This study examined corporate governance and credibility of financial statement. In light of the empirical review and other discussions, a number of questions arose as to whether corporation with institutional shareholders are associated   with earning management. Using the Ordinary Least Square (OLS) regression technique with the aid of a computer software E-view 7.0, the empirical findings revealed among other things that, companies with institutional shareholders do not appear to produce more credible financial reports. We recommend among other things that, corporations should continue to ensure that corporate governance variables such as CEO being separate from chairman board of Director, high proportion of non executive directors are carried out in accordance with code of corporate governance and CAMA 2004.
1.1     Background     of the Study                    
1.2     Statement of Research Problem                    
1.3     Objective of the Study                        
1.4     Scope of the Study                            
1.5     Significance of the Study                            
1.6     Limitations of the Study                            
1.7     Research Methodology                            
1.8     Statement of Hypothesis                            
1.9     Definition of Terms                              
2.1       Background                                 
2.2     Theoretical frameworks                        
2.3     Corporate Governances and Financial Reports        
2.3.1     Definition of Corporate Governance                
2.3.2     Stakeholders in Corporate Governance                
2.3.3     Corporate Government Structures                    
2.3.4     Roles of shareholders in corporate governance             
2.3.5     Roles of Board of directors in corporate governance        
2.3.6     Principles of corporate governance                     
2.3.7     Corporate governance mechanism and controls             
2.3.8     Theories Relevance to corporate governance             
2.3.9     Financial information Reporting and Earning management         
2.3.10 Interested parties in reported financial information            
2.3.11 Qualitative features of financial information            
2.3.12 Earning management’s tools                             
2.3.13 Accrual accounting Basis                        
2.3.14 Incentives for Earning management                     
2.3.15 Ethics for corporate managers                        
2.3.16 The concept of true and fair view                        
2.3.17 The Role of the Nigeria accounting standard board (NASB)        
2.3.18 Importance of financial accounting information in a     
2.3.19 Benefits of the code of best practices on corporate governance   
The Population and Sample                        
3.3    Data Collection Methods                            
3.4    Sources of Data                                 
3.5    Method of Data Presentation and Data Analysis            
3.6    Model Specification and Justification                
3.6    Limitation of the Study                            
Data Description                                    
Binary Regression Results                            
Discussion of Regression Result                        
Test of Hypotheses                                
5.1    Summary of Findings                            
5.2    Conclusion                                    
5.3    Recommendations                            
Recommendation for Further Research                    
    Corporate   governance   deals   with   the   system   or   processes   of controlling and directing the activities or operations of an organization. It is usually seem as a means of ensuring that business organization are controlled and directed to align with the interests and wellbeing of the owners of business organizations (corporate bodies). It aims at ensuring that corporate managers in whom resources are entrusted do not betray this trust repose to them by the resources owners.
    The   modern   nature of corporations separates   resource  owners (shareholders) from control or day to day running of  the business activities  of such corporations consequently, resource owners vest the control of the corporation to corporate managers while appointing a board of directors to overseas the activities of the corporate managers. It is on this premise that oversight function of the board of directors is established. Corporate managers therefore work towards maximizing the wealth of their shareholders. However, as a consequence of the separation of resource owners from the control Of corporation,  periodic  reports  are  required  to  update Resources owners concerning how resources have been employed and the wealth generated there from. This place corporate managers as stewards requiring them to give what is termed as stewardship reports. The reports In modern day are made through the presentation of financial statement. However its must be stated that there are other interested parties (stake holders) who make use of these reports presented by corporations. This pushes the responsibilities of corporations beyond the focus of shareholders but encompassing other interested parties giving rises to the stakeholders theory. The financial statements thus, represent the only means by which stakeholders can evaluate the performance of corporate managers. This provides corporate managers with the opportunity of presenting their performance, usually on the basis of earnings, in an impressive light. Corporate managers, as a result of their day to day involvement in the control of corporations, have access to information which stakeholders (except inside directors) do not have access to and as such employ the use of financial statements to communicate these information to stakeholders. The concern lies in the credibility of such information presented especially considering that corporate managers are aware of the information content of such reports. This fact is much more of concern because investors, representing a component of the stakeholders, attach importance on the reported earnings of corporations. To them a corporate with less earnings is seen as a poor performing corporation while one with huge reported earning is better. This scenario creates the incentives for corporate managers to manage report earnings.
    The management of earning connotes manipulation of income (profit) to create an impressive or favourable perception on stakeholders. Corporate managers indulge in several acts of managing earnings. This impairs on the quality of financial reporting, betrays the trust of stakeholders and neglect the concept of social responsibilities of corporations. Stolowy and Breton (2000) buttress this by stating that in a perspective where firm exist to generate and disseminate wealth in a society, cheating with accounts is cheating with society in general. It is for this reason corporate governance has received enormous attention as the concept is viewed as having the panacea to the excesses of corporate managers. Chen Elder and Hsieh (2007:23) state that the corporate governance mechanisms are viewed as a response to agency problem that give rise to earning management.  Sposasore  (as cited in Kumolu, 20007:46) points that the major thrust of corporate governance lies in accountability. Adedipe (2005) also provides that the essence of corporate governance is to ensure that corporations respect the rule of law, play by the rules guiding their business and hold ethnics and professionalism in the highest esteem.
