Corporate Governance and Disclosure on Segment Reporting:Evidence from Nigeria

Proceedings of Global Business and Finance Research Conference

28-29 October, 2013, Howard Civil Service International House, Taipei, Taiwan, ISBN: 978-1-922069-34-4

1

Corporate Governance and Disclosure on Segment Reporting: Evidence from Nigeria

Kabir Ibrahim and Hartini Jaafar

The Nigerian Accounting Standards Board (NASB) announced its roadmap to convergence with the International Financial Reporting Standards (IFRS) in September 2010. The Nigerian listed companies and Significant Public Interest Entities (SPIE) are required to comply with IFRS effective from 1st January 2012. Following the preparation for the transition from national standards to international standards by 2012, this study investigates the association between selected corporate governance mechanisms and voluntary compliance to IFRS 8 Operating Segment among Nigerian public-listed companies. Using a sample of 69 companies the result indicates no relationship between audit committee related variables and the level of voluntary compliance. Only one corporate governance attribute; separation of board leadership is found to be associated with voluntary disclosure of IFRS 8. The research outcome provides greater insights into the interactions between corporate governance mechanisms and IFRS 8 compliance and is useful as a starting point for further research in financial reporting particularly in emerging countries such as Nigeria.

Key words: Board of Directors, Audit Committee, Segment Disclosure, Nigeria. Field: Accounting, Corporate Governance

1.0 Introduction Due to the rapidly growing demand for credible, reliable, and comparable financial information in meeting the needs of different users of information, the IFRS were introduced as a universal accounting language (IASB, 2003), that unify financial reporting guidelines across the world. A shift to IFRS from national standards will significantly change the financial reporting guidelines that currently guide publicly traded companies on the preparation and presentation of their financial statements. These changes will affect all of the financial statements to present. In 2010, Nigeria also has demonstrated strong commitment to shift from national standards to IFRS. Based on the Nigerian government proposed roadmap towards IFRS convergence plan, the transition process from national standards (Nigerian GAAP) to IFRS started in 2012 (Oyedele, 2011). Nonetheless, a survey conducted towards the adoption of IFRS in Nigeria shows that only the professional accounting bodies are set to embrace the demand of the introduction of IFRS. Other institutions however, have a lot to put in place in order to experience the positive impact of IFRS (Iyoha and Jimoh, 2011). In discussing financial reporting quality, the importance of corporate governance in any organizational setting cannot be overemphasized, especially in the state of current financial scandals in the ___________________________________ Department of Accounting and Finance, Faculty of Management and Economics, Universiti Pendidikan Sultan Idris, 35900 Tanjong Malim, MALAYSIA, E-mail: [email protected]; [email protected]

mailto:[email protected]

mailto:[email protected]



2

world (Singh and Newberry, 2008). Corporate governance can be viewed as an essential enforcement mechanism towards compliance with IFRS (Major and Marques, 2009). Further, Kothari (2001) argues that the quality of accounting information is not solely influenced by the quality of accounting standards, but also constituted by the nature of corporate governance, the legal system and the existence and enforcement of effective laws that governance the accounting standards. This consequently highlights the important role played by corporate governance in shaping the quality of financial reporting in organizational settings, and in ensuring credibility and integrity of the governance. Many users of financial information are interested in the performance and potential of one particular part of the company’s operations or the other, rather than the company as a whole. The objective for the need of disclosures about segments of an enterprise and related information is to provide useful information about the different types of business activities (lines of business) in which an enterprise engages and the different economic environment (geographical) in which it operates to help users of financial statements to (1) better understand the enterprise’s performance; (2) better assess its prospects for future net cash flows; and (3) make more informed judgments about the enterprise as a whole. IFRS 8 Operating Segments requires general and entity wide disclosure about the enterprise, including information about products and service, geographical areas including country of domicile and individual foreign countries, major customers and factors used to identify an entity’s reportable segment. Therefore, segment information is seen as a means to provide decision useful information and that management approach adopted in this standard will serve as a channel that will ensure the sustenance of free flow of segregated information leading to mitigating information asymmetry that may arise as a result of agency conflicts. Despite the importance of segment reporting in providing segregated information to users such as analysts and other stakeholders in making informed decision about their investment; existing studies in Nigeria have largely neglected this area. Therefore this study attempts to answer the following research question: do corporate governance attributes of Nigerian public-listed companies affect the extent of voluntary compliance to IFRS 8? This study is timely as it attempts to further examine the effectiveness of corporate governance mechanisms in the light of IFRS adoption in Nigeria. The remaining part of this study is organised as follows; Section 2.0 provides a brief discussion on corporate governance and financial reporting, especially within the Nigerian context, Section 3.0 presents the hypotheses development and research methodology is addressed in Section 4.0. Finally, findings are discussed in Section 5.0 and Section 6.0 provides the conclusion.

2.0 Corporate Governance and Financial Reporting The major reasons for the recent emergence of corporate governance include rapid growth on international capital markets, high profile business and financial crises, institutional failures and the high proliferation of accounting scandals around the world (Adrian, 2002). These issues have put the spotlight on the need for development of



3

proper governance. The effects of corporate governance mechanism on financial disclosure have received significant research interest (Anderson et al., 2004; Beeks et al., 2004). Corporate governance mechanisms are undoubtedly essential for effective corporate activities, through which effective monitoring of management activities of the firm can be established. It is argued that the introduction of new concepts and guidelines in corporate governance is a milestone in the increased level of disclosure and visibility in financial reporting (Kelton and Yang, 2008). However, the relationship between corporate governance and financial reporting largely depends on firm’s commitment. A study conducted by Chen and Razaee (2012) using a sample of Chinese quoted companies shows that effective corporate governance propels companies to be more related with IFRS and therefore, provides high quality financial information. In Australia, a research was conducted on the significance of corporate governance on disclosure of financial information of listed firms. Using 120 items on both compulsory and voluntary financial information indexes, Guantley et al. (2008) show that corporate governance characteristics are the determinants of Financial Instrument Disclosure (FID). That is, FID is positively associated with the strength of corporate governance structure and process.

