VALUE RELEVANCE OF ACCOUNTING INFORMATION AND CORPORATE PERFORMANCE
PROJECT BY
MY NAME
BEING A PROJECT SUBMITTED TO THE POST GRADUATE SCHOOL.
IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF M.SC DEGREE IN ACCOUNTANCY, OF THE UNIVERSITY OF ---
JULY, 2017
CHAPTER ONE
1.0
INTRODUCTION
1.1 Background to the Study
Accounting
Information
Accounting is a common measuring stick in business. A
business owner can use accounting information to measure her company’s business
and operational performance. Accounting continues to develop in response to
human civilization. As human beings advances in concepts and applications, so
does accounting. This means that accounting is an information system used for
communication purposes and for the purpose of aiding business performance. The
role of accounting in business is to enable internal and external stakeholders
make better decisions by providing them with financial information. Accounting
is often called “the language of business”, this
is because it communicates so much of the information that owners, managers and
investors need to evaluate a business’ financial performance. In fact, the purpose
of accounting is to help stakeholders make better business decisions by
providing them with financial information. All this means that Accounting can
be defined as a system for measuring and summarizing business activities,
interpreting financial information and communicating the results to management
and other decision makers.
Value relevance is
defined as the ability of accounting numbers contained in the financial
statements to explain the stock markets measures, (Beisland, 2009). Accounting data such as earnings per share is
termed value relevant if it is significantly related to the dependent variable,
which may be expressed by price, return or abnormal return (Gjerde et al, 2007).
Studies on value relevance are broad and diverse and they are motivated by the
fact that quoted companies in Nigeria use financial statements as one of the
major media of communicating with their equity shareholders and public at large
(Vishnani and Shah,
2008).
Value relevance is
measured as a statistical association between financial statement information
and business performance. It is therefore important to define the structure of
concept of value relevance for this study. The information perspective of value
relevance is used for this study to determine the value relevance of accounting
data on the performance of listed firms. For instance, in Companies and Allied
Matters Act (CAMA), (1990) and the subsequent amendments require the directors
of all companies listed on the Nigeria Stock Exchange to prepare and publish
annually the financial statements. Beyond this, the Nigeria Stock Exchange
mandates all companies listed on first tier to submit quarterly, semi-annual
and annual statements of accounts to stock exchange. Companies on second tier
market are to submit their statements of accounts annually to stock exchange in
order to evaluate their business performance (Osaze, 2007).
The Nigeria Stock
Exchange (NSE) commenced operation in 1961 with only 19 securities worth
N80million. As at May 2009, the number of listed securities had increased to
294, made up of 86 Government stocks with Industrial Loan stocks and 208
Equity/Ordinary shares (including emerging
market) with a total market capitalization of N9.45 trillion (The
Nigeria Stock Exchange, Fact book, 2009). Value relevance of accounting
information talks about the degree to which accounting information discusses
the information that is impounded in share prices. The degree of value
relevance is a function of development of accounting regulation, control
mechanisms, business cycle, economic development and industry structure (Hellston,
2005).
In studying value
relevance of accounting information, the investments of a company and the book value of equity are
the basic accounting numbers that are used in literature to represent
accounting information. In confirmation, Talebnia, et al (2011) opined that earnings
and book value per share are measures that different individuals, investors and
financial analysts use to evaluate the performance of the enterprise. Value
relevance research is motivated by the fact that quoted companies use financial
statements as one of the major medium of communication with their shareholders
and the public. For making the financial reporting to be effective, information
contained in the financial reports should be relevant and reliable (Barth et al, 2001).
According to Barth et al. (2001), value relevant information should have both
the features of relevance and reliability. The value of a company is based on
what is perceived by the market about its performance, and accounting disclosures
provide the needed information so as to form the basis of such perception.
According to
Oyerinde (2009), accounting information is defined as the quantitative written
information presented in complete or partial in the face of financial
statements either quarterly or annually, while Vijitha
P. and Nimalathasan B. (2014) considered accounting information and non
accounting information as the two categories of financial information presented
in a set of financial statements. The primary objectives of financial
statements are to provide information about the company’s performance,
financial position and to enable users make better decisions particularly by
the investors (Germon and Meek, 2001). Financial information is the output of
accounting process and should be duly communicated to users to improve business
performance. Bello (2009) was of the opinion that corporate organizations use
accounting information to communicate to all stakeholders about their business
performance and position at a particular period.
According to
Khanagha (2011) the value and quality of accounting information are determined
by how well it meets the needs of users and that value relevance study is the
evaluation of the relationship between accounting information and capital
market values. Babalola (2012), in his study, on ‘significance of accounting
information on corporate value of firms in Nigeria,’ claims that the accounting
information plays an important role in reflecting business performance and
investment in equity of shares of listed companies in Nigeria. Accounting data
provide critical information to shareholders and or investors as far as the
company’s past performance is concerned, and are used extensively in
forecasting future performance and valuation of equity (Monzi et al, 2011).
