CHAPTER ONE

INTRODUCTION
1.1 Background to the Study

Corporate governance has become one of the most widespread and common themes in the

business environment since the advent of the Asian financial crisis in 1997/1998 and the crisis

involving Enron, WorldCom, ahold among others in Europe and America. Based on the

forgoing, confidence on corporate institutions and legislative bodies & agencies is all-time low

(Sachs, 1998). Corporate governance, which is the way in which companies are controlled,

directed and made accountable, is now a focus of much academic and practitioner interest. Good

corporate governance assists to attract investment both foreign and local, helps reduce capital

flight and the fight against corruption, which by now everyone knows the extent of the

obstruction represented by the growth (Mian & Talat, 2018).

The most important motives for the application of the rules of governance for industrial

companies and financial markets is to return customer confidence of investors and shareholders

and management of companies in those markets in order to keep away from prone to landslides

or failures due to the inaccuracy of the data and accounting information and the lack of

transparency and lack of accountability in financial reporting, so the accuracy and objectivity in

reporting financial side of compliance with laws and regulations issued by the state and

professional associations specialized have clear impact in stimulating the movement of the stock

market and boost trading and stock prices, as well as the consequence of timing appropriate to

disclose all the information necessary to do so, which affects the capability of prediction for all

the information and the behavior of investors both cases, and prospective (Ezelibe, Nwosu &

Orazulike, 2017). The direct target of applying the principles of corporate governance is to bring

back confidence in the accounting information as an effect of achieving the overall concept of

1
this information as the information produced by the financial reports are the most important

pillars that can be relied upon to measure the size of the risks of various types such as: market

risk and liquidity risk and interest rate and business risk management and price exchange

(Hassan & Ahmed, 2012).

Effective corporate governance requires a clear understanding of the respective roles of the

board, management and shareholders; their relationships with each other; and their relationships

with other corporate stakeholders(Lin & Hwang, 2010.Effective corporate governance requires

dedicated focus on the part of directors, the chief executive officer (CEO) and senior

management to their own responsibilities and, together with the corporation’s shareholders, to

the shared goal of building long-term value (Dabor & Ibadin, 2013).

Shareholders in emerging markets as well as in developed markets are willing to pay a premium

for good governance standards (Campos, Newell &Wilson, 2002). Thus, the establishment of an

effective corporate governance system is essential. To assess the performance or effectiveness of

a corporate governance system, instead of investigating the corporate governance mechanisms,

the focus should be on corporate governance outcomes (Macey 1997, 1998; Gibson, 2003). It is

well documented that even though the corporate governance mechanisms vary across countries

the outcomes are similar (Kaplan, 1994; Gibson, 2003). Hence, all corporate governance

systems no matter how they are structured, aim to reduce the agency conflicts inherent in the

modern corporation.

Effective corporate governance ensures the optimal use of resources both intra-firm and inter-

firm. With effective systems of corporate governance, debt and equity capital will go to those

corporations capable of investing it in the most efficient manner for the production both of

highly demanded goods and services as well as those with the highest rate of return. This helps to

2
protect and nurture scarce resources thereby ensuring that societal needs are met. In all

probability this will mean that incompetent managers are replaced. These efficiency effects both

as to scarce resources and the quality of managers should apply whether a firm is a state owned

enterprise, a private closely held firm owned by a family group, or a publicly traded corporation

on a stock exchange.

Effective corporate governance also helps to lower the cost of capital by improving the

confidence of both foreign and domestic investors that their assets will be used for the purposes

agreed. A survey of institutional investors by Felton et al (1996) found that they would willingly

pay on average well over ten percentage points more for a “well governed” company, all other

things being equal. In competitive markets, this means that managers must constantly evolve

new strategies to meet the changing circumstances. This requires that managers be empowered to

make decisions. However, as observed by that famous 18th century economist Adam Smith,

managers may have incentives to act in their own self-interest under such circumstances. Jensen

and Meckling (1976) found that when firm ownership is separated from control, the manager’s

self-interest may lead to the misuse of corporate assets, for example through pursuit of overly

risky or imprudent projects. Therefore, we need to have in place rules and regulations to protect

the best interests of the providers of capital.

Looking at the importance of board composition contribution they have in the reporting quality

in an organization. This current study examines the effectiveness of corporate governance on

earnings management of listed industrial goods companies in Nigeria.

1.2 Statement of the Problem

Though one should expect that "better" corporate governance leads to improved financial

reporting, there is a lack of consensus as to what constitutes "earnings management." For

3
example, even though Sarbanes-Oxley (2002) require auditors to discuss the quality of the

financial reporting methods and not just their acceptability, the notion of earnings management

remains a vague concept. As Jonas and Blanchet (2000) state, in light of these new requirements,

auditors, audit committee members, and management are now struggling to define quality of

financial reporting.

The stirring of current accounting and auditing scandals throughout the world, the issue of audit

firm versus firm performance has become the subject of debate among politicians, business

leaders, and regulators. Corporate scandals such as Enron, Global Crossing, Cadbury and World

Com, have shaken the investors' confidence and made it difficult for companies to raise equity

from the stock market (Agrawal, 2005).

Most studies conducted in the area of effect of corporate governance on the financial

performance were carried out in foreign countries like Tornyeva &Wereko, 2012; David &

Tobias, 2013; Abdullah; Laith, 2015; Cyrus, Mirie & Muchok, 2015; Tamer, 2016; Joyce, 2016.

The few studies that were carried out in Nigeria are studies like Simon &Enoghayinagbon, 2014;

Adeolu&Afolabi, 2014; Odili, Ikenna, & Orikara, 2015; Abdulazeez, Ndibe& Mercy, 2016; Ibe,

Ugwuanyi & Okanya, 2017). These studies were carried out in the area of non-financial

institutions, banking industry, manufacturing industry, Food and beverages industry, cement

companies, insurance companies, oil and gas companies, but none was specifically carried out in

the listed industrial goods companies in Nigeria. This current study contributes to the literature

by utilizing a more current data from (2009–2018) than those employed by previous empirical

studies in Nigeria.

In the light of previous studies’ results, this study came to highlight the role of corporate

governance attributes play in the reporting quality of listed industrial goods companies in

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Nigeria. The need for this study is to bridge the gap in literature since these relationships have

not been researched extensively in Nigeria. Moreover, Nigeria has witnessed many financial

scandals that led many companies to go bankrupt such as Global Business within this period

under investigation.

Thus, this study focuses on effectiveness of corporate governance on earnings management of

listed industrial goods companies in Nigeria.

1.3 Research Questions

This study will provide answers to the following questions:

i. What is the effect of audit committee independence on earnings management of listed

industrial goods companies in Nigeria?

ii. What is the effect of board composition on earnings management of listed industrial

goods companies in Nigeria?

iii. What is the effect of board size on earnings management of listed industrial goods

companies in Nigeria?

iv. What is the effect ownership concentration on earnings management of listed industrial

goods companies in Nigeria?

1.4 Objective of the Study

The main objective of this study is to measure the effect of corporate governance on earnings

management of listed industrial goods companies in Nigeria.

The specific objectives of this study will be to:

i. Examine effect of audit committee independence on earnings management of listed

industrial goods companies in Nigeria.

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 ii. Assess effect of board composition on earnings management of listed industrial goods

companies in Nigeria.

iii. Assess effect of board size on earnings management of listed industrial goods companies

in Nigeria.

iv. Examine the effect of ownership concentration on earnings management of listed

industrial goods companies in Nigeria.

1.5 Statement of Hypotheses

The hypotheses that provide greater insights into the research work are stated in the null form.

H01: Audit committee independence has no significant effect on earnings management

of listed industrial goods companies in Nigeria.

H02: Board composition has no significant effect on earnings management of listed

industrial goods companies in Nigeria.

H03: Board size has no significant effect on earnings management of listed industrial

goods companies in Nigeria.

H04: Ownership concentration has no significant on earnings management of listed

industrial goods companies in Nigeria.

1.6 Significance of the Study

This study is significant because it focuses on issues related to corporate governance attributes

that are threatening the survival of listed industrial goods companies on one hand, and the going

concern of corporate entities on the other hand. The study will also be of importance in ensuring

the credibility of reported information is not only for purpose of highlighting the tendencies of

corporate scandals, but most importantly the survival of accounting and audit profession, as well

as the development of healthy financial statements and for capital market. The study will

6
therefore be of immense value to auditors, regulators, managers, professional accounting bodies,

existing and potential shareholders and researchers.

The findings from this study could assists auditors in their duties and responsibilities with

regards to financial reporting, as to the factors that are of eminent importance in achieving high

audit quality and high earnings management. The study will also offer important input to serve as

a strong base for the regulators and professional accounting bodies to establish policies relating

to type of audit firm characteristics. This is important because most of the issues in this area are

based on anecdotal evidence, particularly in Nigerian context since evidence regarding these

issues has been relatively limited. It is therefore envisaged that this study will not only help

enrich the literature, but also provide important quantitative and qualitative information for

policy formulation.

The findings of this study would also educate both existing and potential shareholders of listed

listed industrial goods companies in Nigeria on approaches that improve quality reporting in that

area. While at the same time may be of great benefit to researchers, since it may provide

empirical evidence on the effectiveness of corporate governance on the reporting quality of listed

listed industrial goods companies in Nigeria for which upcoming researchers may have as a base

for future research studies. Management and practicing auditors in Nigeria are anticipated to

become more informed on the intricacies surrounding board and auditors through the finding of

this academic work while community will also benefit enormously from the findings of this

research.

In terms of methodology applied, this study is significant by using secondary data, which is a

reliable means of getting information in this type of study. The use of ex-post fact research

design is premised on the fact that this study relied on secondary data that are quantitative in

7
nature and these data had already been collected by the study population. The use of panel

regression analysis is the best method used because this study involves the combination of time

series and cross-sectional data; hence, panel regression method is most appropriate.

1.7 Scope of the Study

This study focuses on effectiveness of corporate governance on earnings management within the

context of listed industrial goods companies listed on the Nigerian Stock Exchange. The study

covers the period of ten (10) years, from 2009 - 2018.

The variables measured in this study are quality of earnings management (EM); audit committee

independence (ACIND); board size (BS); board composition (BCOMP) and ownership

concentration (OC). Thus, in this study, corporate governance was measured by independent

variables such as, audit committee independence (ACIND), board composition (BCOMP), board

size (BS) and ownership concentration (OC) while the dependent variable for financial

performance proxy is quality of earnings management (QRE). The results showed the degree of

relationship between corporate governance and financial performance. To achieve these

objectives, annual financial reports for the period 2009-2018, a period of ten (10) years were

analyzed.

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 CHAPTER TWO

LITERATURE REVIEW

2.1 Concept of Corporate Governance

Corporate governance is a blueprint that explains the procedures, laws, policies processes,

customs, and institutions that oversee the way organizations and corporations perform,

administer and coordinate their activities. It works to achieve the goal of the organization and

manages the relationship among the stakeholders including the board of directors and the

shareholders. It also deals with the accountability of the individuals through a mechanism, which

reduces the principal-agent problem in the organization. Good corporate governance is an

essential standard for establishing the striking investment environment, which is needed by

competitive companies to gain strong position in efficient financial markets. Good corporate

governance is the bedrock to the economies with enormous business and corporate opportunities

and enhances the success for entrepreneurship. Corporate governance arises in modern

corporations due to the separation of management and ownership control/ structure in the

organizations. The interests of shareholders are usually conflicting with that of managers. The

main challenges are reflected in the management and coordination related problems due to the

variation in interests of firm’s stakeholders. In view of the above, there is no single definition of

corporate governance if viewed from different angles.

However, corporate governance is all about running an organization in a way that guarantees that

its owners as stakeholders are receiving a fair return on their investment. It is the process of a

virtuous circle that links the shareholders to the board, to the management, to the staff, to the

customer and to the community at large (Clarkson & Deck, 1997). Kyereboah (2007) notes that

corporate governance is the process of bringing together varying interest of investors, managers

9
and other stakeholders into ensuring the firm is managed for the benefit of shareholders. It is

concern with the relationship between internal governance mechanism of a firm and the society

expectation of corporate accountability. More so, corporate governance can also be the system

and the process established to reduce agency problems associated with the separation of

ownership from control (Deakin & Hughes, 1997; as cited in Kyereboah, 2007).

According to Inyang (2009), corporate governance facilities are incentive for managers to ensure

firm under their control is operated effectively and efficiently. It also limits the power of

managers to abuse and misuse resources of the firm for their own benefit. It also creates the

monitoring system that ensures corporate accountability (Ogbechie & Koutpoulos, 2007; as cited

in Benjamin, 2009). While, Tabassum (2012) states that corporate governance is the mechanism

to control managers so that their decisions in managing the firm are for the benefit of the owners

and not for their own interest. Corporate governance is expected to minimize corporate scandals,

failures and ensure good images for corporations. It is expected to help companies to attract

investors, suppliers and other stakeholders to the organization.