Nigeria has indicated her intention to comply with the provisions of IFRS from 2012 in an announcement made by the Minister of Commerce and Industry in 2010. This appears to be a big challenge for the Nigerian accounting standards setters considering the current corporate reporting atmosphere in the country as this transition from national standard to international standards will one way or the other affect the manner and way financial information is prepared and presented to users of information. For example, it is claimed that information asymmetries are the major causes of crises in Nigerian banking industry as a result of breakdown in corporate governance code (Sadiq et al., 2010). Furthermore, it is argued that corporate governance weaknesses in compliance with code of best practices in companies have been the problems in strengthening the mechanism for its improvement and regulation of corporate governance in Nigeria (Adegbeti and Nakajima, 2011). Nigeria is ranked 139th out of 174 countries in the Transparency International Index of Corruption in 2012. Furthermore, in the African governance index constructed from bottom up ranking, published by Ibrahim Foundation in 2012, covering 52 Sub-Saharan African countries, Nigeria is placed 43th out of 52 countries between 2005 and 2011, as one of the Ibrahim Index of African Governance’s group of ten worst performances (IIAG, 2012). This reflects the ineffective and improper governance practice in the country. With regards to financial reporting, Okpara (2011) argues that poor corporate governance is one of the major factors in financial institution distress in the Nigerian economy. In addition, a study conducted by Okoye and Ofoegbu (2006) posits that the Nigerian corporate reporting environment is fraught with many inadequacies. Financial disclosure in Nigeria remains weak compared to many advanced jurisdiction (Baba, 2011), resulting in the growth of inefficient capital market. Financial reporting and corporate governance has been examined in studies such as Okpara (2011); Yahaya and Adenola (2011); Salawu (2009) and Sanda, Mikailu and Garba (2005). Overall, the results notice poor compliance with disclosure requirement as the feature of Nigerian



4

reporting environment and poor corporate governance as a result of lack of enforcement which renders the accounting standards trivial. A number of studies have also been carried out regarding financial reporting in Nigeria (Madawaki, 2012; Iyoha and Jimoh, 2011; Okaro, 2011; Kantudu, 2005; Wallace, 1988). The results of these studies generally indicate some discrepancies in the financial reporting requirements of the regulations and that Nigeria is not well prepared to adopt IFRS in recent time due to inadequate legal and regulatory framework and institutional infrastructure on ground. This suggests that accounting and auditing standards in Nigeria suffer a lot from institutional weaknesses in terms of regulation, and enforcement mechanism towards compliance with established standards and rules. Furthermore, the reporting practice within the context of the Nigerian institutional framework consists of multiple laws and bodies for the regulation of accounting, financial reporting and auditing of companies. This further complicates the effort to enhance financial reporting practices thus suggesting the needs to examine this issue.

3.0 Hypotheses Development The ability of the board to act as an effective monitoring mechanism depends on its independence from management (Kent and Stewart, 2008). The importance of majority non-executive or independent directors on the board is recognized as the best practice in terms of board composition. A study by Cerbioni and Parbonnetti (2007) finds that boards with majority of independent directors help mitigate agency conflict. Fama and Jensen (1983) also suggest that boards composed of a higher proportion of independent directors have incentive control over managerial decisions. Furthermore, a significant and positive association between the proportion of independent non-executive directors and voluntary disclosure is found in which firms specifically; with higher number of independent directors are found to be associated with significantly higher level of voluntary disclosure than firms with minority independent directors (Cheng and Courtenay, 2006). In the U.S. and Hong Kong, Ajinkya et al. (2005) find a significant positive relation between the level of disclosure and the proportion of independent directors sitting on the board in different contexts, such as interim reporting, segment disclosures and management forecasts. Further, Arcay and Vasquez (2005) maintain the notion that the extent of disclosure depends largely on the proportion of outside directors sitting on the board. Based on these arguments the following hypothesis is developed:

H1: There is a positive association between the proportion of independent outside directors on the board and the extent of company’s segment disclosure. Board size is also potentially related to directors’ ability to monitor and control operations. Some studies find a positive relation between the number of directors and firm performance (Anderson et al., 2004; Williams et al., 2005) and maintain that larger boards posses more specialized skills and are better equipped to exercise monitoring on management. Lipton and Lorsh (1991) suggest limiting board members to 10 with a preferred size of not more than 9 members. Supporting the claim that board monitoring ability increases as the number of directors increases, John and Senbet (1998) find