Organizational
Performance
Hardly can any organization employ any employee if not
because of the contributions that the employee will make towards the
achievement of the goals and objectives of such organization. The emphasis is
on performance, results or achievement. For making himself/herself available,
the employee shall be remunerated, such remuneration shall be based on the
contribution such individual employee is making towards the attainment of the
organization’s objectives. Individual or group performance in terms of quality
and quantity of work done is a major criteria for distributing rewards within
the organization. This goes to show how performance is so dear to management.
Performance
management is a tool which focuses on managing the individual and the work
environment in such a manner that an individual or team can achieve set
organizational goals.
Employees
performance is a major factor that contribute towards organization’s
performance. Organizational performance on the other hand is determined by examining
the respective employees level of productivity. Productivity of an employee can
be defined as the ratio of output of a given commodity to the input of labour
(the employee).
According to Obisi
(2006), there are three key elements needed for organizational productivity.
The first is for every manager to decide first and foremost how he or she would
achieve higher productivity. Organizations should also recruit and develop
competent people. No organization can achieve higher productivity unless its people
have a drive to improve themselves, Obisi (2006) noted. Organizations should
also know how to measure productivity and make adequate compensation to their
employees.
The growth of an organization is closely related to the
development of its human resources. When employees fail to grow and develop in
their work, a stagnant organization will most probably result. A strong
employee development programme does not guarantee organisational success, but
such a programme is generally found in successful, expanding organisations. One
important developmental function is the appraisal of employee performance.
During an appraisal process, employees become aware of any performance
deficiencies they may have and are informed of what they must do to improve
their performance and thus become promotable. Various methods and techniques of
performance appraisal are available. For many organisations, the heart of the
development process is composed of on-the-job and off-the-job activities that
teach employees new skills and abilities. Because modern managers recognise the
benefits derived from the training and developmental process, expenditures for
employee education are at an all-time high. The rise in employee education has
been accompanied by growing professionalism in the training field and a demand
for competent, qualified trainers. Training and development offer many rewards
but also pose many problems for training personnel: Who should be trained and
why? What training techniques should be used? Is training cost-effective? A
further important issue is that of career management. HR managers are devoting
increasing amounts of attention to processes and activities that enhance career
advancement and solve problems employees encounter along their career paths.
While career management is difficult to implement, advances in recent years
have brought about improvements in the decision-making processes that affect
employees’ careers.
Obisi C. (2006) identified the following as ways to
increase productivity:- Labour must participate in management; there should be
mutual trust and co-operation between labour and management; workers should be
assured that automation and technology would not displace them; proper
communication channels should be maintained; all needed raw materials should be
made available; there should be proper training and development of workers;
there should be proper equipment and plant maintenance; good working conditions
and adequate safety measures should be provided.
Obisi also identified the following as factors that affect
productivity (performance):- personal factors, skills and motivation of
employees, work factors, environmental factors, and adequate utilization of
factors of production like men, machines, materials, money, power, and market
for finished goods.
The principal objective of this study is to ascertain if
accounting information of listed companies in the Nigeria Stock Exchange is
relevant for business performance.
Gap in the study
So much works have been done in the areas of accounting information
and international financial reporting standard (Adekoya, O. 2011; Ahmed, 2011;
Ajayi, 2004; Akinyemi, 2012; Anao, and Obazee, 2002; Antle, R. 2002; Ashbaugh
and Pincus, 2001; Ball, R 2006; Cai & Wong, 2010; Carlson, 2007; Chen,
Tang, Jiang, & Lin, 2010; Daske, H, Hail, ,Leuz, C, and Verdi, R. 2007; Deloitte, 2008; Garuba, and Donwa, 2011; Greening, 2010), nothing
much have been done in the area of value relevance of accounting information
especially with reference to Nigerian environment. A work on value relevance
carried out by Umoren and Ekwere focused on IFRS adoption and Financial
Statement. None of these studies focused attention on the value relevance of
accounting information on business performance on quoted companies in Nigeria. It is due to this gap in study that motivated
the researcher to carry out study in this area so as to fill in the gap in the
study and to contribute to more understanding in this area.
1.2 Statement
of the Problem
Quoted companies had turbulent times in 2008 which brought
value relevance of accounting information under criticisms. Accounting theory
and practice have not been kept at pace which affect the value relevance of
accounting information. It may not be an overstatement to say that the Nigeria
stock exchange will not function without relevant and reliable accounting
information. Deficiency will affect Nigeria’s economy because capital market is
the engine of economic growth (Okeke, 2004). The purpose of accounting information has
been a discussion of academic argument in the past decades and even now. It is
of great use to standard setters, investors and researchers since it
empirically proves the reflection of accounting information in quoted
companies.