Corporate governance monitoring system comprises of at least the board of directors, and

external auditors, which usually expresses opinion on the truth, and fairness of the annual

statement of stewardship of the executive. In normal cases however, corporate governance

usually includes monitoring by diverse interest of stakeholders like owners, creditors, labour

union, investment analysis, suppliers, customers, host communities, NGO’s, regulators and

policy makers. However, corporate governance became an important global topic in recent times

because of its significance to economic growth and development. Poor corporate governance has

been found to be the cause of failures of many important and respected companies in the world.

Generally, literature supports the position that good corporate governance impacts positively on

10
performance of firms OECD (2004); ACCA (2009) one can state it differently that developing

nations with poor development index can attribute their lower level of development to poor

corporate governance practices.

Therefore, countries with poor corporate governance practices have been identified as having

inadequate capacity to manage their resources. Therefore, corporate governance as supported by

existing literature is the most important development issue affecting most developing countries

(Jensen & Meckling, 1976; as cited in Kingsley & Theophilus, 2012). Corporate governance is

the process in which companies are directed and controlled. It specifies the distribution of

responsibilities and the rights of stakeholders, employees, creditors, regulators, host communities

among others. Corporate governance specifies the rules and procedures for making decision that

affects the operations of corporation. It also provides the structures for setting the objectives of

the corporation and the means of attaining the set objectives (OECD, 1999; as cited in Omolade

& Tony 2014).

The board should therefore be structured and composed in such a way that it will act to monitor

itself. Rashid (2011) states that corporate governance literature debated within two extreme

streams of board practices examining whether the board composition in the form of

representation of outside independent directors and structural dependence of the board influence

the firm financial performance. Aminu, Mohammed & Tanko (2015) argued that Corporate

governance is a tool that ensures the existence of transparency, accountability and fairness in

corporate reporting. Corporate governance has now become a mainstream concern of discussion

in corporate boardrooms, educational meetings, and policy circles the world over (Claessens,

2006).

11
According to Nabil and Ziad (2014), the aim of corporate governance practices is to ensure there

is a balance in power sharing among different shareholders, management as well as directors for

shareholder value to be enhanced and ensure the interests of other stakeholders are protected.

Nabil and Ziad (2014), noted that investor confidence is improved by effective structures of

corporate governance which ensure that the corporate entity is accountable, reliable and quality

of public financial information is enhanced and that the capital markets integrity and efficiency is

enhanced.

Corporate governance as defined by Humera (2011) is the processes, policies, customs, laws and

institutions in which organizations are directed and how their operations are operated,

administered and controlled. It enables organizations to achieve their goals, manage the

relationship among different stakeholders who include the board of directors and the

shareholders as well as dealing with employees and other stakeholders through a process by

which the principal –agent problem in the organization is reduced.

According to Tricker (2015), corporate governance is seen as the way power is exercised over

corporate entities. It consists of the board activities of the enterprise and its relationships with the

shareholders, with the managers as well as with other legitimate stakeholders. The scholar also

points out the differences between corporate governance and executive management. While

executive management takes charge of running the corporation, the corporate governance

ensures that the corporate is running in the right direction and being run well (Tricker, 2015).

Hence, the board of directors are generally in charge of the enterprise’s decisions and its

financial performance. The relationship between corporate governance and financial

performance, which is one of the most appealing and controversial issues, has received a lot of

12
attention from many different countries over the world, especially after the Asian Financial

Crisis 1997 (Nguyen & Nguyen, 2016).

According to O’Connor and Byrne (2015) corporate governance needs vary with different levels

of firm’s life cycle, therefore, firms need to have a flexible mechanism of governance to live

successfully and achieve their objectives efficiently and effectively. In this regard, corporate

governance act as a front line for any organization, because each investor firstly examines the

mechanism and quality of governance (Dalwai et al., 2015).

2.1.1 Corporate Governance Mechanism

Kyereboah (2007) indicates that the impact of corporate governance is dependent on

performance measure being examines. Large board size could enhance corporate performance;

board dominated by non-executive directors enhances the value of the firm; CEO duality has

significant impact on market-based performance measures of Tobin’s Q; but it has negative

relationship with profitability. CEO possession in an office improve and elevate the firm’s

productivity and profitability; board operations intensity has diabolical effect on productivity and

profitability. Audit committee frequency of meeting has positive influence on Tobin’s Q but

have no significant relationship with profitability. Institutional investment enhances the market

value of the firm.

Duke II (2011) examines that the five corporate governance variables (Financial Reporting,

Corporate Governance Codes, Audit Committee, Board Size, CEO Duality) have positive

association with corporate performance. Regulatory agencies should develop checklist to score

adherence with good corporate governance and provide incentives to firms to adhere strictly to

the principle.

13
Mohammed (2011) states that, there is a positive relationship between financial performance and

corporate governance. Corporate governance is the foundation of efficient management

stewardship and can be measured through financial performance. Compliance with corporate

governance code was mandatory in Nigeria but there were no evidences that sanction for non-

compliance with the principle being applied by the authorities.

Mang’unyi (2011) opines that there is existence of significant difference between good corporate

governance and bank financial performance in Kenya. The existence of good corporate

governance structure leads to increased performance of the firm. Mang’unyi’s study

recommended to regulators and policy makers to encourage better corporate governance for firm

performance.

According to Al-malkwawi and Pillai (2012), norms, beliefs, values, and regulatory system have

positive influence on corporate governance. Firms influence formal and informal rules in their

day to day activities. Ayoni and Sampson (2013) state that there is a significant relationship

between corporate governance and insurance profitability. Specifically, there is a positive

relationship between corporate governance and dividend yield, return on equity and profit

margin.

According to Amba (2014), the CEO as a board member and CEO as Chairman of the board are

two variables that have negatives impact on return on asset (ROA) and create additional agency

cost, which reduces performance. The dual power may frustrate the capacity of the board to

evaluate the performance of management. Board member as chairman of audit committee has

positive effect on performance. Non-executive directors have negative impact on performance.

Gearing ratio is statistically significant to corporate governance but influence financial

performance negatively. Concentrated ownership is statistically not relevant but has negative

14
influence on firm performance. Regulators should determine the optimum level of these

variables

2.1.2 Concept of Earnings Management

Earnings management is the use of aggressive or conservative accounting to manage reported

earnings (Dechow and Skinner, 2000). Bushman and Piotroski (2006) defined conservative

accounting as the speed of good news (gain) recognition and the speed of bad news (loss)

recognition. In a general sense, it occurs when bad news is quickly recognised while good news

is slowly recognised: these help reduce reported earnings. Hackenbrack and Nelson (1996)

believed that, in the absence of precise standards, an aggressive reporting method is used to take

advantage of a specific financial circumstance with the general aim of reporting a healthy profit

and/or strong liquidity. Desai, Hogan and Wilkins (2006) labelled aggressive accounting as an

aggressive interpretation of GAAP. Burns and Kedia (2006) believed that adopting an aggressive

accounting choice is influenced by a management’s compensation scheme and is a cause of

restatement of previous years’ financial statements.

Earnings management techniques are divided into real operating decisions and decisionmaking

on financial reporting (Schipper, 1989; Peasnell, Pope and Young, 2000; and Ewert and

Wagenhofer, 2005). Schipper (1989) pointed out that real earnings management is designed to

manage the timing of decision-making on a company’s investments and production while

accounting earnings management is designed to select accounting techniques allowed by GAAP.

Ewert and Wagenhofer (2005) explained that one form of earnings management is the

management’s interpretation of accounting standards with the intent to make existing standards

apply to existing accounting events and transactions, and/or with the intent to partially shift

earnings between periods. In terms of real earnings management, the manager is required to

15
organise transactions or alter the timing of transactions to help him/her transform bad news into

good news.

Earnings management comes in two general forms, income-increasing and income decreasing

earnings management. These depend on the management’s purpose in managing earnings.

Aggressive accounting is defined as income-increasing earnings management because its major

aim is to increase reported earnings, but, by contrast, conservative accounting is defined as

income-decreasing earnings management because it intends to reduce reported earnings. The

decision to use income-increasing or income decreasing earnings management hinges on a

management’s incentives to manage reported earnings.

Earnings management therefore means a management’s intention not to report neutral operating

activities by influencing reported earnings through the exercise of judgement on accounting

choices, and with an aim to achieve a particular purpose (Healy & Wahlen, 1999; Schipper,

1989). The direction of earnings management is influenced by the management’s incentives.

This will be discussed in the following section.

2.2 Empirical Review

Kantudu and Samaila (2015) investigated board characteristics, independent audit committee and

earnings management of oil marketing firms in Nigeria using multiple regression analysis. The

evidence of the study revealed that power separation, independent directors, managerial

shareholdings and independent audit committee influences the financial reporting qualities of oil

marketing firms in Nigeria.

Hassan and Bello (2013) investigated firm characteristics and earnings management of quoted

manufacturing companies in Nigeria using correlation analysis with pooled balanced panel data.

The research evidence reveals that there is a significant positive relationship between firm

16
characteristics and earnings management in Nigeria. The result also shows that profitability and

independent directors are positively related to earnings quality while an inverse relationship

exists between liquidity and quality of financial reporting in Nigeria. Obona and Ebimobowei

(2012) opined that financial reporting forms the basis for economic decision making by various

stakeholders and that the financial reports produced by the accountant should be based on certain

fundamental qualities for various stakeholders to understand the content of the report.

Klai and Omri (2011) examined corporate governance and earnings management of Tunisian

firms using multiple regression models. The results revealed that the governance mechanisms

that affect the Tunisian firms are lack of board independence and high level of ownership

concentration. The governance mechanisms have a significant effect on the earnings

management of Tunisian firms. Gois (2014) investigated the earnings management and corporate

governance of Portuguese firms using multivariate regression model. The research evidence

shows that board composition changes and its degree of independence does not produce any

influence on the accounting information in Portugal.

Adegbie and Fofah (2016) investigated ethics, corporate governance and financial reporting in

the Nigerian banking industry using Analysis of Variance (ANOVA). The research evidence

revealed that good corporate governance will produce good ethical behavior which will

eventually produce reliable and faithful financial report. D’onza and Lamboglia (2014) examined

the relationship between corporate governance characteristics and financial statement frauds in

Italy using logit regression analysis. The research covers a period of 11 years (2001-2011). The

research evidence shows a significant positive relationship between corporate governance

characteristics and financial reporting fraud in Italian context.

17
Myring and Shortridge (2010) investigated corporate governance and the quality of financial

reporting disclosures in US using ranked regression analysis. The result provides mixed evidence

that the strength of corporate governance impacts on financial statement information. Fathi

(2013) examined corporate governance system and quality of financial information in Tunisia

using multivariate analysis and Pearson correlation matrix. The study covers a period of 2004 to

2008. The research evidence revealed that the quality of financial information is positively

related to the quality of the board and quality of the ownership structure.

Dimitropoulosb and Asteriou (2010) investigated the effect of board composition on the

information and quality of annual earnings. The research covers a period of 5 years (20002004).

The result revealed that the in-formativeness of annual accounting earnings is positively related

to the fraction of outside directors serving on the board but not related to board size. The result

further revealed that firms with a higher proportion of outside directors’ report earnings of higher

quality than firms with a low proportion of outside directors.

Ezelibe, Nwosu and Orazulike (2017) carried out an empirical investigation of corporate

governance and earnings management of quoted companies in Nigeria. In order to achieve the

objectives of the study, a total of fifteen firms quoted on the Nigerian stock exchange market

under the consumer goods sector with updated financial information for the period under study

were selected and analyzed for the study. Data for the study were extracted from corporate

annual reports and accounts of selected firms for the period 2012-2016. Data for corporate

governance proxied by board size and audit committee independence were extracted from the

notes from annual reports and earnings management was represented by audit delay. In testing

the research hypothesis, the study adopted simple regression techniques for the quoted sampled

firms analyzed. The findings revealed that audit committee independence does not exert

18
significant effect on audit delay of corporate firms. Also, board size has a significant negative

relationship with audit delay of corporate firms in Nigeria.

Nkanbia-Davies, Gberegbe, Ofurum and Egbe (2016) investigated the relationship between

corporate governance and earnings quality of listed banks in Rivers State. It examined the

relationship between Board size and accrual quality; Audit committee independence and value

relevance; and directors’ independence and accrual quality of listed banks in Rivers State. It

adopted the quantitative approach in investigating the assumed relationships. Using regression

analysis and Pearson product moment correlation coefficient, the result indicated a positive

relationship between corporate governance and earnings quality. It revealed positive association

between board size, independent directors and accrual quality. No relationship was established

between independent audit committee and accrual quality.