5

effective decision making is associated with larger board size. Nonetheless, there is no predominance theory or empirical evidence that relates board size and voluntary disclosure (Cheng and Courtenay, 2006). The second hypothesis is: H2: There is a positive association between board size and the extent of company’s segment disclosure. Board of directors is needed to be active to meet their corporate governance objectives, particularly in ensuring credible, reliable, comparable and transparent financial reports. Boards that meet frequently are more likely to perform their duties effectively and efficiently (Lipton and Lorsch, 1991). This may suggest that the level of board activity is associated with better future operation performance (Vafeas, 1999). Board frequency of meeting and attendance by the board members is an indication that the operation and performance of the board commitment will be improved, thus providing credible financial information for the users to make informed decision about where to invest their resources. Based on these arguments the following hypothesis is developed: H3: There is a positive association between the frequency of board meetings and the extent of company’s segment disclosure. Section 2(b) of the Nigerian SEC of 2011 provides that the position of chairman and CEO “should be ideally separated and held by different person” (SEC, 2003 5.1(b)). The code further clarifies that the chairman should not be involved in the day to day activities of the company and that the primary responsibility of the chairman is to ensure effective operation of the board such that it works towards achieving the targeted strategic objective of the company. Studies have shown that boards on which the CEO is also the chairperson exercise a weaker monitoring function than boards on which the chairperson and the CEO are separate (Jensen, 1993; Goyal and Park, 2002). Forker (1992) argues that the separation of CEO and chairman functions reduces the benefits of withholding information and promotes information transparency. Cheng and Courtenay and (2006) document empirical evidence that there is positive association between board independence and a direct measure of voluntary disclosure on a sample of Singaporean listed companies. However, no association is observed between CEO duality and level of companies’ voluntary disclosure. CEO duality lower a board’s ability to effectively exercise control over top management, which in turn could result in a lower level of voluntary disclosure and transparency of information. For example, Gul and Leung (2004) document a negative relationship between the CEO duality and proportion of expert outside directors of Hong Kong listed companies. They assert that duality of CEO decision making power could constraint board independence and impair board’s oversight function and governance roles, thus affecting corporate disclosure policies. Based on this the next hypothesis is developed: H4: There is a positive association between the separation of CEO and chairman role and the extent of company’s segment disclosure.



6

Effective audit committee has been suggested as a factor in explaining variations in the extent to which disclosure is required. Jensen and Meckling (1976) argue that formation and structure of the audit committee acts as a mechanism to reduce agency costs and to increase monitoring in order to limit opportunistic behavior by managers, which are critical in meeting the needs of all stakeholders. Such a mechanism may encourage managers to disclose more information, hence fulfilling the informational demands of the users of financial reporting (Alanezi and Albuloushi, 2011). This further suggests that the audit committee effectiveness is positively associated with firms’ financial reporting quality. The composition of audit committee shall constitute of non executive independent directors. In the U.S. the audit committee is made up of independent external directors that are in line with several international law such as BRC 1999 and SOX 2002. Abbott, Parker and Peter (2004) find that firms with audit committees which comprised solely of independent directors that meet at least yearly have significant smaller amount of non-audit fees to audit. The above discussion leads to the following hypothesis:

H5: There is a positive association between the proportion of independent outside directors in the audit committee and the extent of company’s segment disclosure. The size of the audit committee is another characteristic to consider in the effective discharge of audit committee duties. The size of the committee depends on the size of the enterprise and other relevant factors associated to the firm. In Nigeria the conception of audit committee was incorporated under section 359(3) of CAMA 1990, which stipulates for the establishment of an audit committee. The Act further provides that the composition of audit committee shall be made up of directors and shareholders representatives of the same company, subject to a maximum of six members of which three representing the shareholders. Generally, audit committees composed of three to six members thus represent the optimum size (Brown, 2003). Effective audit committee in terms of size should therefore improve internal control and act as a means of reducing agency costs (Ho and Wong, 2001). This in turn establishes and maintains corporate strategic policies and provides information on its stewardship as a control mechanism. The presence of audit committee is thus expected to be associated with voluntary segment reporting in disclosing more reliable financial reporting. Thus, the next hypothesis is:

H6: There is positive association between audit committee size and the extent of company’s segment disclosure. Audit committee members are said to be diligent when they perform their function by frequently holding meetings. The number of meetings held is influenced by committee objectives within the framework in which they operate, and this gives them opportunity to deliberate and review matters concerning timely reporting financial information. The number of audit committee meetings is commonly considered a measure of diligence, and fewer meetings are an indication of a lack of commitment and or insufficient time for effective monitoring (Farber, 2006). Members of the audit committee should attend all meetings of the committee in a due course. The function of the committee includes



7

among others, the examination of auditors’ reports and making recommendation thereof during Annual General Meeting. According to Price Waterhouse (1993) audit committee should hold at least three or four meetings a year and special meeting when necessary. The chairman of the committee is in charge with the responsibility of deciding the frequency and timing of committee meetings (Brown, 2003). Considering the importance of segment information, the study expects the frequency of audit committee meeting to influence the companies in disclosing more information. Therefore the next hypothesis is developed: H7: There is positive association between the frequency of audit committee meetings and the extent of company’s segment disclosure. Most empirical studies support the notion that firm size influences corporate disclosure in the like of Barako et al. (2006), Watson et al. (2002) and Belkaoui (2000). Among the relationship that exist between firm characteristics and segmental disclosure, the presence of firm size emerged as a variable that present a substantial relationship with such disclosure. This is mainly because there are more opportunities for firms that grow in size to operate in bigger segment environment, in both business and geographical regards. Therefore, firm size is said to be one of the most examined determinants of economic disclosure and many research recognized this element as positively connected to higher disclosure. Based on these arguments, the following hypothesis is developed: H8: There is a positive significant association between firm size and the extent of company’s segment disclosure. Watts and Zimmerman (1986) explicate the association between industry type and disclosure using political costs theory in which political cost differs in accordance to industry. Disclosure variances may be correlated with the type of Line of Business (LoB), scenery of production and nature of service provided (Ali et al., 2004). The connection between industry-type and disclosure is supported by previous empirical studies, but they show mixed results. Nevertheless Ahmed (2005) finds industry type as a significant factor contributing to the variance in firms’ compliance levels. Another study by Cooke (1989) finds that manufacturing firms disclose more financial information in their reports than their other counterparts in the sample. In contrast Owusu-Ansah (1998) and Akhtaruddin (2005) posit that firms’ position has no effect on disclosure. However, it can be argued that choices of accounting procedure and techniques as well as selection of disclosure items may differ among reporting industries. The reputation and credibility of particular industry may indulge companies to adopt disclosing more detailed information than mandated disclosure (Wallace et al., 1994). Thus, the following hypothesis is developed: H9: There is relationship between the industry type and the extent of company’s segment disclosure.