Investors and
other shareholders alike need much information about the performance of
business organizations to enable them make decisions either to invest or not to
invest in such companies. Accounting information and its analysis is an essential
instrument in the hand of investors in making such investment decisions. Unfortunately
here in Nigeria, the situation is that either these information are not
available or manipulated by using the creative accounting technique, which aims
at presenting a healthy picture about organizations while in reality most of
these organizations are not unhealthy. This was one of the major situations
that led to so many investors and shareholders alike loosing millions of naira
some years ago.
Also in such
organizations, there is high rate of fraudulent activities. For instance,
Modugu Kennedy Prince and Anyaduba J.O. (2013) attribute the collapse of Enron,
WorldCom, Tyco, Adelphia, to corporate fraud. USD460 Billion was said to have
been lost. In Nigeria, Cadbury Nigeria Plc whose books were criminally
manipulated by management was credited to have lost N15 billion, In the case of
the nine collapsed commercial banks in Nigeria, about N1 trillion was reported
to have been lost through different financial malpractices. This is still being
investigated by EFCC under the EFCC Act (2004). Generally financial fraud is
varied and committed by individuals and institutions
As highlighted
above, the occurrence of frauds do result to serious problems for organizations
and their owners. Accounting information when prepared and presented to both
shareholders and other investors could be a very useful tool to assess the
viability of companies for their investment decisions and ascertain the
possibility of frauds being committed by the management in such organisations.
1.3 Objectives
of the study
The main objective of this study is to examine value
relevance of accounting information on business performance on quoted companies
in Nigeria. To achieve the above objective, the following specific objectives
were formulated:
(i)
To determine the relationship between understandability of
accounting information and net profit;
(ii)
To determine the relationship between reliability of
accounting information and return and equity;
(iii)
To determine the relationship between comparability of
accounting information and return on asset.
1.4 Research
Questions
In the light of the above, the specific research questions
were formulated:
(i)
What is the relationship between understandability of
accounting information and net profit?
(ii)
What is the relationship between reliability of accounting
information and return and equity?
(iii)
What is the relationship between comparability of
accounting information and return on asset?
1.5 Research
Hypotheses
In order to validate data analysis, the following null
hypotheses were tested:
Ho: Understandability
of accounting information has no relationship with net profit.
Ho: Reliability of accounting information has no
relationship with return on equity.
Ho: Comparability
of accounting information has no relationship with return on asset.
1.6 Significance of study
This study shall provide more insights about the value
relevance of accounting information on business performance on quoted companies
in Nigeria. The significance of this study can thus be summarized as follows:
(i)
The findings is to enable management appreciate the need to
carefully examine accounting information in order to improve a better and more
effective business performance.
(ii)
The companies are supplied with information to help them
make good decisions in the performance of their business.
(iii)
This study helps the users of financial statement and the
organization to understand and appreciate the value relevance of accounting
information.
(iv)
This study fills the gap in literature by investigating the
value relevance of accounting data on business performance in the Nigerian
stock market. The results provide useful evidence to other emerging stock
markets.
(v)
This research provides a guide as to which accounting data
is or is not valued by investors, which should help the preparers of accounting
information and standards setters to further enhance value relevance of the most
widely used accounting number.
1.7
Scope of study
This study provides insight into value relevance of
accounting information of quoted companies in Nigeria and it covers a period of
7 years from 2008 to 2014. Ten banks in the financial institution, including First Bank Nigeria Plc, Diamond Bank Nigeria
Plc, Access Bank Nigeria Plc, Zenith Bank Nigeria Plc, Wema Bank Nigeria Plc,
Guaranty Trust Bank Nigeria Plc, Ecobank Nigeria Plc, Fidelity Bank Nigeria
Plc, First City Monument Bank Plc and United Bank for Africa Plc are being used
as the case study. This study examines the value relevance of accounting
information in enhancing the performance of some selected companies in the
financial sector of Nigerian economy. Over the period, this sector has
undergone some transformations. This study therefore examined how value
relevance on accounting information contributed to enhance the performance of
some selected banks from 2008 to 2014.
1.8 Definition of terms
Accounting
information: This is quantitative written information contained in
a complete or partial financial report –balance sheet or profit and loss
account or fund flow statement.
Book Value: It is an
accounting concept which tends to put a value on assets after making provision
for depreciation. It is total equity divided by the number of shares
outstanding. It is the original price paid for the assets reduced by any
allowable depreciation on the assets.
Earnings: The amount of
profit that a company produces during a specific period, which is usually
defined as a quarter (three calendar months) or a year payment. Earnings
typically refer to after-tax net income.