Dianwicaksih and Sidharta (2018) investigate the effect of financial statements‟ quality on

corporate governance mechanism and to examine the recursive simultaneous effect between

both. This study uses earnings timelines as a proxy of financial reporting’s quality; proportion of

independent board and board size as proxies of corporate governance mechanism. Using Two

Stage Linear Regression (TSLS) and samples consist of manufacturing companies listed on

Indonesian Stock Exchange (IDX) in 2015, this study finds that earnings timelines have

significant influence on board size; earnings timelines and proportion of independent board have

the recursive simultaneous effect; however, it fails to document the recursive simultaneous effect

of earnings timelines and ownership concentration. This study is the first that investigates the

recursive simultaneous effects of earnings management and corporate governance.

Onuorah and Imene (2016) evaluate the level of performance of some selected companies

ranging from commodities, brewery, banking, oil and gas and beverages in terms of corporate

19
governance measure indictors on the firm quality of financial reporting in Nigeria. The data were

collected from 2006 to 2015. Econometric analysis was conducted and the result suggests that

the correlation among corporate governance indicators of board structure (size-BRDSZ and

independence-BRDID), audit quality (audit committee size (ADCMZ), the quality of external

audit (EADTQ) as measured by the presence of an auditor among the big-4), board experience

(i.e. experience-BRDEX) and earnings management is 93.47%. The independent variables can

explain the variation in the FRQDA by 54.29%. There is overall significance among the

parameters measuring earnings management as discretionary accruals of firm (FRQDA). Board

structure (size-BRDSZ), board experience (experience-BRDEX) and the quality of external audit

(EADTQ) have positive impact on the earnings management measured by the discretionary

accruals of firm (FRQDA) by 16.01, 0.05 and 2.75. However, independent directors on the board

of firm (independence-BRDID) and audit quality (audit committee size (ADCMZ) negatively

affect earnings management measured by the discretionary accruals of firm (FRQDA) as much

as 0.99 and 20.01. Guarantee Trust Bank Plc. among the five selected companies of study in

Nigeria has better performance of financial reporting based on board structure (size-BRDSZ) and

audit committee size (ADCMZ). This revealed that there is short run relationship among Audit

quality (audit committee size (ADCMZ), and the quality of external audit (EADTQ) as measured

by the presence of an auditor among the big-4) and board experience (i.e. experience-BRDEX)

have not granger cause FRQDA.

Syed, Safdar and Arshad (2009) examines the relationship between quality of Corporate

Governance and Earnings Management. A set of listed Companies have been investigated to

analyze the relationship for the year 2006. Quality has been measured by assigning weights to a

set of related variables whereas earnings management has been quantified by discretionary

20
accruals. Modified Cross Sectional Jones Model has been used to determine the Discretionary

Accruals. Ordinary least square estimation indicates the presence of Positive relationship

between corporate governance and earnings management. Results appear un conventional, It

may be due to the transition phase through which the Pakistani Companies are passing after

promulgation of code of corporate governance in 2002 which has created a tendency to increase

discretionary accruals as a risk averse measure.

Samuel, Mudzamir and Mohammad (2017) examined the relationship of audit committee size

and earnings management in Nigeria. The empirical study has performed using a sample of 189

companies and 664-year observation from the period of 2011-2015. One of the desirable features

of corporate governance is to enhance earnings management for facilitating efficient and

effective resources allocation of economic decision making by corporate managers. Panel data

regression was adopted and audit committee size was found positive and significant with

earnings management. Our results underscore the importance of the corporate governance

recommendation as a mean of strengthening the monitoring and oversight role of audit

committee plays in the financial reporting process. Finally, the study offered recommendations to

enhance earnings management disclosure.

Ali (2014) examines the relation between corporate governance and earnings management

disclosure in a context of principal-principal conflicts and poor investor protection. The result

showed that there is a positive relationship between corporate governance and disclosure of

earnings management but no relationship between earnings management disclosures and cross

listing.

Hassan (2012) examined the extent of corporate governance and earnings management by United

Arab Emirates (UAE) listed corporations. The result revealed that the highest financial reporting

21
disclosures are those dealing with management structure and transparency which are also found

to be significantly different across the sectors in the UAE.

Pari, Hamzeh and Mohadeseh (2012) investigate the effect of corporate governance attributes on

earnings management in firms listed in Tehran Stock Exchange (TSE) during the period of 2003

to 2011. In this study McNichols (2002) and Collins and Kothari (1989) are used for earnings

management measurement purpose, and institutional ownership, ownership concentration, board

independence and board size is considered as corporate governance attributes. The results of the

study show that there is no relationship between corporate governance attributes including board

size, board independence, ownership concentration, institutional ownership and earnings

management. In addition, no evidence is found to support significant relationship between

control variables (audit size, firm size and firm age) and earnings management.

Ali, Saeedeh and Alireza (2015) evaluate the impact of corporate governance mechanisms on

earnings in the company is listed in Tehran Stock Exchange. Therefore, the use of sampling in

the time domain FA 2007 to 2011, the Tehran Stock Exchange, and has been selected according

to theoretical principles of corporate governance and the quality of earnings, to explain the

model and the choice of variables is discussed. The results of the regression model show that,

among the three mechanisms of corporate governance in terms of research (of outside board

members, board independence and ownership concentration), only between board independence

and earnings quality in terms of content, the concentration of ownership, there is a significant

relationship; however, none of these mechanisms benefit in terms of reduced quality of earnings

management, no significant relationship. These results mean that the corporate governance

mechanisms in the regulatory mechanisms are not effective in reducing the problem of

22
representation; however, shareholders are considered important mechanisms and by taking them

to react dividends.

Fares, Haitham, Haitham and Mohammed (2013) examine the impact of governance on

Accounting Information, a field study on industrial firms listed in Amman Financial Market. The

study used descriptive analytical method in the study by collecting data from sources of primary

and secondary, where data was collected through a questionnaire specially prepared for this

reason, were disseminated to the study population numbering 50 industrial companies, have been

using the Statistical Package for the Social Sciences (SPSS) in analyzing the data and testing the

suggestion hypotheses. The study found that there is effective implementation of the principles

of corporate governance affect the quality of financial reporting, makes it more accurate and

quality in a community study. Furthermore, found that there should be fully aware of the

designers and users of financial statements of the concept of corporate governance and the

foundations of their application in industrial companies listed on valuable Amman Financial

Market.

Shehu (2013) examines monitoring characteristics and earnings management of the Nigerian

listed manufacturing firms. Earnings management is represented with earnings management

using the modified Dechow and Dichev’s (2002) model. Using 32 firms-years longitudinal

paneled of 160 observations, panel OLS is estimated and controlled for fixed/random effects.

The result shows a significant positive relationship between monitoring characteristics and

earnings management. The Hausman specification test shows that the panel result after

controlling for random, best suits the population as the fixed effect hypothesis was rejected by

the Wald/Ch2 test. Of the control variables both returns on assets and return on equity are

significant. Leverage, independent directors, audit committee, institutional, block and managerial

23
shareholdings are all significant implying monitoring characteristics is influencing earnings

management of quoted manufacturing firms in Nigeria.

Chan and Li (2008) found that independence of the audit committee positively impacts the firm

performance as measured by Tobin's Q. The study was carried out in China and cannot be

utilized in Nigeria for policy implication. Similarly, Ilona (2008) showed that there is a positive

relationship between audit committee independence and firm performance as measured by ROA.

The study is an old study and there is need to determine the current trend of audit committee

independence on financial performance. The Hamdan, Sarea and Reyad (2013) examined the

relationship between audit committee independence and firm performance of 106 financial firms

listed on the Amman Stock Exchange Market from 2008 to 2009, the study found that audit

committee independence has a significant influence on firm performance. The study is only

useful in Jordan and cannot be used for policy implication in Nigeria because of difference in

political and socio-economic environment.

Triki and Bouaziz (2012) investigated the effect of audit committee’s characteristics on financial

performance, measured by ROA and ROE, of a sample of 26 Tunisian firms listed on the Tunis

Stock Exchange from 2007 to 2010. The results showed the essential role of audit committee in

protecting the interests of shareholders, as well as the effect of the audit committee’s

characteristics on the financial performance of Tunisian companies. This study is limited to

Tunisia only and cannot be applied to Nigeria.

Tornyeva and Wereko (2012) investigated the relationship between corporate governance and

the financial performance of insurance companies from 2005 to 2009 in Ghana. The study found

that audit committee independence is positively associated with the financial performance of

insurance companies in Ghana. The limitation of this study is that it only investigated one proxy

24
of corporate governance and did not capture auditor characteristics; also, it is only applicable in

Ghana and cannot be applied in Nigeria.

Using a sample of 20 non-financial listed companies in Nigeria, Kajola (2008) study did not find

a significant association between audit committee composition and firm performance. The study

also found that having a majority of independent non-executive directors in the audit committee

does not have a significant influence on firm performance. This study limitation is its reliance on

non-financial institution, while the financial institution is neglected.

Ghabayen (2012) investigated the relationship between audit committee composition and firm

performance using the annual reports of 102 listed non-financial firms in the Saudi market in

2011. The results revealed that audit committee composition has no effect on firm performance

in the selected sample. This study is limited to non-financial firms and cannot be applied on the

financial firms and agricultural companies; also, the study is only applicable in Saudi market.

Abdullah, Qaiser, Ashikur, Ananda and Thurai (2014) examined the association between audit

committee characteristics and firm performance among public listed firms in Malaysia. The

study employed EVA as performance measurement tool. The sample is 75 firms and covered

fiscal years 2008-2010. The study found that audit committee independence is positively

associated with firm performance while audit quality is negatively associated in Malaysia.

Overall, audit committee characteristics have a positive effect on firm performance and the

results suggest that Big 4 firms have a negative impact on value-based measure in Malaysia. The

study is limited to Malaysia and cannot be utilized in Nigeria.

Laith (2015) examined the effects of corporate governance in enhancing the quality of financial

statements and to restore the investors’ confidence in Jordan. The study highlighted the role of

audit committee and external audit in enhancing companies’ profitability. The study stated the

25
reason for the test of relationships of corporate governance and quality of financial statements in

Jordanian context to provide empirical evidence on this issue, after the corporate governance

application became mandatory since 2009. The study has used industrial sector, which include

91 companies, only 69 companies were included in the study, the other 22 companies were

excluded either newly listed or delisted during the study period (2009-2014). Multiple regression

were used to analyze the data, the result showed positive relationships between audit committee

meeting, audit committee size and companies profitability, while no significant relationship

between audit committee composition, audit committee members literacy, audit quality and

companies profitability. Such results would be beneficial to companies’ corporate governance

committees to play their supervisory role. The study is limited only to Jordan and cannot be used

in Nigeria.

Dimitropoulosb and Asterioua (2010) investigated the effect of board composition on the

informativeness and quality of annual earnings. Their data analysis over a period of five years

(2000–2004) revealed that the informativeness of annual accounting earnings is positively related to

the fraction of outside directors serving on the board, but it is not related to board size. Additionally,

firms with a higher proportion of outside board members proved to be more conservative when

reporting bad news but on the contrary they do not display greater timeliness on the recognition of

good news. They further indicate that firms with a higher proportion of outside directors’ report

earnings of higher quality compared to firms with a low proportion of outside directors.

Cornett et al. (2009) examined whether corporate governance mechanisms affect earnings and

earnings management at the largest publicly traded bank holding companies in the United States.

They find that CEO payfor-performance sensitivity (PPS), board independence, and capital are

positively related to earnings and that earnings, board independence, and capital are negatively

26
related to earnings management. They also find that PPS is positively related to earnings

management. Finally, they assert that PPS and board independence are positively related and the

relationship is bidirectional. While both PPS and board independence are associated with higher

earnings, their results indicate that more independent boards appear to constrain the earnings

management that greater PPS compels.

Vafeas (2000) investigated the relationship between board structure and the informativeness of

earnings. Their results suggest that earnings of firms with the smallest boards in the sample (with a

minimum of five board members) are perceived as being more informative by market participants.

By contrast, there is no evidence that board composition mitigates the earnings returns relation.

Nedal, Bana and David (2010) investigate the relationship between earnings management and

ownership structure for a sample of Jordanian industrial firms during the period 2001-2005.

Earnings management is measured by discretionary accruals. The three types of ownership studied

are insiders, institutions and block-holders. Using the Generalized Method of Moment (GMM), the

results indicate that insiders' ownership is significant and positively affect earnings management.

