINGS QUALITY (A CASE STUDY OF QUOTED FIRMS IN NIGERIA)
Abstract
Over the
past decades, extensive research has been carried out in various countries
regarding the signaling effect of dividend. Most of these studies were in
support of the signaling hypothesis that corporate dividend payments play a
vital role as an information transmission mechanism and can indicate the future
prospect of the firm. It is an recognition of this crucial role that dividend
policy of firm plays in the economic life of investors and related parties that
it became necessary to examine this issue as it relates to corporate firms in
the Nigerian Stock market, on the largest stock markets in Africa. The
objective of this study was to determine how changes in corporate dividend
policy affect the future prospect of firms in Nigeria. The sample considered
ten (10) banks listed in the Nigerian Stock Exchange Market and the annual
reports were observed for a five years 2007 – 2011. the study revealed that
corporate dividend policy serves as a information signal to investors and
related parties in Nigeria. That corporate dividend indicate future prosperity
of the firm and vice versa. Lastly, that changes in dividend of corporate
bodies do not affect the value of the firm.
TABLE OF
CONTENTS
Title
Page i
Certification
ii
Dedication
iii
Acknowledgements iv
Abstract
vi
Table of Contents
vii
Chapter One: Introduction 1
Background to the Study 1
Statement of Problem 3
Research Questions
4
Objectives of the Study 4
Statement of Hypotheses 4
Significance of the Study 5
Scope of the Study 5
Limitations of the Study 6
Definitions of Terms
7
Chapter Two:
Review of Related Literature
8
Introduction 8
Theoretical Framework 13
Where Agency Conflicts Arise 18
Control on Agency Problems 24
Block and Institutional Investors 32
Managerial Remuneration 63
Chapter
Three: Research Method and Design 77
Introduction 77
Research Design
77
Description of Population of the Study 77
Sample Size
78
Sampling Technique
78
Sources of Data Collection 78
Method of Data Presentation 79
Method of Data Analysis 79
Chapter
Four: Data Presentation, Analysis
and
Interpretation
81
Introduction
81
Presentation of Data
82
Data Analysis
92
Hypothesis Testing
107
Chapter
Five: Summary of Findings, Conclusion
and
Recommendations 110
Introduction
110
Summary of Findings 111
Conclusion
111
Recommendations
113
References 118
Appendices
122
CHAPTER ONE
INTRODUCTION
Background to the Study
An important
quality of financial information is what it must assist users to make meaning
decision extant literature as well as accounting standard recognize that the
principal objective of financial and accounting information is to aid decision
making. In order to satisfy the criterion of decision usefulness accounting
information must possess two broad categories of qualities these are;
User specific quantities and
Decision specific qualities
With respect
to decision specific quantities accounting information must be relevant and
reliable. When accounting information is free from error and biases and
faithfully represent the fundamental realities of the organization. It is said
to be reliable if it has the capacity to influence the decision making it is
said to be relevant. The quality of accounting information available.
The two keys
measure in accounting information are earning and book value.
Dechew &
Schrand,2004 state that Accounting information
is the most sought after indicator by investors. This is so because it allow
them to make decision as to the value of equity extent literature as documented
the statistical association between equity value and key boltom line measure of earning and book value (Ball & Brown
(1968).
Empirical
literature examining the association between firm value and earning document a
weak relationship. A lot of factor has been adduced for it one factor however
that has not been address is that of earning quality.
Earning
quality can be defined as “Absence of earning management. This is so because
where manager intentionally manipulate earning it reduce the quality of earning
consequently tier usefulness as decision criterion. The incentive to engage in
earning management is accentuated by many actors to include the quality of
corporate governance, the legal environment opportunity available to manipulate
earning etc. In the context of the foreign earning quality assume a critical
dimension with respect of quality of investment decision.
Statement of Problem
A survey of
corporate business in Nigeria specially in banking industry over the years will
reveal several instance of distresses is depositor and investor is that of bank
giving lean bill of health by auditory only for those banks become distress in
no distant time. In 2010 the CBN declared 10 banks as critically ill. This was
against the backdrop of fatalistic reported earnings by such banks by 2011
these banks reported several losses that wiped up their capital base. The
implication of this was that profit hitherto reported where of dubious quality
or doubtful quality.
The
principal problem which this study address is the quality of earnings in quoted
firms in the Nigeria stock exchange for the past 10 years.
Research Questions
In order to
achieve the objective of the study the following questions are seeking for
answer(s).
What is the quality of earning in Nigeria?
Do the quality of earning increase or
decrease?
Objectives of the Study
1. To find out the quality earning in
Nigeria.
2. To find out if the earnings in Nigeria
increase or decrease.
Statement of Hypothesis
In order to
achieve the objective stated above, the following hypotheses are raised.
HO1: Earning
quality has decline overtime in Nigeria.
Ho1: Earning
quality has increase overtime in Nigeria.
Ho2: Earning
quality is negatively related to market return and volatility.
Ho2: Earning
quality is positively related to market return and volatility.
Significance of the Study
Earning
quality is of interest to users of financial statement particularly investors.
For the average Nigeria investor perhaps the only source of information
available for investment decision making is accounting information. A key
component of that is earning quality. This study is of interest to different
categories of the public.
For the investor, it focuses on the
importance of earning quality as part of decision making criterion.
For regular earning quality represent a
measure of the potency and desirability for enforcement mechanism.
Scope of the Study
This study
covers a time period 2002 to 2010. A period in which the stock market witnessed
dramatic changes it is a period that coincides with liberalization of the
economy and in which the market
experience turbulence between 2006 and 2008 equity price climb high and by 2009
and 2010. The market nose-drive. Some have argued that the market exuberance in
2007 and 2008 had nothing to do with fundamentals such as earnings but rather
with skyrocketing oil prices. The focus on quoted firms is informed by
stringent reporting requirement relative to those unknown quoted firms. They
are expected to have their financial statement audited and publicly available
for investor.
Limitation of the Study
Data collection: The study has limitation
on the primary and secondary source of data. The primary data from questionnaires
and interview were scanty because of errors in opinion of the respondents on
the objectives of the secondary source of data collection. There were not
enough literature on the study in the schools library.
The secrecy of the organization was another
major constrain is that the top management staff were not willing to dispose
certain information that would have enable the researcher to make a proper
conclusion.
Language barrier was another factor in some
of the junior staff of the company do not understand spoken English.
The
retrieval of the administered questionnaire pose another challenges to the end
that some of the management staff were not around as at the times the
researcher came to collect the answered questionnaires. This inhibits a great
problem that hindered the researcher to form a proper conclusion.
Definition of Terms
Earning
quality simply mean the degree to which management’s choices of accounting
estimate can affect imported income (thus choice occurs every period) some of
such estimate may be difficult quantify given the company the lee way
(opportunity) to report a wide range of periodic earnings.
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