Financial Statements: Statement of the accounting policies; the
balance sheet as at the last day of the year; a profit and loss account or, in
the case of a company not trading for profit, an income and expenditure account
for the year; notes on the accounts; the auditors reports; the directors’
report; a statement of the source and application of fund.
Individual Investor: Non- institutional investor who invests in
listed firm on Nigerian Stock Market.
Institutional Investor: Corporate organization who invests in
other listed firm on Nigerian Stock Market.
Market value: This is the
current price at which securities are bought and sold in the market. It is the
price the market assigns to the company’s share.
Response Rate: In survey
research, the actual percentage of questionnaires completed and returned.
Stock Exchange: Stocks are listed
and traded on stock exchange which is an entity a corporation or mutual
organization that specializes in the business of bringing buyers and sellers of
the organizations to a listing of stocks and securities together.
Stock
Market: This
refers to entire market of equity for trading in the shares and derivatives of
the various companies.
Value Relevance: Ability of
accounting information to capture or summarize share price of firm listed on
the stock market.
REFERENCES
Germon, H. and
G.K.Meek (2001). Accounting: An
International Perspective,
McGraw
Hill, Singapore.
Hawkins, D. F
(1998). Corporate financial reporting and
analysis: Text and cases,
McGraw-Hill
Book, Homewood, 4th ed.
Obisi C. (2006) Personnel Management, Ibadan: Jackbod Enterprises, page 125
Okeke, F. (2004). Fiscal
Sustainability and The Challenges of a Responsive Capital Market in Global
Perspective. Nigerian Stock Market Annual ,Lagos
Osaze, E. B. (2007).Capital Markets –
African and Global, Lagos: the Bookhouse
Company.
Securities and Exchange Commission (1990).
Investments and Securities Act,1999; Abuja: SEC.
The Nigerian Stock
Exchange ( 2009). Factbook, 28.
INTERNET SOURCES
Barth, M., W. Beaver and W. Landsman. (1998). Relative valuation roles of equity book
value and net income as a function of financial health, Journal Accounting and Economics, 1-34.
Barth, M. E, Beaver, W.H. and W. R. Landsman (2000). The Relevance of Value Relevance Research,
Journal of Accounting Research ,
26 (2), 331-352
Barth, M. E., W.H. Beaver and W. R. Landsman (2001). The Relevance of the Value Relevance
Literature for Financial Accounting Standard Setter: Another View. Journal of Accounting and Economics, 31(1-3),
77 – 104
Beaver, W. H.(2002). Perspectives
on Recent Capital Market Research. Accounting
Review, 77(2), 453-474.
Beisland, L. A, M. Hamberg and J. Novak (2010). The
Value Relevance Across Industries? What Happened To The New Economy http://www.fma.org/Prague/Papers/Value_Relevance
across_Industries.pdf, retrieved on 20 January, 2010.
Khanagha, J. B. (2011). International
Financial Reporting Standards (IFRS) and Value Relevance of Accounting
Information: Evidence from Bahrain and United Arab Emirates Stock Markets, African Journal of Social Sciences 1(1),
101-114.
Ibidapo-Obe, O. (2009). Reconstructing
the Nigerian Education Landscape: Road
Maps for Driving Innovations and Developments in
Universities. Being 4th Convocation Lecture Series delivered at
Covenant University, June.
Mangena, M.( 2004). On the Perceived Importance of Disclosure Items in UK
Interim Financial Report: Evidence from the Investment
Analysts. Working paper series, Bradford University.
Negah,
M. (2008). Liberalisation and the value
relevance of Accrual Accounting Information: Evidence from the Johannesburg
Securities Exchange, Afro –Asian
Journal of Finance and Accounting, 1(1), 81–104.
Parker,C. R. (1967). Published Corporate Accounting Data and Stock Prices,
Journal of Accounting Research Empirical Research in Accounting
Selected Studies, 5(1), 22
– 54.
Umoren
Adebimpe O., Ekwere Raymond E. (2015) IFRS Adoption and Value Relevance of Financial Statements of Nigerian Listed
Banks, International Journal of Finance and Accounting 2015, 4(1): 1-7
Vishnani, S. and B. Shah (2008). International differences in the relation between financial Reporting
Decisions and Value Relevance of Published Financial Statements- with Special
Emphasis on Impact of Cash Flow Reporting, International Research Journal of Finance and Economics, 17(1),
1450-28
PROJECT PROPERTIES
Project Status
|
Available
|
Number
of Chapters
|
5
|
Number
of Pages
|
120
|
Number
of Words
|
32,692
|
Number
of References
|
29
|
Project
Level
|
M.Sc.
|
Price
|
N15,000
(Non-Negotiable)
|
Abstract,
Sample of Questionnaire are included
|
|
How
to Pay for this Project . . . .23408028177177 or via email danikingconsulting@yahoo.com
|
|
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