This result is consistent with the entrenchment hypothesis which states that insiders' ownership can

become ineffective in aligning insiders to take value maximizing decisions. Further analysis shows

insignificant role for institutions and block holders in monitoring managerial behaviour earnings

management. There are few limitations that exist in this study. Firstly, the study does not include

companies that are not listed on Bursa Malaysia board, and also those companies that are

categorized as financial institutions.

Klein (1998) investigated the linkage between board committee structure and firm’s performance

using data from 1992 to 1993. OLS regression statistical technique was used to find the

association between dependent and independent variables. Return on assets, profitability and book

27
value of firm assets are dependent variables and percentage of insiders and outsiders on the entire

board and percentage of director shareholdings are independent variables. Though, result finds no

systematic association between two measures if directors are categorized into insiders, outsiders

and affiliates. However, the main result of this study is that inside directors can be valuable board

members if properly utilized. The study period covered 1992 – 1993 which is too old and too short

a period to make meaningful decision while this current study extends to 2017 which makes it more

current.

Vidhi and Yaniv (2007) analyze the effect of the 2002 governance rules on firms’ value using data

during 2001-2002. Ordinary least square regressions statistical technique was used to see the

impact between dependent and independent variables. The related party transaction provisions,

and director independence provisions, financial reporting provisions, internal control provisions

and insider trading provisions are independent variable and firm returns are dependent variable.

The study discovers that the publication of corporate governance rules significantly affected the

firm’s value. The study period covered 2001 – 2002, which is too old and too short to make

decision while this current study extends to 2017, which makes it current.

Similarly, Oyoga (2010) sought to find out if the financial institutions listed on the NSE had their

performance influenced by the corporate governance practices they have been put in place. The

independent variables used during the study focused on corporate governance aspects such as board

independence, shareholding compensation, and disclosure and shareholders’ rights. The results of

the research revealed that the relationship between boards composition with performance of

financial institutions listed on NSE is positive. The study finding is useful to financial institutions

and cannot be used in agriculture companies.

28
David and Tobias (2013) investigated the effects of Corporate Governance on the financial

performance of listed insurance companies in Kenya. The study examined board size, board

composition, CEO duality and leverage and how they affect the financial performance of listed

insurance Companies in Kenya. Firm performance was measured using Return on Assets (ROA)

and Return on Equity (ROE). The study adopted a descriptive research design. The study

population was all those insurance Companies, which were quoted on the Nairobi Securities

Exchange. The primary data was collected through the administration of questionnaires to the

staff in these listed insurance firms. Stratified random sampling technique was used to obtain the

sample staff for administering questionnaires. Secondary data was collected using documentary

information from Company annual accounts for the period 2007-2011. Reliability test was

carried out using Cronbach’s alpha model. Both descriptive and inferential statistics were used.

Data was analyzed using a multiple linear regression model. The study found that a strong

relationship exists between the Corporate Governance practices under study and the firms’

financial performance. Board size was found to negatively affect the financial performance of

insurance companies listed at the NSE. There was a positive relationship between board

composition and firm financial performance. However, the most critical aspect of board

composition was the experience, skills and expertise of the board members as opposed to

whether they were executive or non-executive directors. Similarly, leverage was found to

positively affect financial performance of insurance firms listed at the NSE. On CEO duality, the

study found that separation of the role of CEO and Chair positively influenced the financial

performance of listed insurance firms. The study is limited only to insurance companies in

Kenya and is not applicable to the agricultural companies in Nigeria.

29
Chechet, Yancy and Akanet (2013) examined the relationship between the internal corporate

governance mechanisms related to the board of directors, the audit committee characteristics and

the performance of listed DMBs in Nigeria. The study covers the period of seven years (2005-

2011), with the population of seventeen (17), a sample of fourteen (14) DMBs. Multiple

regression was employed as a tool of analysis on the data which are extracted from the annual

reports of the sampled DMBs. The results indicated that board characteristics and audit

committee characteristics are essential factors of internal control mechanism sequel to the fact

that both board and audit committee characteristics have significantly influenced DMBs

performance during the period of the study Board composition, Audit committee

activities/meetings and Audit committee independence have significant and positive impact on

performance while Board size has a negative but significant impact on performance of DMBs.

The study is limited to the period covered 2005 – 2011, Deposit money banks, and is not

applicable to the agricultural companies in Nigeria.

Mwangi (2013) investigated the effects of Corporate Governance on the financial performance of

listed companies at (NSE). The study examined board size, board composition, CEO duality and

leverage and how they affect the financial performance of listed Companies at (NSE). Firm

performance was measured using Return on Assets (ROA) and Return on Equity (ROE). This

study adopted a descriptive research design. The study population was all those Companies,

which were quoted on the Nairobi Securities Exchange as at December 2012.Secondary data

were collected using documentary information from Company annual accounts for the period

2008 to 2012. Both descriptive and inferential statistics were used. Data was analyzed using a

multiple linear regression model. The study found that a strong relationship exists between the

corporate governance practices under study and the firms’ financial performance. There was a

30
positive relationship between board composition and firm financial performance. However, the

most critical aspect of board composition was the experience, skills and expertise of the board

members as opposed to whether they were executive or non-executive directors. Similarly,

leverage was found to positively affect financial performance of insurance firms listed at the

NSE. On CEO duality, the study found that separation of the role of CEO and chair positively

influenced the financial performance of listed firms. The study used ROA and ROE while this

study utilized NPM to proxy financial performance, also the study finding is relevant to Kenya

alone and cannot be used in Nigeria.

Idiat (2014) stated that Profitability is a vital factor that relates to the way and manner in which

financial resources available to firm are judiciously put into use to achieve the overall corporate

objective of an organization. Profitability keeps organization in business and creates a greater

prospect for future opportunities. However, corporate profitability is faced with governance

challenges recently, which undermine the future prospects and opportunities of corporate entities

around the world, particularly developing economies like Nigeria. This study assessed the impact

of corporate governance mechanisms on the profitability (return on equity, ROE and return on

assets, ROA) of quoted cement companies in Nigeria. The study adopted correlation research

design in a sample of 4 listed cement companies in Nigeria, for a period of ten years (2003-

2012). Secondary data was used and multiple regression technique of data analysis using fixed

and random effect models was applied. The study found that, the board size of the listed cement

companies in Nigeria has no significant impact on profitability (return on equity and return on

assets). It however found that the board composition and managerial shareholding have a

significant positive impact on the profitability (ROE and ROA) of listed cement companies in

Nigeria during the period under review. The study recommends among others that, the regulators

31
of listed cement companies in Nigeria should increase surveillance and supervision to ensure

effective compliance with the code of best practices on corporate governance. It further

recommends that the regulators and the board of directors of listed cement companies in Nigeria

should not concentrate on an optimal board that could significantly affect the profitability. The

study centered on deposit money banks listed on the Nigerian Stock Exchange market while this

current study is on quoted agricultural companies in Nigeria.

Tamer (2016) empirically examined the quality of corporate governance practices in Egyptian

listed companies and their impact on firm performance and financial distress in the context of an

emerging market such as that of Egypt. The study constructed a corporate governance index

(CGI) which consists of four dimensions: disclosure and transparency, composition of the board

of directors, shareholders’ rights and investor relations and ownership and control structure.

Based on a sample of 86 non-financial firms listed on the Egyptian Exchange, the effects of CG

on performance and financial distress are assessed. Tobin’s Q is used to assess corporate

performance. At the same time, the Altman Z-score is used as a financial distress indicator, as it

measures financial distress inversely. The bigger the Z-score, the smaller the risk of financial

distress. The overall score of the CGI, on average, suggests that the quality of CG practices

within Egyptian listed firms is relatively low. The results do not support the positive association

between CG practices and financial performance. In addition, there is an insignificant negative

relationship between CG practices and the likelihood of financial distress. The study result is

useful to financial firms in Egypt and it cannot be applicable in agriculture companies in Nigeria.

Joyce (2016) examined the influence of corporate governance on financial performance of

commercial banks operating in Kenya that are unlisted. The study used explanatory research

design and collected secondary data for 31 unlisted commercial banks in Kenya for the years

32
between 2010 and 2015. Descriptive and inferential analysis techniques were adopted to test

study hypotheses. Descriptive analysis comprised of mean, standard deviation, coefficient of

variation, skewness and kurtosis while inferential analysis comprised of correlation analysis,

Analysis of Variance (ANOVA) and multiple linear regression analysis. The study found that

disclosure of information and firm size were significantly correlated with ROA. Random effects

model showed that disclosure of information, leverage and firm size had significant effect on

ROA while board composition and audit committee had no influence on ROA of commercial

banks in Kenya that are unlisted. The study is centered on deposit money banks and it is carried

out in Kenya and cannot be applicable in Nigeria while this current study centers on agricultural

companies in Nigeria.

Al-Manaseer (2012) empirically investigated the influence of CG on performance using 15

Jordanian commercial banks listed on Amman Stock Exchange throughout the years 2007 to

2009 with a total of 45 bank-year surveillances. The study employed pooled data, and OLS

estimation method together with panel data methodology. The study revealed a negative and

significant correlation between the size of board and performance of banks as measured by return

on equity and earnings per share; but insignificant negative association of board size with return

on asset and profit margin. The study finding is useful to commercial banks in Jordan and

cannot be used in agriculture companies in Nigeria due to their social political culture.

Nyarige (2012) investigated how corporate governance structures of commercial banks in Kenya

affect their respective financial performance with the study focusing on the nine commercial

banks listed on Nairobi Securities Exchange (NSE) from the year 2005 to 2010. Corporate

governance aspects under study included board size, board meetings, board independence and

executive compensation while Tobin q ratio was adopted as proxy for financial performance

33
(dependent variable) with the results indicating that they have an effect on financial performance.

The study finding is relevant to commercial banks in Kenya and it cannot be applicable in

agriculture companies in Nigeria.

Simon and Enoghayinagbon (2014) examined the relationship between corporate governance and

financial performance of randomly selected quoted firms in Nigeria. It investigates corporate

governance variables and analyses whether they affect firm performance as measured by return

on asset (ROA) and profit margin (PM). Four corporate governance variables were selected

namely: composition of board member, board size, CEO status and ownership concentration,

which served as the independent variables. The ordinary least square regression was used to

estimate the relationship between corporate governance and firm performance. Findings from the

study show that there is positive and significant relationship between composition of board

member and board size as independent variables and firm performance. CEO status also has

positive relationship with firm performance but insignificant at P<0.05. However, ownership

concentration has negative relationships with return on asset (ROA) but positive relationship

with profit margin (PM). The relationships are not significant at 5%. The study recommends

among other things that independent directors should majorly dominate companies’ board and

board size should be in line with corporate size and activities. The study period stopped in 2014

while this current study is updated to 2017.

Adeolu and afolabi (2014) examine the relationship between corporate governance and

performance of Nigerian listed firms. Using a sample of 64 listed non-financial firms for the

period 2002 to 2006, the study is able to capture the impact of the New Code of Corporate

Governance released in 2003 on previous findings. Introductory investigations on the Nigerian

capital market operations and regulations depict low but improving states. Empirically, Panel

34
regression estimates show that board size, audit committee independence and ownership

concentration aid performance. Higher independent directors and directors’ portion of shares

unexpectedly dampen performance, while firms vesting both the roles of CEOs and chairs in the

same individual perform better. The study result is relevant to non-financial firms in Nigeria and

cannot be useful to agriculture companies in Nigeria.

Uwalomw, Daramola and Anjolaoluwa (2014) examined the effects of corporate governance

mechanism on earnings management in Nigeria. The study utilized 40 listed firms in the

Nigerian stock exchange market were selected and analyzed using the judgmental sampling

technique. The choice of the selected firms arises based on the nature and extent of corporate

financial failures and scandals that has been witnessed in the industry overtime. Also, the

corporate annual reports for the period 2007-2011 were used for the study. The regression

analysis method was employed as a statistical technique for analysing the data collected from the

annual report of the selected firms. Findings from the study revealed that while board size and

board independence have a significant negative impact on earnings management (proxied by

discretionary accruals); On the other hand, CEO duality had a significant positive impact on

earnings management for the sampled firms in Nigeria. Hence, the study concludes that firms

with larger boards and diverse knowledge are more likely to be more effective in constraining

earnings management than smaller boards since they are likely to have more independent

directors with more corporate or financial expertise. The study utilized earnings management

while this study used financial performance of listed agriculture companies in Nigeria.

