EXECUTIVE COMPENSATION AND FINANCIAL REPORTING QUALITY OF NIGERIAN FINANCIAL SERVICE INDUSTRY
Keywords:
Executive Compensation, Financial Reporting Quality.
Abstract
The study evaluated the effect of executive compensation on financial reporting quality in Nigerian financial service industry for the period covered. These were with a view to providing information on the effect of executive compensation and financial reporting quality in Nigeria. The study employed a secondary source of data collection. The population for the study consisted of 22 quoted deposit money banks listed and whose stocks are actively traded on the Nigerian Stock Exchange (NSE) market for the period 2006-2017.The sample size of 14 was determined using purposive sampling method. Secondary data were collected on variables executive compensation, non-performing loan, loan loss provision, total loan, residual term all obtained from the audited Annual reports of the selected deposit money banks, fact book published by Nigerian Stock Exchange, and the Central Bank of Nigeria. Data collected were analyzed using Robust Regression. The results showed executive compensation (coef. =-0.139, p˂0.004) has a negative significant relationship with financial reporting quality. This study concluded that executive compensation has a negative significant effect on financial reporting quality.
References
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Amiram, D., Bozanic, Z., Cox, J. D., Dupont, Q., Karpoff, J. M., & Sloan, R. (2018). Financial reporting fraud and other forms of misconduct: a multidisciplinary review of the literature. Review of Accounting Studies, 23(2), 732-783.
Akgün, A. İ. (2016). The Reliability of Financial Reporting within Corporate Governance: Evidence from Turkey. Journal of Accounting & Finance, 71, 179-199.
Armstrong, C., Guay, W., & Weber, J. (2010). The role of information and financial reporting in corporate governance and debt contracting. Journal of Accounting and Economics, 50 (2-3), 179–234
Bebchuk, L., Grinstein, Y., & Peyer, U. (2010). Lucky CEOs and lucky directors. Journal of Finance, 65(6), 2363-2401.
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Bergstresser, D., & Philippon, T. (2006). CEO incentives and earnings management. Journal of Financial Economics 80(3), 511-529.
Biddle, G. C., Hilary, G., & Verdi, R. S. (2009). How does financial reporting quality relate to investment efficiency? Journal of Accounting and Economics, 48, 112–131.
Bolo, G. & Hassani, S. A. (2007). Earnings management and its measurement: A theoretical approach. Iranian Association of Certified Public Accountants, 4(12), 72-88.
Bushman, R. M., & Smith, A. J. (2001). Financial accounting information and corporate governance. Journal of accounting and Economics, 32(1-3), 237-333.
Basu, S., Hwang, L. S., Mitsudome, T., & Weintrop, J. (2007). Corporate governance, top executive compensation and firm performance in Japan. Pacific-Basin Finance Journal, 15(1), 56-79.
Barakat, F. S. Q., Perez, M. V. L., Ariza, L. R., Barghouthi, O. A., & Islam, K. M. A. (2020). The impact corporate governance on internet financial reporting: empirical evidence from palestine. International Journal of Accounting & Finance Review, 5(4), 1-22. https://doi.org/10.46281/ijafr.v5i4.852
Cao, Y., Myers, J. N., Myers, L. A., & Omer, T. C. (2015). Company reputation and the cost of equity capital. Review of Accounting Studies, 20(1), 42-81.
Chaigneau, P. (2018). The optimal timing of CEO compensation. Finance Research Letters, 24, 90-94.
Chen, T. (2010). Analysis on accrual-based models in detecting earnings management. Lingnan Journal of Banking, Finance and Economics, 2(5), 58-65.
Carpenter, T. D., & Reimers, J. L. (2005). Unethical and fraudulent financial reporting: Applying the theory of planned behavior. Journal of Business Ethics, 60(2), 115-129.
Cheng, Q., Warfield, T., & Ye, M. (2011). Equity incentives and earnings management: evidence from the banking industry. Journal of Accounting, Auditing & Finance, 26(2), 317-349.
Darweesh, M. S. (2015). Correlations between corporate governance, financial performance, and market value.
Dechow, P. M, Sloan, R. G., & Sweeney, A. P. (1995). Detecting Earnings Management. The Accounting Review, 70(2), 193-225.
Dimitrova, J., Gorgieva-Trajkovska, O., Koleva, B., NACHKOVA, A., & Dimitrova, E. (2016). Corporate governance and financial reporting in macedonia through the prism of independent auditors reports. Economic Development/Ekonomiski Razvoj, 18(3).
Devers, C. E., Cannella Jr, A. A., Reilly, G. P., & Yoder, M. E. (2007). Executive compensation: A multidisciplinary review of recent developments. Journal of management, 33(6), 1016-1072.
Efendi, J., Srivastava, A., & Swanson, E. P. (2007). Why do corporate managers misstate financial statements? The role of option compensation and other factors. Journal of financial economics, 85(3), 667-708.
Financial Accounting Standards Board. (1978). Objectives of financial reporting by business enterprises (No. 1). Financial Accounting Standards Board.
Gomez-Mejia, L. R., & Balkin, D. B. (1992).Compensation organizational strategy and firm performance. Cincinnati: South-Western. Publication. 1st Edition
Goodwin, J., & Seow, J. L. (2002). The influence of corporate governance mechanisms on the quality of financial reporting and auditing: Perceptions of auditors and directors in Singapore. Accounting & Finance, 42(3), 195-223.
