Managerial Characteristics and Earnings Quality of Listed Banks in Nigeria.
ABSTRACT
Despite strict rules and regulations governing firms in the financial system, it is not clear whether managers use opportunistic behaviour to report earnings. This study investigates the relationship between managerial characteristics and earnings quality of listed banks in Nigeria. The managerial characteristics variables used are: performance, managerial ability, managerial ownership and managerial cash holding.
This study utilises the Q test model to measure earnings quality of 17 listed banks in the Nigeria Stock Exchange between 2006 and 2010. The study also investigates the association between earnings quality and bank specific and economic specific characteristics; and whether these characteristics impacted significantly on the earnings quality-managerial characteristics relationship.
Data for the study were obtained from secondary sources and analysed using logistic regression analysis. The results revealed that managerial characteristics have significant positive effect on the level of earnings quality. The results also revealed that bank specific characteristics have significant effect on the level of earnings quality while size and global financial crisis do not have significant effect on the level of earnings quality of listed banks in Nigeria.
Based on these findings, the study recommends among others that regulatory bodies should take the issue of managerial characteristics seriously when taking decisions about management of banks. A situation where management is changed without recourse to these characteristics can lead to earnings management thereby reducing earnings quality.
TABLE OF CONTENT
Cover page- – – – – – – – – – i
Declaration- – – – – – – – – – ii
Certification- – – – – – – – – – iii
Dedication- – – – – – – – – iv
Acknowledgements – – – – – – – – – v
Table of Contents- – – – – – – – – viii
List of Tables– – – – – – – – – x
Abstract- – – – – – – – – – xi
CHAPTER ONE: INTRODUCTION
1.1 Background to the Study- – – – – – – 1
1.2 Statement of the Problem – – – – – – 4
1.3 Objectives of the Study – – – – – – – 10
1.4 Research Hypotheses – – – – – – – 10
1.5 Significance of the Study – – – – – – 11
1.6 Scope of the Study – – – – – – – 12
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction – – – – – – – – 14
2.2 An Overview of the Nigerian Banking Sector – – – 14
2.3 Conceptual Issues- – – – — – – – 21
2.5 Performance and Earnings Quality- – – – – 45
2.6 Managerial Ownership and Earnings quality- – – – 47
2.7 Managerial Ability and Earnings quality- – – – 49
2.8 Cash Holdings and Earnings Quality- – – – – 52
2.9 Theoretical Framework- – – – – – – 55
2.10 Summary- – – – – – – – – 59
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Introduction – – – – – – – – 60
3.2 Research Design – – – – – – – 60
3.3 Population and Sample of the Study- – – – – – 61
3.4 Methods of Data Collection- – – – – – – 62
3.5 Model Specification – – – – – – – 62
3.6 Measurement of Variables- – – – – – – 64
3.7 Techniques of Data Analysis– – – – – – 69
3.8 Summary- – – – – – – – – 71
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Introduction- – – – – – – – – 72
4.2 Data Presentation- – – – – – – – 72
4.3 Basic Sample Statistics- – – – – – 82
4.4 The Association between Managerial Characteristics and Level of
Earnings Quality of Listed Banks in Nigeria – – – – 86
4.5 Policy Implications of Findings- – – – – – 98
4.6 Summary- – – – – – – – – 102
CHAPTER FIVE: SUMMARY, CONCLUSIONS AND
RECOMMENDATIONS
5.1 Summary- – – – – – – – – 104
5.2 Conclusions- – – – – – – – – 106
5.3 Limitations of the Study- – – – – – – 108
5.4 Recommendations- – – – – – – – 109
5.5 Suggested Areas for Further Research- – – – – 115
Bibliography- – – – – – – – – 117
Appendices- – – – – – – – – 138
INTRODUCTION
In response to globalization and liberalization, CBN in 2004 embarked on a banking sector reform through the increase in share capital of banks from two billion naira to twenty-five billion naira with effect from 31st Dec 2005. The reform sparked up consolidation processes through mergers and acquisitions in the Nigeria banking sector during and after the window period. The reform was intended to ensure a diversified, strong and steadfast banking sector which will safeguard the depositors‟ money.
The reform tried to diffuse the level of managerial ownership in the banks by reducing the problems of insider abuse and corporate governance. The need to increase their capital base as required by the reform lead many banks to the capital market through initial public offers (IPOs), private placement and the issue of more shares. With virtually all banks being publicly quoted, the regulatory bodies for banks now include the Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE).
The gain of the reform was essentially for banks to enjoy economies of scale and in turn a reduction in the cost of banking transactions thereby leading to better post consolidation performance. The performance of a bank can be considered as one of the most significant factors that affect its quality of earnings. The need to maintain a level of performance and beat earnings forecast makes managers tend towards earnings management.
Burgstahler and Dichev (1997) argue that because large firms are more closely monitored by financial analysts in the market than small firms, they may be tempted to take earnings management steps to beat analysts’ forecasts. Listed banks in Nigeria are big firms by virtue of their post consolidation total asset base and their managers are not immune to earnings management temptation because they are humans.
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StudentsandScholarship Team.