George and Karibo (2014) the study examined empirically the impact of corporate governance

mechanisms on firm financial performance using listed firms in Nigeria as case study for two

years 2010 and 2011. The study adopted a content analytical approach to obtain data through the

35
corporate website of the respective firms and website of the Securities and Exchange

Commission. Thirty-three (33) firms were selected for the study cutting across three sectors:

manufacturing, financial, oil and gas. The result of the study showed that most of the corporate

governance items were disclosed by the case study firms. The result also showed that the

banking sector has the highest level of corporate governance disclosure compared to the other

two sectors. The result thus indicates that the nature of control over the sector have an impact on

companies’ decision to disclose online information about their corporate governance in Nigeria;

and that there were no significant differences among firms with low corporate governance

quotient and those with higher corporate governance in terms of their financial performance. The

result also suggests an existence of variations between sectors with respect to their corporate

governance reporting. The study period is too short to make a short term plan and this current

study period covers 10years which is from 2008 to 2017.

Odili, Ikenna, and Orikara (2015) examined the effect of corporate governance on the

performance of commercial banks in Nigeria from 2006-2014. The study selected 10 out of the

population of 21 consolidated commercial banks in Nigeria using stratified and proportional

sampling technique and the data were analyzed using the ordinary least square estimation

method. Return on Equity (ROE) was used as proxy for banking sector performance, while

Board Independence (BI), Board Size (BS), Director Shareholding (DSH) and Audit Committee

Meetings (ACM) are the proxies for corporate governance. The findings of the research revealed

that Board Independence, Directors’ Shareholding and Audit Committee Meetings had positive

and significant effects on banking sector’s performance while Board Size showed negative and

significant effect on the performance of the banking sector in Nigeria. The study recommends

effective monitoring and implementation of both the internal and external corporate governance

36
code already formulated in other to boost the confidence of the shareholders and improve

performance of the banking sector. The study is limited to Deposit money banks alone and

cannot be used in agriculture companies in Nigeria.

Abdulazeez, Ndibe and Mercy (2016) stated the effective management of organizational

resources requires good corporate governance practice particularly in banking industry where

there is management/shareholders separation. Since the introduction of corporate governance

code after the CBN consolidation exercise in 2005, corporate governance has attracted an

unprecedented attention of researchers. However, the sample sizes as well as the number of years

covered by previous researches were considered inadequate to generalize findings. It is against

this backdrop that the study examined the impact of corporate governance on the financial

performance of all listed deposit money banks in Nigeria for a period of seven (7) years (after

consolidation). Data for the study were quantitatively retrieved from the annual reports and

accounts of the studied banks. Multico linearity test was conducted via Pearson correlation and

further confirmed through VIF test. Regression was used to analyze the data and it was found

that larger board size contributes positively and significantly to the financial performance of

deposit money banks in Nigeria. The study however, recommended among others that banks

should increase their board size but within the maximum limit set by the code of corporate

governance. The study centered on deposit money banks while this study centers on agricultural

companies in Nigeria.

John, Nkiru and Luka (2017) investigated the determinants of financial reporting quality of listed

Agriculture and Natural Resources firms in Nigeria. Owing to the widespread advocacy to

diversify the Nigerian economy, the choice of the Agriculture and Natural Resources sectors,

being a prospective mainstay of the economy is necessary, so that investors and other

37
stakeholders will understand the financial reporting practices in the sectors. The sectors

comprise of 9 listed Agriculture and Natural Resources Firms, made up of 5 Agriculture and 4

Natural Resources firms. A sample of 7 firms was drawn from the population. Data was collected

through secondary sources from annual financial reports of the firms from 2008-2015. The study

adopted the correlation and ex-post factor research designs and employed the use of regression as

a tool for data analysis. The results showed a positive significant relationship between leverage,

liquidity, board size and financial reporting quality, measured using residuals from the modified

Jones model by Dechow (1995). It is recommended among others that managers of firms in the

Agricultural and Natural Resources sectors maintain an optimum liquidity level and finance their

operations from more of debt instruments, so as to ensure quality of reported accounting

numbers. The Nigeria Stock Exchange (NSE) should review its monitoring rules to ensure

specific rules for the prevention of window dressing activities by management in financial

reporting. The study used earnings management as its dependent variable while this current

study used financial performance as its dependent variable and this study looks at agricultural

companies in Nigeria alone.

Ibe, Ugwuanyi and Okanya (2017) investigated the effect of corporate governance on financial

performance of Insurance companies in Nigeria. The study adopted ex-post facto research design

and panel data covering five-year period from 2011-2015 for twenty insurance companies. The

study examined a range of corporate governance mechanisms such as board size, board

independence, executive directors’ remuneration, non-executive directors’ remuneration,

directors’ ownership, institutional ownership, foreign ownership and the study controlled the

effect of the firm size was represented by log of total assets. The Fixed effects model was used to

evaluate the effect of these corporate governance mechanisms on financial performance of

38
Nigerian insurance companies. The fixed effect econometric estimates showed that, board size

and non-executive directors’ remuneration have negative and significant effect on financial

performance proxy by return on assets (ROA) while, board independence, and institutional

ownership indicated positive and significant impact on the financial performance as predicted by

agency theory. However, contrary to theoretical predictions executive directors’ remuneration,

directors’ ownership, and foreign ownership did not make significant impact on the financial

performance of Nigerian insurance companies. However, the fixed effect econometric estimator

employed in this study indicated that corporate governance mechanisms affect the financial

performance of Insurance companies in Nigeria. Therefore, the study recommends among other

things that the board be restructured to a manageable size and suggested that a performance-

based remuneration be design for the directors. In addition, more non-executive directors should

be appointed to the corporate board to enhance the effectiveness of the board in aligning the

interest of the stakeholders. The study finding is restricted to insurance companies and cannot be

used in agricultural companies in Nigeria.

Connelly et al. (2012) investigated effect of ownership structure and corporate governance on firm

value in Thailand. They find that Tobin’s q values are lower for firms that exhibit deviations

between cash flow rights and voting rights. They also find that the value benefits of complying with

‘‘good’’ corporate governance practices are nullified in the presence of pyramidal ownership

structures, raising doubts on the effectiveness of governance measures when ownership structures

are not transparent. Finally, they assert family control of firms through pyramidal ownership

structures can allow firms to seemingly comply with preferred governance practices but also use the

control to their advantage.

39
Chen et al. (2006) examined whether ownership structure and boardroom characteristics have an

effect on corporate financial fraud in China. Their results from univariate analyses show that

ownership and board characteristics are important in explaining fraud. However, using a bivariate

probit model with partial observability they demonstrate that boardroom characteristics are

important, while the type of owner is less relevant. In particular, the proportion of outside directors,

the number of board meetings, and the tenure of the chairman are associated with the incidence of

fraud.

Nesrine and Abdelwahed (2011) examine the effect of the governance mechanisms on the earnings

management for a sample of Tunisian firms. Specifically, we focus on the characteristics of the

board of directors and the ownership structure of the firms listed on the Tunis Stock Exchange

during the period 1997–2007. The results reveal that the governance mechanisms affect the

financial information quality of the Tunisian companies. Particularly, the power of the foreigners,

the families and the blockholders reduces the reporting quality, while the control by the State and

the financial institutions is associated with a good quality of financial disclosure.

Devi and Aishah (2009) examine the relationship between internal monitoring mechanisms namely

the role of board independence and the ownership structure (managerial ownership, family

ownership and institutional ownership) and the financial earnings management quality. Using data

from 280 nonfinancial companies listed on Bursa Malaysia’s Main Board for the year 2004, this

study fails to find any significant evidence on the relationship between the traditional functions of

board of directors (i.e. proportion of independent non-executive directors) and earnings quality

measured by accrual quality model. However, this study finds positive significant associations

between proportion of family members and earnings quality which suggest that concentrated

shareholdings in family ownership have incentives to reduce agency costs through a better

40
alignment of shareholder and managerial interests. Given the growing role of institutional

shareholder in Malaysian capital market, it is interesting to note that this study finds positive

significant evidence on the relationship between institutional ownership and earnings quality.

Sung (2003) examined the effect of corporate governance on firm’s profitability using data from

1993 to 1997.Regression statistical technique was used to measure the relationship between

independent and dependent variables. Profitability is dependent variable and ownership

concentration is independent variable. The firms with low ownership concentration show low

profitability.

behaviour. Bocean and Barbu (2007) described ownership structure as wide dispersed ownership

(outsider systems), and concentrated ownership (insider systems). The majority or controlling

shareholder who exerts control and significant influence over the company’s operating and

financial policies usually characterizes the shareholder ownership concentrations of Companies.

The controlling shareholder is an individual, family holding, bloc alliance, financial institution or

other corporations acting through a holding company or via cross shareholdings. These studies

stopped in 2007 while this study extends to 2017.

Javid and Iqbal (2007) agree with Grosfield (2006), that there is a positive relationship between

ownership concentration and firm performance. However, there exist a disparity in literature as

regards the relationship between ownership concentration and firm performance, this study takes

a standpoint based on the inverse relationship between agency cost and firm performance. Based

on the observation that ownership concentration enhances corporate governance, it is expected

that it would increase performance since it reduces agency cost. A more concentrated director

ownership implies that the directors have an interest in the company and this would prompt them

41
to maximize profit and shareholders’ wealth. The study stopped in 2006 while this study extends

to 2017.

David and Brain (2011) confirmed tremendous growth of institutional ownership in USA traded

securities, which by 2005 represented over 70%. Institutional investors like pension fund, mutual

fund, endowments, hedge funds etc. hold and manage shares on behalf of individual

shareholders. Institutional investors are better placed to effect positive corporate governance

charges. Such changes could exercise through voting against management recommendations.

The study stopped in 2011 while this study extends to 2017.

Khurram, Ali and Moazzam (2011) investigated the effect of corporate governance on firm’s

performance of the Tobacco Industry of Pakistan using data from 2004 to 2008. Multiple

regression statistical technique was used to measure the relationships between dependent and

independent variables. Return on equity (ROE) & Return on assets (ROA) are dependent

variables, and ownership concentration, CEO duality & Board’s Independence are independent

variables. The outcome states that there is a positive and strongly enormous impact of the corporate

governance on firm’s performance and productivity. The study stopped in 2011 while this study

extends to 2017.

Cyrus, Mirie and Muchok (2015) studied the effect of corporate governance practices on

earnings management of companies listed at the Nairobi Security Exchange (NSE). The study

target population consisted of the 49 companies that have been continuously and actively trading

at the NSE. Secondary data was used covering the period 2010-2012 and analyzed using linear

regression to test the effect of the independent variables on the dependent variable. The study

found that earnings management is negatively related to ownership concentration, board size and

board independence but positively related to board activity and CEO duality. The study

42
recommended the need for effective corporate governance practices in listed companies in Kenya

to contribute to reduced earnings management and avert possible collapse of listed companies in

Kenya. The study is restricted to Kenya alone and the period the study covers stopped in 2012

and the result cannot be used in Nigeria while this current study period extends to 2017, which

makes it current.

2.3 Theoretical Framework

The basic theoretical structures of corporate governance include the agency theory, stakeholder

theory, stewardship theory, and resource dependency theory. However, the agency theory is the

focal point in this study. The theory of agency forms the theoretical core for this study because it

is a foundational theory of corporate governance. It also relates to internal mechanisms of

corporate governance. These theoretical perspectives are discussed herewith with emphasis on

agency theory.

2.3.1 Stakeholder Theory: The stakeholder theory has been perceived to be advancement on

the agency theory and corroborates the concept of corporate governance in organizations in a

more robust manner than the agency theory. This theory recognizes not only the shareholders or

owners of the organization but also the stakeholders. Stakeholders are a combination of those

individual or group that influences an organisation and those that are being influenced by the

organisation. Stakeholders therefore comprise of the shareholders, creditors, employees,

customers, competitors, suppliers and the community. Stakeholder theory asserts that companies

have a social responsibility that requires them to consider the interests of all parties affected by

their actions (Branco & Lucia, 2007). This confers more responsibility on the managers in terms

of ensuring that no stakeholder is dissatisfied either in the short run or in long run.

43
Sternberg (1997) says stakeholder theory is the doctrine that businesses should be run not for the

financial benefit of their owners, but for the benefit of all stakeholders. Rusconi (2009) posits that

the fundamental basis of the stakeholder theory is normative and involves the acceptance of ideas

that stakeholders are persons or groups with legitimate interests in procedural and/or substantive

aspects of corporate activity and that the interest of all stakeholders are of intrinsic value.

Kostyuk, Braendle and Apreda (2007) suggest that stakeholder theory focuses on the relative

differences of a stakeholder oriented corporate governance system compared. Consequently, it

can be inferred that stakeholder theory broadens the horizon of interests attached to corporate

governance with respect to firm performance.