8

4.0 Research Methodology 4.1 Population and Sample Selection The Nigerian Stock Exchange (NSE) website was used to determine the number of companies listed on the main stock market in Nigeria at the end of 31 December, 2011. This particular year has been chosen because it is the preceding year to the mandatory application of IFRS to all public interest earning companies in the preparation and presentation of their annual report. The analysis in this study was carried on a final sample of 69 publicly listed companies out of the total top 100 companies based on market capitalization on the NSE Main Board as at 31 December, 2011. The NSE features 12 sectors: Agriculture, Construction/Real estate, Consumer goods, Financial services, Healthcare, Industrial goods, ICT Natural resources, Oil and gas, Services, Utilities and Conglomerates (NSE, 2012). 24 companies annual reports were not readily available during the study and were therefore removed from the sample, while six insurance companies were also excluded because of their specific accounting policies. 4.2 Regression Model The dependent variable in this study is the extent of segment reporting, as measured by the items a company disclosed in their 2011 annual reports. An index based on the number of operating segment items expected to be reported are considered using un-weighted method. Information to be voluntarily disclosed is extracted directly from the requirements demanded by IFRS 8 in reporting segment information. The number of items required for disclosure is found to be almost similar to IAS 14 (segment reporting), with an additional item in IFRS 8 with regards to the disclosure of revenue and expense from interest and tax expenses. Under IFRS 8 requirement, items are only disclosed if they are included in the measures of segment profit/loss and assets or are regularly reported to Chief Operating Decision Maker (CODM). The disclosure level is constructed based on this checklist of items potentially disclosed under the requirements of IFRS 8 by performing a content analysis on the annual reports of each company where items are identified and measured.



9

Table 1: Description and Measurement of Variables Included in the Regression Model

No. Variables Description Proxy Code

Expected Signs

1 Voluntary disclosure Voluntary segment disclosure score, measured as an index that indicate the level of companies’ compliance.

VDCLS +

2 Board independent Measured as the number of independent nonexecutive director divided by total number of directors on board

BIDP +

3 Board Size Measured as the total number of directors on board

BSIZE +

4 Board meeting Measured as total number of meetings held in 2011

BMEET +

5 Separation Measured as dichotomous scored 1 if the position of chairman is distinct from that of CEO, 0 otherwise.

SPRTN +

6 Audit Committee independence

Measured as the number of independent directors to total number of audit committee members

ACIDP +

7 Audit committee size

Measures as total number of members in the committee.

ACSIZE +

8 Audit Committee meeting

Measures as total number of meeting per company in a year 2011

ACMEET +

9 Firm size Measured using natural log of total asset of the company

FSIZE +

10

Industry type Measured as dichotomous if financial company is given value 1, non financial scored as 0.

INDTYP +/-

Previous literatures have examined the relationship between governance and disclosure (Beeks and Brown, 2006; Clarkson et al. 2006) and have given support that corporate governance variable can be measured in relation to disclosure. This study focused on governance characteristics that are most likely to influence disclosure to allow the identification of governance variables that are most effective. As previously mentioned the independent variables are the board characteristics, which are board independent, board size, board meeting, board leadership) and audit committee characteristics (independent, audit committee size, audit committee meeting). Control variable in the study comprises of firm characteristics; firm size and industry type. These are among the most common variables used to test the company disclosure level (Prencipe, 2004).



10

A multivariate regression model is used to test the relationship between the independent and dependent variables and is depicted n Equation 1. VDISCL = βo +β1 BINDP+ β2BSIZE +β3 BMEET+ β4SPRTN + β5 ACINDP+ β6ACSIZE+ β 7 ACMEET +β8 F SIZE + β9 INDTYPEt + ε0 (Equation 1) Description and measurement of variables in the regression model are provided in Table 1.

5.0 Findings

5.1 Descriptive Statistics

The analysis indicates that the highest board composition in the overall sample is 12 and 11 members represented by 3 firms each, followed by 10 members reported by 4 firms while the lowest board member is 2 represented by 2 companies. Furthermore, a majority of the firms, that is 13 firms, have 6 members each on their board as illustrated in Table 2.

Table 2: Board Size

Table 3 presents the frequencies of sample companies’ board meetings, the highest number of meeting is 19 and 17 each reported by 1 company and the lowest number of meeting is 5 and 6 reported by 2 and 7 companies respectively. Furthermore the most frequent meetings held is 9 as reported by 14 (20.3%) companies followed by 10 reported by 11 companies (15.9%).