    The attention of corporate governance as a tool to curb earning management owes from the impact of earnings management on an economy. The underlying effects of earnings management is its unavoidable consequence of corporate failure and discouragement of foreign investors. Thus the regulatory authorities (corporate Affair commission and securities and exchange commission) developed a code of corporate governance for all corporation in the country, especially corporations listed on the stock market. This is informed on the premise that a healthy, viable and well regulated information reporting system is catalyst for economic development. Importantly, for a country which is putting much effort to woe Foreign Direct Investment (FDI) into the country and working towards becoming among the best 20 developed economies in years to come.
The credibility of financial statement of corporate entities has become source of concern to regulators, investors, analysts and other stakeholders. The Nigerian Stock Market Annual (2004:200) points that corporate manage indulge in several despicable acts such as understating losses, overstating profits, covering bad debt and other wrongful acts. These has become a regular feature in the Nigerian Corporate register and has tainted the corporate image of the nation.
    Weak corporate governance and other reasons have been identified as reason for the demise of corporations (Chem, et al 2007:6  K.Y, Elder, R.J and Hsieh). This has led to following research questions
1.     Are corporations with separate office for their chief executive officer     and chairman of board engaged in earnings management?
2.       Are corporations having institutional shareholders associated with     earnings management?
3.      Do corporations having more non executive director/external directors on their board compared to executive directors/internal directors involved in earning management?
4.     Do corporation with audit committee membership as stipulated by     the companies and Allied Matters Act, 1990 (as amended to date) engage in earning management?
    This study seeks to examine the relationship between the code of corporate Government best practices introduced by the securities and Exchange Commission (SEC) and the Corporate Affair Commission (CAC) in 2003, and earning management behaviour of corporate managers. It seeks to establish the effect of the corporate governance mechanism in constraining managerial discretionary accrual behaviour, gain and understanding of the response of corporations in implementing the code.
Specifically, the objectives of the study include
1.    To determine whether corporations with separate roles for board
    chairman and Chief Executive Officer are associated with earnings
2.    To ascertain whether corporations with institutional shareholders are
    associated with earnings management.
3.    To determine whether corporations with a higher proportion of non
    executive directors relatives to executives directors are indulging in
    earnings management.
4.    To establish whether corporations with audit committee membership is stipulated by the companies Act (CAMA, 1’990 s. 359 are associated with earning management.
This study shall be restricted to Public Limited Company listed on the Nigerian Stock Exchange (NSE) as at January 2007. These companies shall be of a manufacturing concern thus, excluding Services Corporation (financial institutions and other services providing companies). This exclusion is as a result of the modified Jones model which shall be used in expounding the discretionary accrual behaviour of corporate managers.
Data relating to 20 quoted companies purposely selected and covering the industrial materials, food/beverage and tobacco, breweries, agriculture/agro-allied, health care, chemical and paints, automobile and tyre, and the conglomerate sub sector of the manufacturing sector.
The choice of limiting the study to 20 quoted companies and the above sub sector is to permit a manageable size of the study rather than focusing on a wide scope which may prove to be a great task considering the time and other resources necessary to effectively carryout this study with a large sample size.
The need for credible or quality financial statements in any economy cannot be over emphasized. Its relevance lies in the efficient and effective allocation of economic resources. More importantly, for a developing country such as Nigeria which requires the inflow of Foreign Direct Investments (FDIs) into her financial system, a transparent, credible, accountable and reliable financial reporting system is a pre-requisite for attracting foreign investors.
This study will also help in;
1.      Ultimately, preventing  the demise "or collapse of corporations in the     future.
2.       Booting the confidence of the Investing Public as a consequence of     credible financial reports made by the concerned corporations;
3.      Maintaining good corporate values and safe business environment     which allows for healthy competition amongst corporation.
4.      Enabling the regulatory authorities direct or align their efforts properly   in curbing the discretionary behaviours, of corporate managers.
5.      Creating a healthy business environment for corporations where     corporations play according to the legal and regulatory guidelines.
6.    Reducing the additional cost incurred by investors contents of         financial reports.
    It is general consensus that there is no research study without a limitation. This study is not an exception. However, a conscious effort would be made to maximize errors that could be inherent in this study, especially errors in the measurement of variables. Thus the limitations of the study include;
1.     The qualitative nature of some variables in the model such as auditors  reports thus, causing the use of dummy variable such as 0    and 1.
2.     The assumption of a normally distributed population with equal variances. This is a pre-requisite for the inferential statistics.
3.     The smallness of the sample size i.e. 20 companies as against 127 companies in the population of interest.
4.    Non disclosure of full corporate governance practices by some corporations in their annual reports. Some corporations "did not state explicitly in their annual reports, the status of its directors (i.e. either executive or non executive).