2.3.2 Stewardship Theory: The stewardship theory emphasis on the principal- steward

relationship believed to have its roots in the fields of psychology and sociology. Donaldson and

Davis (1989, 1991) developed a model where senior executives act as stewards for the

organization and in the best interests of the principals (Olson, 2008). The principal-steward

relationship is a relationship of trust and was developed as an alternative to the agency theory. In

the light of corporate governance, Donaldson and Davis (1991) suggest that stewardship theory

focuses essentially on empowering structures, and supports the mechanism of CEO duality,

which will enhance effectiveness and produce, as a result, superior returns to shareholders than

separation of the roles of chair and CEO. The utility of the steward represented by the Chief

Executive Officer is maximized when organizational objectives are achieved rather than self -

serving objectives (Garcia-Meca & Sanchez-Ballesta, 2009).

2.3.3 Resource Dependency Theory: The theory of resource dependency explains that

organisations depend on resources from external sources, which affect it corporate governance

structures in terms of the strategic management of external relations alongside enforcing control

44
over such organisations. Chin, Widing II, & Paladino (2004) asserts that Resource Dependency

Theory has its origins in open system theory as such organisations have varying degrees of

dependence on the external environment, particularly for the resources they require to operate.

They express the same view as proponents of the theory who suggest that company should seek

proactively to control resources in order to improve organizational performance.

The hallmark of resource dependence theory that distinguishes it from transaction cost

economics is the emphasis on power and a careful articulation of the explicit repertoires of

tactics available to organizations (Davis & Cobb, 2009). This follows that directors or

nonexecutive are greatly appreciated than their inside directors’ counterparts because of their

ability to provide the organization with resources that would enhance firm performance as put by

proponents in terms of board capital and board motivation.

Gkliatis (2009) describes board motivation activities related to providing resources as: providing

legitimacy/bolstering the public image of the company, providing expertise, administering advice

and counsel, linking the company to important stakeholders or other important entities,

facilitating access to resources such as capital, building external relations, diffusing innovation,

and aiding in the formulation of strategy or other important company decisions. This led to the

contribution of Abdullahi and Valentine (2009), on the classification of directors into four

namely: the insiders, business experts, support specialists, and community influence.

2.3.4 Agency Theory: The agency theory stems from the existence of agency relationships in

corporate environments where there exists a fiduciary relationship between two individuals

described as the principal and agent. The Institute of Chartered Accountants of England and

Wales (2005), drawing from the above assertions, it is expedient that a principal engages in a

contract with an agent based on trust and interest in achievement of overall organisational goals

45
and objectives. This suggests that though the principal may have personal goals, loyalty and

dedication lies in the ability to place corporate goals ahead of personal goals.

In corporate governance debates, the agency theory appears to be the foremost and the most

emphasized because it borders on the cost of agency. Agency costs include coordinating

expenditures by the principal such as control, budgeting, auditing and compensation systems

linking expenditures by the agent and residual loss based on differences in interests between the

principal and the agent (Kyereboa, 2007).

The agent has largely been described as an opportunistic individual whose desire is for personal

aggrandizement whereas both principal and agent weigh the costs and benefits of engaging in a

contractual relationship. The unscrupulous behavior of the agent in a bid to optimise benefit and

minimize cost results in agency cost which Bricker and Chandra (1998) terms as a reduction in

company value. Therefore, individuals have an interest in minimizing agency costs because if

one or the other party expects that the burden of costs compared with the benefits resulting from

contracting will be too important for her, she does not contract (Padilla, 2002).

In the deliberations on agency theory, relationships and cost, a scholarly literature that is most

prevalent is Theory of the Company, Agency Costs and Ownership Structure - Jensen and

Meckling (1976) it presents a theoretical framework for other researchers to build up the theory.

Jensen and Meckling (1976) focus almost exclusively on the normative aspects of agency

relationships: that is how to structure the contractual relation including compensation incentives

explains that an agency relationship arises when one or more principals (e.g. an owner) engage

another person as their agent (or steward) to perform a service on their behalf.

46
However, between the principal and agent to provide appropriate incentives for the agent to

make choices, which will maximise the principal’s welfare given that uncertainty and imperfect

monitoring, exists. In addition to the key issues towards addressing opportunistic behaviour from

managers within the agency theory, which are the composition of the board of directors and CEO

duality as posited by Kyereboah (2007), this study, suggests two others which is the independence

of the audit committee and ownership concentration.

Another commonly debated corporate governance issue is whether the two key positions in the

company, the board chairman and the CEO be occupied by one individual or two different

persons. Though past experience showed mixed results.

47
 CHAPTER THREE

RESEARCH METHODOLOGY
3.1 Research Design

This study focuses on the empirical analysis of the effectiveness of corporate governance on the

reporting quality of listed industrial goods companies in Nigeria. This study adopts descriptive

research (ex-post facto research) design.

This study will rely heavily on historical data and data that will be analyzed shall be generated

from annual financial reports of the listed industrial goods companies in Nigeria from 2009 –

2018, that is a period of ten (10) years. The variables tested in this study are quality of earnings

management (EM), audit committee independence (ACIND), board composition (BC), board

size (BS) and ownership concentration (OC). In this study, corporate governance was measured

by audit committee independence (ACIND), Board Composition (BC), board size (BS) and

ownership concentration (OC) are independent variables, while earnings management proxy by

discretional accrual (QRE), is the dependent variable.

3.2 Population, Sample and Sampling Technique

The study population is the thirteen (13) listed industrial goods companies listed on the Nigeria

Stock Exchange.

The thirteen (13) listed industrial goods companies available on the NSE, are the population of

this study, and since they are not too many, this study utilized all of them as sample of the study.

3.3 Method of Data Collection

This study used secondary source of data for the study. The secondary source was extracted from

the annual financial reports of the listed industrial goods companies in Nigeria for the period of

ten years (2009-2018). The use of secondary data in this study is justified based on the fact that

the study is built on the quantitative research methodology, and hence requires quantitative data.

48
3.4 Techniques for Data Analysis and Model Specification

This study used panel regression analysis to describe relevant aspects of corporate governance

and provide detailed information about each relevant variable. Correlation models, specifically

multiple regression analysis, panel regression analysis was applied to measure the degree of

association between different variables under consideration, while regression analysis was used

to examine the relationship of independent variables with dependent variable and to know the

effect of selected independent variables on financial performance. Thus, Hausman specification

test was utilized to test whether the fixed or random effect model is appropriate.

This study adopted multiple regression equation model to investigate the hypothesized

relationship between the independent variables (board size, board composition, board ownership

& ownership concentration) and dependent variable (earnings management) in this study.

The econometric model used in this study forms the equation given as:

QREit=αo+ β1ACINDit + β2BCit + β3BSit + β4OCit + eit

Where:

QRE = Earnings management

BS = Board size

BC = Board composition

ACIND= Audit committee independence

OC = Ownership Concentration

e = error term

i,t = firm i, time t

β0 = Intercept of the regression line

β1-β4 = Coefficient of the independent variables

49
Measurement of Variables
S Variable Measurement
N
1 Board size Total number of directors on the board
2 Board Number of independent directors divided by total numbers on the board
compositio
n
3 Audit The ratio of non-executives members to executive members of the audit
committee committee.
independe
nce
4 Ownership Percentage of shares by institutional investors
concentrati
on
5 Earnings Calculation of Earnings management
manageme Dechow and Dichev (2002) introduced a model for reporting quality
nt based on the notion that the function of accruals is to adjust the
recognition of cash flows over time, so that it better reflects firm
performance. This model relates total current accruals (TCA), measured
by changes in working capital, to lagged, current and future cash flows
from operations, and has been used in the existing studies as a proxy for
reporting quality (Aboody, Hughes, & Liu, 2005; Francis, LaFond,
Olsson, & Schipper, 2004; Francis, Schipper, & Vincent, 2003; Myers,
Myers, & Omer, 2003; Van der Meulen, Gaeremynck, & Willekens,
2007). In the model, the total current accrual is measured by changes in
working capital, since related cash flow realizations generally occur
within one year, which is as follows:
TCAi,t / Ai,t-1 = α0,i + α1,i(CFOi,t-1 / Ai,t) + α2,i (CFOi,t / Ai,t) + α3,i (CFOi,t+1 / Ai,t)
where:
TCAi,t =
: Firms i’s total current accruals in year t;
Ai,t =
: Firms i’s average total assets at the beginning and at the end of fiscal
year t;
CFOi,t = : Cash flows from operations in year t, calculated as net income
before extraordinary items minus total accruals.
Source: Researcher Computation

3.5 Justification of Methods

Since this study will have used time series and cross sectional data, which is quantitative in

nature, hence, analysing the data with the use of panel regression analysis is the best method

because the panel regression properties are known as the best linear unbiased and efficient

estimator (BLUE). Ordinary least square estimators are best liner unbiased estimators because

50
they have smallest variance and mean square error estimation. The objective of regression

technique is to minimize the error term with the view of finding the model or regression equation

that explain the data.

This chapter has detailed the study methodology approach adopted in analyzing the secondary

data and testing the established independent and dependent variables of the study. The research

design adopted for this study is descriptive research design (the ex-post factor research design).

The choice of ex-post factor design is based on the fact that it involves secondary data that are

employed in this study, the Panel data regression method adopted with the aid of E-view in

analysing the secondary data that was extracted from the Annual Financial Reports of the

thirteen (13) listed industrial goods companies in Nigeria.

51
 CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

4.1 Data Presentation

The data on audit committee independence (ACIND), board composition (BC), board size (BS),

ownership concentration (OC) and reporting quality (RQ) are presented in appendix A.

4.2 Data Analysis and Results

Table 4.1: Descriptive Statistics

Statistics QRE ACIND BCOMP BS OC
Mean 0.073857 0.717000 3.642857 0.242857 6.906143
Max 0.790000 1.000000 7.000000 1.000000 7.540000
Min 0.010000 0.010000 2.000000 0.000000 6.300000
Sd 0.111190 0.318672 0.978548 0.431906 0.332039
Skewness 4.314470 -0.466727 0.763034 1.199334 0.021952
Kurtosis 26.19843 1.754072 4.189435 2.438402 2.205056
Jarque-B 1786.825 7.069046 10.91894 17.70125 1.848770
Prob 0.000000 0.029173 0.004256 0.000143 0.396775
Observation 130 130 130 130 130
Source: Computed Using E-view 9, 2019.
The table 4.1 above indicates that quality of earnings management, audit committee

independence, board composition, board size and ownership concentration are 0.073857,

0.717000, 3.642857, 0.242857 and 6.906143 respectively. A comparison of the mean responses

with the maximum values for each of the variables indicates that the listed industrial goods

companies in Nigeria presently operates at a quality of earnings management of 7%, audit

committee independence of 71%, board composition of 36%, board size of 24% and ownership

concentration is at 69%.

The table 4.1 also shows that the mean of quality of earnings management (QRE) is 0.073857,

with standard deviation of 0.111190, the minimum and maximum values of 0.010000 and

0.790000 respectively. It implies that the average value of QRE of listed industrial goods

companies in Nigeria is 0.073857 to 0.790000 and the deviation from both sides of the mean is

52
0.111190. This suggests that the data are widely dispersed from the mean because the standard

deviation is more than the mean value.

The table 4.1 also indicates a minimum value of audit committee independence (ACIND) of

0.010000, and maximum value of 1.000000 while, the mean value 0.717000 with standard

deviation of 0.318672. It implies that the average value of board size of listed industrial goods

companies in Nigeria is 0.717000 to maximum value of 1.000000 and the deviation from both

sides of the mean is 0.318672. This implies that the data are not widely dispersed from the mean,

because the standard deviation is less than the mean value.

The descriptive statistics indicates that the mean of board composition (BCOMP) is 3.642857

with standard deviation of 0.978548, the minimum and maximum values of 2.000000 and

7.000000 respectively. It implies that the average value of BCOMP of listed industrial goods

companies in Nigeria is 3.642857 to 7.000000, and the deviation from both sides of the mean is

0.978548. This suggests that the data are not widely dispersed from the mean, because the

standard deviation is less than the mean value.

From the table 4.1 also indicates that the mean of audit committee independence is 0.242857

with standard deviation of 0.431906, the minimum and maximum values of 0.000000 and

1.000000 respectively. It implies that the average value of board size (BS) of listed industrial

goods companies in Nigeria is 0.242857 to 1.000000, and the deviation from both sides of the

mean is 0.431906. This suggests that the data are widely dispersed from the mean, because the

standard deviation is more than the mean value.

The descriptive statistics table 4.1 indicates that the mean of ownership concentration (OC) is

6.906143 with standard deviation of 0.332039, the maximum and minimum values of 7.540000

and 6.300000 respectively. It implies that the average value of OC of listed industrial goods

53
companies in Nigeria 6.906143 to 7.540000, and the deviation from both sides of the mean is

0.332039. This suggests that the data are not widely dispersed from the mean, because the

standard deviation is less than the mean value.