Table 3: Frequency of Board Meetings

No. of Board Meetings Frequencies %

5 2 2.9

6 7 10.1

7 7 10.1

8 6 8.7

9 14 20.3

10 11 15.9

11 2 2.9

12 3 4.3

13 4 5.8

14 6 8.7

15 2 2.9

16 3 4.3

17 1 1.4

19 1 1.4

Total 69 100%

No. of Directors 2 3 4 5 6 7 8 9 10 11 12

Frequencies 2 3 8 9 13 9 9 6 4 3 3

% 2.9 4.4 11.6 13 18.8 13 13 8.7 5.8 4.4 4.4



11

Table 4 shows that the maximum number of audit committee meetings held in 2011 is 7 times reported by only 1 company (1.4%) followed by 6 meetings as reported by 2 companies (2.9%). A majority of the companies (36.2%) hold their audit committee meetings 3 times, followed by 4 times in a year by 27.5% of the sample companies. However 7 companies in the sample did not disclose the number of meetings in their annual reports.

Table 4: Frequency of Audit Committee Meetings

No. of Meetings NA 1 2 3 4 5 6 7

Frequencies 7 3 5 25 19 7 2 1

% 10.1 4.3 7.2 36.2 27.5 10.1 2.9 1.4

The result in Table 5 shows that 91.3% (63 out 69) companies separate the role of chairman and CEO of the companies and only 6 (%) of the companies in the sample have one person holding both the position of chairman and CEO (duality). This is an indication that Nigerian companies duly comply with the practice of the code of corporate governance in that regard. In addition to that, it can be seen that 95.7% of companies’ board is represented by a majority of non-executive/independent directors, each consisting more than the half of the board. Table 6 illustrates the frequency distribution of audit committee members on the board. 56 companies (more than 81.0%) of the sample companies comprises of 6 members. The highest committee size is composed of 8 members while the lowest committee size has 4 members as represented by 11 companies (almost 16.0% of the sample). For board independence, the distribution frequency shows that in general, firms’ audit committee size comprised of non-executive directors of not less than half of their committee members. Further analysis shows that half of the audit committee members of 66 companies composed of non-executive directors. In addition, the results show that one company in the sample has all 60% and 67% non-executive directors in the committee respectively. Firm size is measured using total asset of the companies and the result are as presented in Table 7. Meanwhile, Table 8 depicts the frequencies between financial and non financial industry. The results show that non-financial sector dominates the sample (81.2%) indicating that their immense contribution to the Nigerian economic growth.

Table 5: Board Leadership and Board Independence

Board Leadership Frequencies %

Separate 63 91.3

Duality 6 8.7

Total 69 100%

Board Independence

Executive/Independent 66 95.7%

Non-Executive Directors 3 4.3

Total 69 100%



12

Table 6: Audit Committee Size and Independence

Audit Committee Size (Members) Frequencies %

4 11 15.9

5 1 1.4

6 56 81.2

8 1 1.4

Total 69 100%

Audit Committee Independence Frequencies %

50% of Audit Committee 66 95.7




Total 69 100

Table 7: Firm Size

Mean Max Min

Total Assets N 274,895,358,033 N 2,839,373,000,000 N 605,548,000

Table 8: Industry Type

Firms Frequencies %

Non-Financial Sector 56 81.2

Financial Sector 13 18.8

Total 69 100

Preliminary analysis using Spearman correlations as shown in Tables 9 suggests that there is no significant association between the dependent variable (VDSCL) and some independent variables (BINDP, BSIZE, SPRTN, ACINDP, and ACSIZE), thus providing no support for (H1, H4, H5 and H6). BMEET however has a significant correlation of 0.275 with VDSCL. However, further analysis with regressions will confirm the results for the tests of the hypotheses. For control variables, all variables were found to have an association with VDSCL which are FSIZE (0.417) and INDTYPE (.0476).

Table 9: Spearman Correlation Matrix Variables VDSCL BINDP BSIZE BMEET SPRTN ACINDP ACSIZE ACMEET FSIZE INDTYPE

BINDP -.020 1 BSIZE .233 .499** 1 BMEET .275* -.015 .832** 1 SPRTN .222 -.030 .208 .249* 1 ACINDP .35 -.220 -.295* -.263* -.186 1 ACSIZE .200 .076 .314* .334* .006 .095 1 ACMEET .246* .046 .151 .125 .000 .006 .245* 1 FSIZE .417** -.231 .382** .571** .183 .014 .329** .269* 1 INDTYPE .476** -.200 .412** .540** .149 -.103 .196 .326** .599** 1

**Correlation is significant at the 0.01 level (2-tailed). *Correlation is significant at the 0.05 level (2-tailed).



13

In addition, the results also show that all independent variables have low correlation with each other, with all pairs exhibiting values below 0.6 except for BMEET and BSIZE that is found to be correlated at .832. This suggests that multicollinearity is not likely to be a problem in interpreting the regression results of this study. 5.2 Regression Analysis Multivariate regression based on Equation 1 was conducted to investigate the association between the level of voluntary disclosure and corporate governance attributes as well as firm characteristics. The results of the analysis are presented in Table 10. For H1, a positive association between the proportion of independent/non-executive directors on the board and the extent of company’s segment disclosure was assumed. In Table 10 it can be seen that for H1, the coefficient β1 for the variable BINDP is -.354 (t-value = -.970), thus providing no support for H1. This however, is consistent with the findings of Ho and Wong, (2001) and Brammer and Pavelin (2006) who find no association between the proportion of outside non-executive directors and the extent of voluntary disclosure. H2 predicts a positive association between board size (BSIZE) and voluntary segment disclosure (VDSCL). The result shows that the coefficient β2 is .790 (t-value= 1.227). Although the direction is positive as expected, the correlation between the two variables is not significant and therefore H2 is not supported. Cheng and Courtenay (2006) argue that there is no predominant theory or empirical evidence to suggest a relationship between board size and levels of voluntary disclosure, which remain an empirical issue in the context of corporate governance research. Furthermore, a positive relationship between BMEET and VDSCL is also hypothesized and tested as indicated in H3. Surprisingly a negative significant association between the two variables is observed. The coefficient β3 is -.857 (t-value= -1.467), therefore providing no evidence to support H3. H4 predicts a positive association between the separation of CEO and chairman function and the extent of company’s segment disclosure. The findings indicate that there is significant relationship between the variables SPRTN and VDSCL with the coefficient β4 is at .166 (t-value =1.453). However, the association between the variables is relatively weak. Nonetheless, based on the finding, H4 is supported which is consistent with the result of Ho and Wong (2001) who find similar significant relationship in Hong Kong.