As stated earlier, this study shall consider companies quoted on the Nigerian Stock Exchange (NSE) and they shall be of a manufacturing concern thereby excluding companies which are service oriented. The sample size shall be restricted to 20 quoted companies as at January 15 2007 and spreading across the food/beverage and tobacco, building materials, agriculture/agro-allied, breweries, automobile and tyre, chemical and paints and the conglomerate sub sectors of the manufacturing sector. These samples shall be selected purposely for the purpose of the study.
A model shall be formulated incorporating the research variables of the stated hypothesis and some other control variables. Ratio and nominal scaling would be adopted in the measurement of the research, and control variables data relating to the variables shall be extracted from the financial statement of the concerned companies. These data shall be extracted using a data collection schedule which would be designed for this purpose. The library or archive section of the Nigerian Stock Exchange (NSE). Benin Automated Trading Floor, would serve as a source of data collection.
A descriptive  statistical  analysis would  be  made  on the sample variable collected, and a multiple regression analysis, would be made on the model design for this study to enable the making of inferences on the hypotheses stated. The regression analysis on the model would be such that it would test the verity of corporate governance features in curbing corporate managers discretionary accrual behaviour, a porxy for earnings management and consequently showing how credible financial reports in Nigeria are.
    The following hypothesis were tested to enable user achieve the objective of this work.
Hypothesis 1
Ho:     Corporations with board chairman role different from chief executive officer are not engaged   in earning management.
H1:    Corporate with board chairman role different from chief executive officer are engaged in earnings management.
Hypothesis 2
Ho:     Corporate with institutional shareholders are not associated with    earnings management.
Hi:     Corporation with institutional shareholders are associated   with earning management.
Hypothesis 3
Ho:    Corporation having their proportion of non executive director    greater than execution directors are not engage in earning     management
H1:      Corporations having their proportion of non executive directors    great than executive directors are engaged in earning management.
Hypothesis 4
Ho:    Corporate having audit committee membership as required by the companies and Allied Matters Acts, 1990 are not involved in earning management.
H1:    Corporate having audit committee membership as required by the Companies and Allied Matters Act, 1990 are involved in earning management.
1.    Stakeholders: Stakeholders as used in this study refers to those group or individual who can significantly affect or be affected by a company's activities.
2.         Accrual Basis: This is the basis used in accounting where revenue and   expense are recognized in the accounting period to which the relate and in which they are earned and incurred, and not when they are received or paid.
3.      Managerial Discretionary Behaviour: Refers to those actions of     corporate managers which does not align with the expectations of     stakeholders.
4.     Corporate Mangers: These are those charged with the responsibilities of performing managerial functions such as planning,     controlling, directing and co-ordinating. They are officials at the top     cadre of an organization.
5.      Opportunistic Behaviour: This is used to describe a situation where corporate managers take advantage of their privy to organizational information to achieve their self interest.
6.     Corporate Governance: The term refers to all the influence effecting the institutional processes of an organization, including the appointments of directors and corporate managers, operational activities of corporation, articles and memorandum of association, legal, ethnical and professional    demand  on corporations, responsiveness to the rights and wished of stakeholders and the    social responsibilities of transparency, accountability and truthfulness.
7.    Information Asymmetry: Means a situation where economic information is available to stakeholders or concerned parties in different degrees, such information are essential for contracting and    decision making.
8.     Cash Basis; This is the basis used in accounting where only revenue actually received and expenses actually paid during an accounting     period are recognized in that period.
9.     Compound Board: Used to describe the existence of two or more     control centers or board for corporations. It may be required by the     companies law of concerned country, Companies articles of association or created by relationship external to companies. It is prevalent in some European and Asia countries where family ownership of public companies is common.
10.     Earning Management: Defined for the purpose of this study as the     acts of managers to artificially manipulate earnings in order to     achieve pre concerned self interest.
11.     Earning per share: Is a performance indicator primarily of interest to     existing and potential investor. It refers to the earning available to     equitable holders per share held by them.
12.     Institutional Investors: An institutional investor is an investor such     as bank, insurance company, pension and retirement fund, hedge in very large portfolio of investments. For the purpose of this study.     Institutional shareholders shall include; shareholders with a     minimum of 5% shareholding excluding individuals and government.
Biodum Adedipe (2005) Building and Sustaining Corporate Performance     and Growth in the Capital Market; Nigerian Stock Market Annual     2005 ed, pp 28-30 .
Chares Kumolu (2007) Group in search of corporate Governance: Chen,  K     Y,  Elder,  RJ  and  Hsieh, Y (2007), corporate Governance and     Earnings Management: The implications of corporate governance     best    practice    principles    for    Taiwanese    listed    companies.     http://www.
Kazmi, A (2002). Business Policy and Strategic Management New Deihi:     Juta Mcgraw-Hill publishing Co, Ltd, 2nd ed.p. 39.Stolowy H. and Breton, G, (2000), A Framework for the classification of Accounts Manipulations,
Companies and Allied Matters Act 2004, 2006 ed. Section 359 (4) Nigerian Stock Market Annual, 2004 ed. P 200.


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