From the descriptive statistics table 4.1, probability value of Jarque-Bera test of RQ, ACIND,

BCOMP, BS are less than 5%. It indicates that they are not normally distributed. While OC has a

probability, value of 0.396775, it indicates that OC is normally distributed. However, the

Guasian theorem (1929) and Shao (2003) suggest that normality of data does not in any way

affect the inferential statistics estimate to the BLUE.

Correlation Matrix and Multicollinearity Analysis

The study employed Correlation matrix to ascertain the correlation between the independent and

dependent variables of the study. The table below represents the correlation matrix for the

sample observations.

Table 4. 2. Correlation Matrix

QRE ACIND BCOMP BS OC
QRE 1
ACIND 0.226272809 1
BCOMP -0.28019539 -0.01835785 1
BS -0.17671649 0.295991501 0.276777118 1
OC -0.20775696 0.362561727 0.362561727 0.795873925 1
Source: Computation Using E-view 9, 2019.
The table 4.2 above presents the correlation matrix of the independents variables. It is perceived

that the variables correlate fairly well (between 0.01 and 0.54). There is no correlation

coefficient higher than 0.8, hence there is no problem of collinearity of data.

54
Table 4.3: Random Effect Model Regression Results
Variable Coefficient Standard Error t-statistics Prob

C 0.415454 0.079749 0.946135 0.3476

ACIND 0.679478 0.165250 4.111815 0.0006
BCOMP -0.010831 0.014981 -0.722962 0.4723
BS 0.020212 0.057819 0.349564 0.7278
OC -3.602017 1.542361 -2.335392 0.0291
R2 0.43
Adj. R2 0.31
F-Statistics 5.168
Prob(F-Statistics) 0.043
Hausman Chi2 3.97
Hausman Prob>Chi2 0.408
Heteroskedasticity F- 0.163
statistics
Heteroskedasticity Sig 0.159
Breusch-Godfrey F- 0.789
statistics
Breusch-Godfrey 0.770
Observed R-squared
Source: Computation Using E-view 9, 2018.
Dependent Variable: QRE.

The table above presents the results of random panel multiple regressions. The result shows that

the P value of F-statistics is 0.043051, which is less than 5%, this shows that the model is fit and

that the model is statistically significant as it implies that all the independent variables are

statistically significant. The R square value of 0.43 means that the independent variable

contributes 43% to the dependent variable. It also indicates that 43 percent of the variation in

reporting quality (RQ) can be explained by variability in ACIND, BCOMP, BS and OC. The

remaining 57% are the value of other variables that are not captured in the model.

The adjusted R square of 0.31 indicates that any variations that can occur as a result of the

introduction of additional independent variable are being taken care of and cannot affect the R

square more than 31%. Durbin-Watson value of 2.44 shows there is no serial or auto correlation.

55
Durbin (1970), states that when the Durbin Watson statistic value is above 0.5 or 50 percent,

independent observation is assumed. In other words, there is no auto correlation among the

residuals of the study. The Durbin Watson statistic value of 2.44 therefore indicates that there is

no autocorrelation among the residuals of this study. But the presence of serial correlation will be

confirmed with Breusch Godfrey LM serial correlation test.

4.3 Discussion of Findings

This study examined the effect of corporate governance on quality of earnings management of

listed listed industrial goods companies in Nigeria. The study covered the period 2009 - 2018.

The findings established that corporate governance affect quality of earnings management of

listed industrial goods companies in NSE. From the empirical evidence derived from the fixed

effect regression model the specific findings indicate that audit committee independence has

significant positive effect on quality of earnings management of listed industrial goods

companies in Nigeria. The significant association between audit committee independence and

reporting quality is consistent with prior findings of Hamdan, Sarea and Reyad (2013);

Abdullahi, Qaiser, Ashikur, Ananda and Thurai (2014). But contradicts Ghabayen (2012).

This study found that board composition has no significant effect on quality of earnings

management of listed listed industrial goods companies in Nigeria. The insignificant association

between board composition and reporting quality is consistent with prior findings of Klein Joyce

(2016); Tamer (2016). But contradictsDavid and Tobias (2013); Laith (2015).

The study found that board size has no significant effect on quality of earnings management of

listed industrial goods companies in Nigeria. This result supports the findings of Abdulazeez,

Ndibe and Mercy (2016); Ibe, Ugwuanyi and Okanya (2017) and contradicts the study of Simon

and Enoghayinagbon (2014) and Odili, Ikenna and Orikara (2015).

56
This study also revealed that ownership concentration has a negative significant effect on quality

of earnings management of listed industrial goods companies in Nigeria. Ownership

concentration was found to be negatively significant on reporting quality of listed industrial

goods companies in Nigeria. It is significant at five percent level and negative. The negative sign

on the coefficient suggests that ownership concentration has an indirect influence on reporting

quality of listed industrial goods companies in Nigeria.

Expectedly, ownership concentration is to have a negative influence on quality of earnings

management of listed industrial goods companies in Nigeria because the number of institutional

investor’s increases will definitely reduce their reporting quality. This result supports the

findings of Cyrus, Mirie and Muchok (2015) but contradicts Grosfield (2006); Farooque (2008).

Agency theory supports the findings of this study as it has been found by this study that audit

committee independence, board composition, board size and ownership concentration affect

quality of earnings management.

57
 CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary

This study examined the effectiveness of corporate governance on earnings management of listed

industrial goods companies in Nigeria. The study specifically examined the effect of corporate

governance proxies by audit committee independence, board composition, ownership

concentration and board size, while discretional accrual is used to proxy quality of earnings

management of listed industrial goods companies in Nigeria.

In order to gain the advantage of an in-depth study and effective coverage, this study discussed

the concept of corporate governance and concept of reporting quality. This study reviewed prior

literature on the subject of study and theories that are relevant for this study were discussed.

The study adopted ex-post facto research design and secondary data were collected from the

annual financial reports of listed industrial goods companies in Nigeria. Panel regression analysis

was employed because the study is a time series plus cross sectional analysis.

This study revealed that corporate governance affects quality of earnings management of listed

industrial goods companies in Nigeria. However, the study found that audit committee

independence has significant positive effect on reporting quality while board composition has no

significant effect on the reporting quality of listed industrial goods companies in Nigeria. This

study also revealed that ownership concentration has a negative significant effect on reporting

quality of listed industrial goods companies in Nigeria, while board size has no significant effect

on the reporting quality of listed industrial goods companies in Nigeria. Ownership concentration

was found to be negatively significant on reporting quality of listed industrial goods companies

in Nigeria. It is significant at five percent level and negative. The negative sign on the coefficient

58
suggests that ownership concentration has an indirect influence on reporting quality of listed

industrial goods companies in Nigeria.

5.2 Conclusion

Based on the major findings as enumerated above, the following conclusions are drawn: This

study agrees that an independent audit committee promotes reporting quality of listed industrial

goods companies in Nigeria.

The study concludes that board composition does not influence reporting quality of listed

industrial goods companies in Nigeria, no matter the number of directors on the board in a year;

it has nothing to do with the reporting quality of listed industrial goods companies in Nigeria.

This study agreed the board size does not in any way influence the reporting quality of listed

industrial goods companies in Nigeria.

The study also conclude that ownership concentration has a negative influence on the reporting

quality of listed industrial goods companies in Nigeria the amount of institutional investor of

listed industrial goods companies in Nigeria reduces their reporting quality.

5.3 Recommendations

Based on the findings of this study, the following recommendations are made:

1. This study recommends that listed industrial goods companies should strengthen their

audit committee independence by equipping them with the necessary information and

they should be free from biasness, which will reflect in their reporting quality.

2. The study recommends that listed industrial goods companies in Nigeria should review

the number of directors that makes up the board composition of listed life insurance in

Nigeria. And also increase the number of directors on their board, as this will strengthen

59
 its reporting quality as the study found that the coefficient of board composition is

positive but not significant at five percent, it is only significant at forty-seven percent.

3. This study recommends that listed industrial goods companies in Nigeria should revisit

and review their policy on the numbers of institutional investors they should have in their

organization because this study found ownership concentration has a negative influence

on their reporting quality. Therefore, if the number of institution investors of listed

industrial goods companies in Nigeria increases it reduces their reporting quality,

therefore it is advised that they should reduce the number of ownership concentration

depending on the size of the business.

5.4 Limitations of the Study

The limitation of this study is its use of only listed industrial goods companies listed on the

Nigeria stock Exchange as at December, 2018. The study result cannot be generalized and valid

to other sector of the economy.

5.5 Suggestions for Further Study

Considering the previous discussion of the major findings, the conclusion of this study and the

limitation identified, there are possible avenues that can be explored in future research.

This work is limited to listed industrial goods companies in Nigeria; it is recommended that a

similar study can be extended to other sectors of the economy.

60
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72
Appendix A: Data Presentation

4.1 Data presentation

BCOMP

ACIND
COMPANY

YEAR

QRE

OC
BS
ID
AUSTIN LAZ & COMPANY PLC 1 2009 0.1124 6 0.43 3 0.376153
AUSTIN LAZ & COMPANY PLC 1 2010 - 6 0.43 3 0.376153
0.1116
AUSTIN LAZ & COMPANY PLC 1 2011 0.0939 6 0.43 3 0.382292
AUSTIN LAZ & COMPANY PLC 1 2012 - 6 0.43 4 0.382292
0.4136
AUSTIN LAZ & COMPANY PLC 1 2013 - 6 0.43 4 0.394008
0.0149
AUSTIN LAZ & COMPANY PLC 1 2014 - 6 0.43 3 0.313566
0.1427
AUSTIN LAZ & COMPANY PLC 1 2015 0.0806 6 0.60 3 0.313566
AUSTIN LAZ & COMPANY PLC 1 2016 0.0806 6 0.60 4 0.313566
AUSTIN LAZ & COMPANY PLC 1 2017 - 6 0.40 4 0.313566
0.3625
AUSTIN LAZ & COMPANY PLC 1 2018 0.0527 6 0.40 4 0.313566
BERGER PAINTS PLC 2 2009 0.0426 6 0.40 3 0.198157
BERGER PAINTS PLC 2 2010 - 6 0.43 3 0.198157
0.0952
BERGER PAINTS PLC 2 2011 - 6 0.60 3 0.198157
0.4113
BERGER PAINTS PLC 2 2012 - 6 0.60 3 0.198157
0.0966
BERGER PAINTS PLC 2 2013 - 6 0.60 3 0.198153
0.1323
BERGER PAINTS PLC 2 2014 0.3963 6 0.40 4 0.202251
BERGER PAINTS PLC 2 2015 - 6 0.40 4 0.202207

73
 0.4475
BERGER PAINTS PLC 2 2016 0.0354 6 0.55 4 0.17778
BERGER PAINTS PLC 2 2017 - 5 0.55 3 0.17778
0.0362
BERGER PAINTS PLC 2 2018 - 6 0.50 3 0.17778
0.3142
BETA GLASS PLC 3 2009 - 6 0.80 3 0.17778
0.0998
BETA GLASS PLC 3 2010 - 6 0.80 3 0.17778
0.1902
BETA GLASS PLC 3 2011 0.3276 6 0.80 2 0.202495
BETA GLASS PLC 3 2012 0.0359 6 0.80 2 0.202495
BETA GLASS PLC 3 2013 - 6 0.80 2 0.202495
0.1383
BETA GLASS PLC 3 2014 - 6 0.60 3 0.202495
0.1212
BETA GLASS PLC 3 2015 0.1778 6 0.75 3 0.162417
BETA GLASS PLC 3 2016 - 6 0.63 3 0.177344
0.2376
BETA GLASS PLC 3 2017 - 5 0.90 2 0.002352
0.9520
BETA GLASS PLC 3 2018 - 5 0.90 2 0.002352
0.1816
CAP PLC 4 2009 - 6 0.63 2 0.002352
0.2438
CAP PLC 4 2010 - 6 0.40 2 0.002352
0.0202
CAP PLC 4 2011 0.0735 6 0.40 2 0.002362
CAP PLC 4 2012 0.0002 4 0.40 2 0.002518
CAP PLC 4 2013 - 6 0.40 2 0.003876
0.0623
CAP PLC 4 2014 - 4 0.40 3 0.177184
0.1093