14

Table 10: Regression Analysis of Voluntary Segment Disclosure

Variables Estimated coefficient t-value

BINDP -.354 -.970 BSIZE .790 1.227 BMEET -.857 -1.467** SPRTN .166 1.453* ACINDPT -.022 -.181 ACSIZE .061 .472 ACMEET .092 .801 FSIZE .220 1.321* INDTYPE .424 2.560*** Intercept .065 .591

N = 69 Adj. R

2 =0.200

F=2.890*** ***Significant at the 1% level (one-tailed test when the sign is predicted; two-tailed otherwise) **Significant at the 5% level (one-tailed test when the sign is predicted; two-tailed otherwise) *Significant at the 10% level (one-tailed test when the sign is predicted; two-tailed otherwise)

H5 presumes that there is a positive association between the proportion of independent outside directors in the audit committee and the extent of company’s segment disclosure. Adversely, the result shows that the association between ACINDPT and VDSCL is at -.022 (t-.value =-.181). This suggests that audit committee with large proportion of non-executive directors is not related to voluntary disclosure and therefore no support is found for H5. H6 is also tested which predicts a positive association between audit committee size and voluntary disclosure among Nigerian publicly listed firms. The results show that the coefficient β6 for H6 is .061 (t-value= .472), indicating no association between the two tested variables. This is similar to Mangena and Pike (2005) who find no relationship between audit committee size and extent of voluntary disclosure. In H7 the assumption is that there is a positive association between the frequency of audit committee meeting (ACMEET) and voluntary compliance with IFRS 8. The coefficient β7 is .092 (t-value= .801), thus providing no evidence to support H7. However, the correlation between FSIZE and VDSCL is positive and significant at .220 (t-value. = 1.321) which means that there is a positive significant association between firm size and the level of operating segmental disclosure by the public-listed Nigerian firms. This suggests that larger companies have lower incentive to withhold segment information and is similar to the outcomes of previous researchers such as Herrman and Thomas (1996) and (Luez, 1999). Furthermore based on the findings the result shows that the coefficient β9 for the variable INDTYPE and VDSCL is .424 (t-value =-2.560), supporting H9 which predicts a positive relationship between industry type and the level of voluntary segment disclosure. The connection between industry-type and disclosure is partially supported by previous empirical studies, because they show mixed results. For example, Ahmed (2005) finds industry type to be a significant factor contributing the variance in the companies’ compliance levels.



15

6.0 Conclusions The findings in this study have important implications for standards setters, regulators and other concerned with corporate governance and corporate reporting. First, the results based on regression analysis indicate that among the entire independent variables tested only one variable is found to be significant (SPRTN) while all other independent variables (board independence, board size, board meeting, audit committee size audit committee independence and audit committee meeting) are found to have no significant relationship with voluntary segment disclosure in Nigeria. Therefore the results provide no support to the argument that board mechanisms help promote higher level of corporate disclosure in the Nigerian context. Board of directors and audit committee in general do not act as control mechanisms to motivate management to voluntarily disclosure more segmental information. This could consequently hinder the implementation of IFRS in the country as previous studies in corporate governance and financial reporting have also documented evidence of inadequacies in Nigerian corporate reporting (Wallace 1988; Ofo 2010; Baba 2011; and Nworji 2011). This study provides initial indication on the readiness of Nigerian firms to comply with the new requirements of IFRS in general and IFRS 8 in particular. It also sheds more insights into the interactions between corporate governance mechanisms and their impacts of voluntary disclosure in Nigerian setting. This is timely because weaknesses of corporate governance, lack of transparency and commitment and policy inconsistencies are often considered as causes of or contributors to the African Financial Crisis especially in Nigeria as the so-called giant of Africa. Publicly listed companies in Nigeria, like other African firms, have witnessed series of mismanagement, and misappropriation of fund entrusted based on trust to managers and other directors of the firm. In order to improve governance and transparency especially toward effective compliance with IFRS, re-sensitization programmes, campaigns to create awareness, effective training and capacity building re-enforcement are much needed to be put into consideration by government and individuals alike at different levels.

References Abbot, L., Parker, S., and Peter, G, 2004, Audit Committees and Auditor Selection

Auditing. Journal of Theory and Practice19, 47-66. Adegbeti, E., and Nakajima, C, 2011, Corporate Governance, and Responsibility in

Nigeria: International Journal of Disclosure and Governance 0 (0), 1-20. Adrian, Cadbury, 2002 Corporate Governance and Chairmanship: A Personal

view. Text Book Published in the United States by Oxford University Press Inc., New York.

Ajinkya, B., S., Bhojraj, and P. Sengupta, 2005, The Association Between Outside Directors, Institutional Investors and The Properties of Management Earnings Forecasts. Journal of Accounting Research 43, 343-376.



16

Akhtaruddin, M, 2005, Corporate Mandatory Disclosure Practices in Bangladesh. International Journal of Accounting 40, 399-422. Alanezi, S., and Abdulbushi S. S., 2011, Does the Existence of Voluntary Audit

Committees Really Affect IFRS– required Disclosure? .The Kuwait Evidence. International Journal of Disclosure and Governance 18 (2), 148-173.

Ali, M., J., Ahmed, K., and Henry, D., 2004, Disclosure Compliance with National Accounting Standards by Listed Companies in South Asia. Accounting and Business Research, 34(3), 183-199. Anderson, R., C., Mansi, S., A., and Reeb D. M., 2004, Board Characteristics,

Accounting Report Integrity and the Cost of Debt. Journal of Accounting and Financials 37, 315–342.

Arcay, M., and Vazquez, M., 2005, Corporate Characteristics Governance Rules and the Extent of Voluntary Disclosure in Spain. Advances in Accounting 21, 299-331.

Baba, I., 2011, Corporate governance and financial reporting: International Journal of Governance, 1 (2), 1 IJG Malaysia.

Barako, D., G., Hancock, P., and Izan, H.Y., 2006, Relationship Between Corporate Governance Attributes and Voluntary Disclosure in Annual Reports. KenyanExperience. Financial Reporting Regulation and Governance 5 (1), 1-25.

Beeks, W., & P. Brown, 2006, Do Better-Governed Australian Firms Makes More Informative Disclosure? Journal of Business Finance and Accounting. 33, 422- 450. Beeks, W., Pope, P., and Young, S., 2004, The Links Between Earnings

Timeliness, Earning Conservatism and Board Composition: Evidence From the U.S., corporate governance: An international review. 12 (1), 47-59.

Belkaoui, A. R., 2000, Accounting Theory. The Meaning of GAAP: Fourth Edition, Academic Press London. Brammer, S., and Pavelin, S., 2006, Voluntary Environmental Disclosures by

Large UK Companies. Journal of Business Finance and Accounting, 33 (7/8), 1168-1188.

Brown, J. Frank., 2003, Audit Committees Good Practices for Meeting Market Expectations. PWC Second Edition 1-70.

Cerbioni, F., and Perbonetti, 2007, Exploring the Effects of Corporate Governance on Intellectual Capital Disclosure: An analysis of European Biotechnology Companies. Journal of European Accounting Review. 16 (4), 791-826.

Chen, Y., and Razaee, Z., 2012, The Role of Corporate Governance in Convergence with IFRS: Evidence from China. International Journal of Accounting and Information Management 20 (2), 171-188.

Cheng, E., C., M., and Courtenay, S.M., 2006, Board Composition, Regulatory Regime and Voluntary Disclosure. The International Journal of Accounting 4, 262-289.

Clarkson, P., A., Lammerts, Van Bueren, and J. Walker, 2006, Chief Operating Remuneration Disclosure Quality: Corporate Responses to an Evolving Disclosure Environment. Accounting and Finance 46, 771-796.



17

Cooke, T.E., 1991, An Assessment of Voluntary Disclosure in Annual Report of Japanese Corporation. International Journal of Accounting 26, 3.

Fama, E., F., and Jensen, M. C., 1983, Separation of Ownership and Control. Journal of Law and Economics 26, 301 - 25.

Farber, D., 2006, Restoring Trust After Fraud: Does Corporate Governance Matter? The Accounting Review 80 (2), 539-561.

Forker, J.J., 1992, Corporate Governance and Disclosure Quality. Journal of Accounting and Business Research 22(86), 111-124 Goyal, V., K., and C. W. Park., 2002, Board Leadership Structure and CEO

Turnover. Journal of Corporate Finance. 8, 49-66. Guantley, T., Greg, T., Mitchel, V., and John, N., 2008, Corporate Governance

Determinant on Australian Resources Companies Financial Instruments Disclosure Practice. Asian Review of Accounting, 16(1), 56-73.

Gul, F., A., & Leung, S., 2004, Board Leadership, Outside Directors’ Expertise and Voluntary Corporate Disclosures. Journal of Accounting and Public Policy, 23(5), 351-379.

Herrman, D., and Thomas, W., 1996, Segment Reporting in the European Union: Analyzing the Effects of Country, Size, Industry, and Exchange Listing. Journal of International Accounting, Auditing & Taxation 5(1), (Greenwich). Ho, S.S. M. and Wong, K.S., 2001, A study of the relationship between corporate

governance structures and the extent of voluntary disclosure”, Journal of International Accounting, Auditing and Taxation (10), 39-156.

Ibrahim Index of African Governance. (IIAG) ,2012, http://www.moibrahimfoundation.org/

International Accounting Standards Board (IASB), 2003, First-time Adoption of International Financial Reporting Standards. London, UK: IASB. Iyoha, F., O., and Jimoh, J., 2011, Institutional Infrastructure and the Adoption of IFRS in Nigeria, School of Doctoral Studies. European Union Journal 17-23. Jensen, M., and Meckling, W., 1976, Theory of the Firm: Managerial Behavior, Agency Theory Costs and Ownership Structure: Journal of Financial Economies, (3) 3, 303-360. Jensen, M., 1993, The Modern Institutional Revolution, Exit and Failure of Internal

Control System. Journal of finance 48 (3), 831-880. John, K., and Sembet, L. W., 1998, Corporate Governance and Board

Effectiveness. Journal of Banking and Finance 22, 371-403. Kantudu A. S., 2005, The Degree of Compliance with the Requirement of

Information to be Disclose in Financial Statement by Listed Firms in Nigeria. Abuja Management Review (3) 1, 26-46.