74
CAP PLC 4 2015 0.0125 4 0.43 3 0.177184
CAP PLC 4 2016 - 4 0.43 3 0.161949
0.0631
CAP PLC 4 2017 - 4 0.43 2 0.1885
0.1006
CAP PLC 4 2018 - 4 0.43 2 0.1885
0.4814
CEMENT CO. OF NORTH.NIG. PLC 5 2009 - 4 0.43 2 0.1885
0.0487
CEMENT CO. OF NORTH.NIG. PLC 5 2010 - 4 0.43 2 0.1885
0.1190
CEMENT CO. OF NORTH.NIG. PLC 5 2011 - 5 0.60 3 0.1885
0.2411
CEMENT CO. OF NORTH.NIG. PLC 5 2012 - 5 0.60 3 0.1885
0.7296
CEMENT CO. OF NORTH.NIG. PLC 5 2013 - 6 0.40 3 0.1885
0.1553
CEMENT CO. OF NORTH.NIG. PLC 5 2014 - 6 0.40 2 0.1885
0.1181
CEMENT CO. OF NORTH.NIG. PLC 5 2015 - 6 0.40 2 0.336899
0.2061
CEMENT CO. OF NORTH.NIG. PLC 5 2016 - 6 0.43 2 0.336899
0.1005
CEMENT CO. OF NORTH.NIG. PLC 5 2017 - 6 0.60 2 0.336899
0.2461
CEMENT CO. OF NORTH.NIG. PLC 5 2018 0.0146 6 0.60 3 0.336899
CUTIX PLC 6 2009 - 6 0.60 3 0.336899
0.1306
CUTIX PLC 6 2010 - 6 0.40 3 0.336899
0.0626
CUTIX PLC 6 2011 - 6 0.40 4 0.14
0.0115
CUTIX PLC 6 2012 0.0507 6 0.55 4 0.14
CUTIX PLC 6 2013 - 6 0.55 3 0.14

75
 0.0588
CUTIX PLC 6 2014 - 6 0.50 3 0.14
0.1544
CUTIX PLC 6 2015 - 6 0.80 4 0.14
0.1737
CUTIX PLC 6 2016 - 6 0.80 4 0.14
0.0510
CUTIX PLC 6 2017 - 5 0.80 4 0.14
0.0397
CUTIX PLC 6 2018 0.0109 6 0.80 3 0.14
DANGOTE CEMENT PLC 7 2009 - 6 0.80 3 0.14
0.1847
DANGOTE CEMENT PLC 7 2010 - 6 0.60 3 0.14
0.0085
DANGOTE CEMENT PLC 7 2011 - 6 0.75 3 0.179903
0.0154
DANGOTE CEMENT PLC 7 2012 - 6 0.63 3 0.179903
0.0639
DANGOTE CEMENT PLC 7 2013 - 6 0.90 4 0.179903
0.0732
DANGOTE CEMENT PLC 7 2014 - 6 0.90 4 0.179903
0.2466
DANGOTE CEMENT PLC 7 2015 - 6 0.63 4 0.179903
0.0447
DANGOTE CEMENT PLC 7 2016 - 6 0.40 3 0.136747
0.1144
DANGOTE CEMENT PLC 7 2017 0.0914 5 0.40 3 0.136747
DANGOTE CEMENT PLC 7 2018 - 5 0.40 3 0.112031
0.0121
GREIF NIGERIA PLC 8 2009 - 6 0.40 3 0.112031
0.2223
GREIF NIGERIA PLC 8 2010 - 6 0.40 2 0.112031
0.0795
GREIF NIGERIA PLC 8 2011 - 6 0.43 2 0.112031

76
 0.0442
GREIF NIGERIA PLC 8 2012 - 4 0.43 2 0.112011
0.1741
GREIF NIGERIA PLC 8 2013 0.2010 6 0.43 3 0.127533
GREIF NIGERIA PLC 8 2014 - 4 0.43 3 0.127533
0.1220
GREIF NIGERIA PLC 8 2015 - 4 0.43 3 0.127533
0.1488
GREIF NIGERIA PLC 8 2016 - 4 0.43 2 0.127533
0.0743
GREIF NIGERIA PLC 8 2017 - 4 0.60 2 0.127533
0.0507
GREIF NIGERIA PLC 8 2018 0.0104 4 0.60 2 0.283659
LAFARGE AFRICA PLC 9 2009 - 4 0.5 2 0.283659
0.1116
LAFARGE AFRICA PLC 9 2010 0.0939 4 0.5 2 0.283659
LAFARGE AFRICA PLC 9 2011 - 5 0.5 2 0.283659
0.4136
LAFARGE AFRICA PLC 9 2012 - 5 0.5 2 0.3728
0.0149
LAFARGE AFRICA PLC 9 2013 - 5 0.5 3 0.3728
0.1427
LAFARGE AFRICA PLC 9 2014 0.0806 5 0.5 3 0.3728
LAFARGE AFRICA PLC 9 2015 0.0806 6 1 3 0.3728
LAFARGE AFRICA PLC 9 2016 - 6 1 2 0.3728
0.3625
LAFARGE AFRICA PLC 9 2017 0.0527 6 1 2 0.376153
LAFARGE AFRICA PLC 9 2018 0.0426 4 0.3 2 0.376153
MEYER PLC 10 2009 - 6 1 2 0.382292
0.0952
MEYER PLC 10 2010 - 4 0.3 3 0.382292
0.4113
MEYER PLC 10 2011 - 4 0.3 3 0.394008

77
 0.0966
MEYER PLC 10 2012 - 4 0.3 3 0.313566
0.1323
MEYER PLC 10 2013 0.3963 4 0.3 2 0.313566
MEYER PLC 10 2014 - 4 0.3 3 0.313566
0.4475
MEYER PLC 10 2015 0.0354 4 0.5 3 0.313566
MEYER PLC 10 2016 - 4 0.4 3 0.313566
0.0362
MEYER PLC 10 2017 - 5 0.33 2 0.198157
0.3142
MEYER PLC 10 2018 - 5 0.2 2 0.198157
0.0998
NOTORE CHEMICAL IND PLC 11 2009 - 6 0.2 2 0.198157
0.1902
NOTORE CHEMICAL IND PLC 11 2010 0.3276 6 0.2 2 0.198157
NOTORE CHEMICAL IND PLC 11 2011 0.0359 6 0.2 3 0.198153
NOTORE CHEMICAL IND PLC 11 2012 - 6 0.2 3 0.202251
0.1383
NOTORE CHEMICAL IND PLC 11 2013 - 6 0.2 3 0.202207
0.1212
NOTORE CHEMICAL IND PLC 11 2014 0.1778 6 0.2 4 0.17778
NOTORE CHEMICAL IND PLC 11 2015 - 6 0.2 4 0.17778
0.2376
NOTORE CHEMICAL IND PLC 11 2016 - 6 0.6 3 0.17778
0.9520
NOTORE CHEMICAL IND PLC 11 2017 - 6 0.6 3 0.17778
0.1816
NOTORE CHEMICAL IND PLC 11 2018 - 6 1 4 0.17778
0.2438
PORTLAND PAINTS & PRODUCTS NIGERIA 12 2009 - 6 1 4 0.202495
PLC 0.0202

78
PORTLAND PAINTS & PRODUCTS NIGERIA 12 2010 0.0735 6 1 4 0.202495
PLC

PORTLAND PAINTS & PRODUCTS NIGERIA 12 2011 0.0002 6 0.3 3 0.202495

PLC

PORTLAND PAINTS & PRODUCTS NIGERIA 12 2012 - 6 1 3 0.202495

PLC 0.0623
PORTLAND PAINTS & PRODUCTS NIGERIA 12 2013 - 5 0.3 3 0.162417
PLC 0.1093
PORTLAND PAINTS & PRODUCTS NIGERIA 12 2014 0.0125 6 0.3 3 0.177344
PLC

PORTLAND PAINTS & PRODUCTS NIGERIA 12 2015 - 6 0.3 3 0.002352

PLC 0.0631
PORTLAND PAINTS & PRODUCTS NIGERIA 12 2016 - 6 0.3 4 0.002352
PLC 0.1006
PORTLAND PAINTS & PRODUCTS NIGERIA 12 2017 - 6 0.3 4 0.002352
PLC 0.4814
PORTLAND PAINTS & PRODUCTS NIGERIA 12 2018 - 6 0.25 4 0.002352
PLC 0.0487
PREMIER PAINTS PLC 13 2009 - 6 0.25 3 0.002362
0.1190
PREMIER PAINTS PLC 13 2010 - 6 1 3 0.002518
0.2411
PREMIER PAINTS PLC 13 2011 - 6 1 4 0.003876
0.7296
PREMIER PAINTS PLC 13 2012 - 6 0.4 4 0.177184
0.1553
PREMIER PAINTS PLC 13 2013 - 5 0.11 4 0.177184
0.1181
PREMIER PAINTS PLC 13 2014 - 5 0.5 3 0.161949
0.2061
PREMIER PAINTS PLC 13 2015 - 6 0.5 3 0.1885
0.1005
PREMIER PAINTS PLC 13 2016 - 6 0.15 3 0.1885
0.2461
PREMIER PAINTS PLC 13 2017 0.0146 6 0.23 3 0.1885

79
PREMIER PAINTS PLC 13 2018 - 4 0.5 3 0.1885
0.1306

APPENDIX C: Fixed Effect Panel Regression

Dependent Variable: QRE

Method: Panel Least Squares

Date: 10/19/19 Time: 12:30

Sample: 2009 2018

Periods included: 10

Cross-sections included: 13

Total panel (balanced) observations:130

Variable Coefficient Std. Error t-Statistic Prob.

C 0.000768 0.101173 0.007594 0.9940

ACIND 1.310724 0.107650 12.17579 0.0000

BCOMP -0.002447 0.017037 -0.143633 0.8863

BS 0.072343 0.075877 0.953433 0.3445

OC -1.729034 0.539093 -3.207303 0.0032

Effects Specification

Cross-section fixed (dummy variables)

R-squared 0.465030 Mean dependent var 0.073857

Adjusted R-squared 0.340841 S.D. dependent var 0.111190

S.E. of regression 0.090273 Akaike info criterion -1.795090

Sum squared resid 0.456361 Schwarz criterion -1.345391

Log likelihood 76.82816 Hannan-Quinn criter. -1.616464

F-statistic 3.744523 Durbin-Watson stat 2.793944

Prob(F-statistic) 0.020166

Appendix D: Random Effect Panel Regression

80
Dependent Variable: QRE

Method: Panel EGLS (Cross-section random effects)

Date: 10/19/19 Time: 12:35

Sample: 2009 2018

Periods included: 10

Cross-sections included: 13

Total panel (balanced) observations: 130

Wallace and Hussain estimator of component variances

Variable Coefficient Std. Error t-Statistic Prob.

C 0.415454 0.079749 0.946135 0.3476

ACIND 0.679478 0.165250 4.111815 0.0006

BCOMP -0.010831 0.014981 -0.722962 0.4723

BS 0.020212 0.057819 0.349564 0.7278

OC -3.602017 1.542361 -2.335392 0.0291

Effects Specification

S.D. Rho

Cross-section random 0.059863 0.3049

Idiosyncratic random 0.090391 0.6951

Weighted Statistics

R-squared 0.437068 Mean dependent var 0.036609

Adjusted R-squared 0.319657 S.D. dependent var 0.090750

S.E. of regression 0.090310 Sum squared resid 0.530139

F-statistic 5.168208 Durbin-Watson stat 2.447618

Prob(F-statistic) 0.043051

Unweighted Statistics

R-squared 0.437068 Mean dependent var 0.036609

Sum squared resid 0.530139 Durbin-Watson stat 2.447618

Appendix E: HAUSMAN TEST

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Correlated Random Effects - Hausman Test

Equation: Untitled

Test cross-section random effects

Chi-Sq.
Test Summary Statistic Chi-Sq. d.f. Prob.

Cross-section random 3.978773 4 0.4089

Cross-section random effects test comparisons:

Variable Fixed Random Var(Diff.) Prob.

ACIND 1.310724 0.107650 0.000378 0.1949

BCOMP -0.002447 -0.010831 0.000066 0.3015

BS 0.072343 0.020212 0.002414 0.2887

OC -1.729034 -3.602017 0.000000 0.9004

Cross-section random effects test equation:

Dependent Variable: QRE

Method: Panel Least Squares

Date: 10/19/19 Time: 12:40

Sample: 2009 2018

Periods included: 10

Cross-sections included: 13

Total panel (balanced) observations: 130

Variable Coefficient Std. Error t-Statistic Prob.

C 0.000768 0.101173 0.007594 0.9940

ACIND 1.310724 0.107650 12.17579 0.0000

BCOMP -0.002447 0.017037 -0.143633 0.8863

BS 0.072343 0.075877 0.953433 0.3445

OC -1.729034 0.539093 -3.207303 0.0032

Effects Specification

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Cross-section fixed (dummy variables)

R-squared 0.465030 Mean dependent var 0.073857

Adjusted R-squared 0.340841 S.D. dependent var 0.111190

S.E. of regression 0.090273 Akaike info criterion -1.795090

Sum squared resid 0.456361 Schwarz criterion -1.345391

Log likelihood 76.82816 Hannan-Quinn criter. -1.616464

F-statistic 3.744523 Durbin-Watson stat 2.793944

Prob(F-statistic) 0.020166

83