Kelton, A., S., and Yang-Wang, 2008, The Impact of Corporate Governance on Internet Financial Reporting: Journal of Accounting and Public Policy 27 (1), 62-87.

Kent, P., and Stewart, J.,2008, Corporate Governance and Disclosure on the Transition to IFRS. Journal of Accounting and Finance 48, 649-671.

http://www.moibrahimfoundation.org/



18

Kothari, S., 2001, Capital Markets Research in Accounting. Journal of Accounting & Economics 31, 105-231.

Luez, C., and Verrecchia, R. E., 2003, The Economic Consequences of Increase Disclosure. Journal of Accounting Research 38, 91-124.

Lipton, M., and Lorch, J. W., 1991, A Modest Proposal for Improved Corporate Governance, Business Lawyer, 48 (1), 59-77.

Madawaki, A., 2012, Adaptation of International Reporting Standards (IFRS) in Developing Countries. The Case of Nigeria: International Journal of Business and Management, 7(3),152-161.

Mangena, M., and Pike, R., 2005, The Effect of Audit Committee Shareholding, Financial Expertise and Size on Interim Financial Disclosures. Accounting and Business Research, 35 (4), 327-349.

Nigerian Accounting Standard Board (NASB,) Act, 2003. Statement of Accounting Standards. Nworji, I., 2011, Corporate Governance and Banks Failure in Nigeria: Issues,

Challenges and Opportunities. Research Journal of Finance and Accounting 2 (2).

Ofo, N., 2010, Corporate Governance in Nigeria: Prospects and Problems: Available at http://ssrn.com/abstract=1618600.

Okaro, S. C., 2011, From SAS to IFRS- Emerging Issues and Implications for Nigeria. http://ssrn.com/abstract=1956027 Okoye, E. , I., and Ofoegbu, G., 2006, Regulation of Financial Reporting and

Corporate. Okpara, J.O., 2011, Factors Constraining the Growth and Survival of SMEs in

Nigeria: Implication of Poverty Alleviation. Management Research News, 34(4), 156-171.

Owusu-Ansah, S.,1998, The Impact of Corporate Attributes on the Extent of Mandatory Disclosure and Reporting by Listed Companies in Zimbabwe. The International Journal of Accounting, 33 (5), 605-631.

Oyedele, T., 2011, An Overview of IFRS and Challenges Posed to Professional. A paper Presented at a Seminar on IFRS Adoption in Nigeria: The Chartered Institute of Taxation of Nigeria (CITA).

Prencipe, A., 2004, Proprietary Cost and Determinant of Voluntary Segment Disclosure: Evidence From Italian Listed Companies, European Accounting Review 13 (2), 319-340.

Price Waterhouse., 1993, Improving audit committee performance: what works best, Altamonte Springs, FL, Institute of Internal Auditors Research Foundation.

Sadiq, K., A., Mukhtar, E., Oyebola, F,. and Abdulrasheed, A., 2010, Agency Problem in Corporate Governance in the Nigerian Banking Industry: A Review www.researchgate.net/publication/215585788 Salawu, R. O., 2009, Financial Reporting on the Internet by Quoted Companies in

Nigeria. Proceedings of the 10th annual conference. LAABD. Sanda, A., U., Mikailu, A., S., and Garba, T., 2005, Corporate Governance

Mechanism and Firm Financial Performance in Nigeria. AERC research paper 149: African Economic Research Consortium, Nairobi.

http://www.elsevier.com/homepage/sae/econworld/econbase/jae/frame.htm

http://www.elsevier.com/homepage/sae/econworld/econbase/jae/frame.htm

http://ssrn.com/abstract=1618600

http://ssrn.com/abstract=1956027

http://www.researchgate.net/publication/215585788



19

Sarbanes –Oxley Act ., 2002, US Legislature, Washington, DC. Singh, D., R., & Newberry, S., 2008, Corporate Governance and IFRS: Research in

Accounting in Emerging Economics 8, 483-518. Vafeas, N.,1999, Board Meeting Frequency and Firm Performance, Journal of

FinancialEconomics 53, 113-142. Watson, A., Shrives, P. and Marston, C., 2002, Voluntary Disclosure of Accounting Ratios in the UK, British Accounting Review, 31, 289- 313. Watts, R. L., and Zimmerman, J. L.,1986, Positive Accounting Theory. Prentice-

Hall, Englewood Cliffs, NJ. Wallace, R. S. O., 1988, Corporate Financial Reporting in Nigeria: Accounting and

Business Research 18 (72), 352-362. Wallace, R,. S. O., Naser, K., and Mora, A., 1994, The Relationship Between the

Comprehensiveness of Corporate Annual Reports and Firm Characteristics in Spain. Accounting and business Research 25(3), 41-53.

Williams, R., J., P., A., Fadil, and R. W. Armstrong., 2005, Top Management Team Tenure and Corporate Illegal Activity: The Moderating Influence of Board Size Journal of Managerial Issues 17, 479-493.

Yahaya, A., and Adenola, K., 2011, Compliance with Statement of Accounting Standards (SAS) by Nigeria Quoted Banks: European Journal of Economics, Finance and Administrative Sciences (34), 104-112.

Corporate Governance and Disclosure on Segment Reporting:Evidence from Nigeria

Documents