Greckhamer, T. (2011). Cross-cultural differences in compensation level and inequality across occupations: A set-theoretic analysis. Organization Studies, 32(1), 85-115.
Habib, A., & Jiang, H. (2015). Corporate governance and financial reporting quality in China: A survey of recent evidence. Journal of International Accounting, Auditing and Taxation, 24, 29-45.
Herath, S. K., & Albarqi, N. (2017). Financial reporting quality: A literature review. International Journal of Business Management and Commerce, 2(2), 1-14.
Hong, B., Li, Z., & Minor, D. (2016). Corporate governance and executive compensation for corporate social responsibility. Journal of Business Ethics, 136(1), 199-213.
Habib, A., Ranasinghe, D., & Huang, H. J. (2018). A literature survey of financial reporting in private firms. Research in Accounting Regulation, 30(1), 31-37.
Iatridis, G. E. (2018). Accounting Discretion and Executive Cash Compensation; An Empirical Investigation of Corporate Governance, Credit Ratings and Firm Value. Journal of International Financial Markets, Institutions & Money, 1, 23-39.
IASB. (2008). Exposure Draft on an improved Conceptual Framework for Financial Reporting: The Objective of Financial Reporting and Qualitative Characteristics of Decision-useful Financial Reporting Information. London.
Kalyani, S., Mathur, N., & Gupta, P. (2019). Does corporate governance affect the financial performance and quality of financial reporting of companies? A study on selected Indian companies. In Business Governance and Society (pp. 105-125). Palgrave Macmillan, Cham.
Kanagaretnam, K., Lobo, G. J., & Mathieu, R. (2004). Earnings management to reduce earnings variability: evidence from bank loan loss provisions. Review of Accounting and Finance, 3(1), 128-148.
Ke, B., Petroni, K., & Safieddine, A. (1999). Ownership concentration and sensitivity of executive pay to accounting performance measures: Evidence from publicly and privately-held insurance companies. Journal of Accounting and Economics, 28(2), 185-209.
Krishnan, G. & Parsons, L. (2008). Getting to the Bottom Line: An Exploration of Gender and Earnings Quality. Journal of Business Ethics, 78(1), 65-76.
Maijoor, S. J., & Vanstraelen, A. (2006). Earnings management within Europe: the effects of member state audit environment, audit firm quality and international capital markets. Accounting and business research, 36(1), 33-52.
Mohammadi, S. M. (2014). The relationship between financial reporting quality and investment efficiency in Tehran stock exchange. International Journal of Academic Research in Business and Social Sciences, 4(6), 104-113.
Monah, A., & Okojie, O. (2018). The Effects of International Financial Reporting Standards Adoption on Earnings Management: Evidence from Commercial Banks in Liberia.
Nerantzidis, M., (2018). Enhancing financial reporting: challenges and opportunities in corporate governance statements, Corporate Governance: The International Journal of Business in Society, 18(5), 773-778.
Othman, H. B., & Mersni, H. (2014). The use of discretionary loan loss provisions by Islamic banks and conventional banks in the Middle East region: A comparative study. Studies in Economics and Finance, 31(1), 106-128
Oba, V. C. (2014). Board Dynamics and Financial Reporting Quality in Nigeria. Review of International Comparative Management, 15(2), 226-236.
Ogbonna, G. N., & Ebimobowei, A. (2012). Effect of ethical accounting standards on the quality of financial reports of banks in Nigeria. Current Research Journal of Social Sciences, 4(1), 69-78.
Omoregie, O. K., & Kelikume, I. (2017). Executive compensation and banking sector performance: evidence from Nigeria. The Journal of Developing Areas, 51(2), 1-15.
Otten, J. A. (2008). Theories on executive pay: A literature overview and critical assessment. Munich Personal RePEc Archive (MPRA).Retrieved from mpra.ub.uni-muenchen.de/6969/ Accessed on 9/03/2019.
Rahman, K. M., & Bremer, M. (2016). Effective Corporate Governance and Financial Reporting in Japan. Asian Academy of Management Journal of Accounting and Finance (AAMJAF), 12(1), 93-122.
Researcher’s Compilation. (2019). Retrieved from http://www.nse.com.ng/issuers/listed-securities/listed-companies
Roberts, D. R. (1956). A general theory of executive compensation based on statistically tested propositions. The Quarterly Journal of Economics, 70(2), 270-294.
Safari, M., Cooper, B. J., & Dellaportas, S. (2016). The influence of remuneration structures on financial reporting quality: Evidence from Australia. Australian Accounting Review, 26(1), 66-75.
Simnett, R., Vanstraelen, A., & Chua, W. (2009).Assurance on Sustainability Reports: An International Comparison. The Accounting Review, 84(3), 937-967.
Shin, E. D., Lee, J., & Joo, I. K. (2009). CEO compensation and US high tech and low-tech firm’s corporate performance. Contemporary management research, 5(1), 93-106.
Solomon, J. & Solomon, A. (2006). Private Social, Ethical and Environmental Disclosure. Accounting, Auditing & Accountability Journal, 19(4), 564-591.
Sun, F., Wei, X., & Huang, X. (2013). CEO compensation and firm performance: Evidence from the US property and liability insurance industry. Review of Accounting and Finance, 12(3), 252-267.
Throop, G. M., Starik, M., & Rands, G. P. (1993). Sustainable strategy in a greening world: Integrating the natural environment into strategic management. Advances in strategic management, 9, 63-92.
Verardi, V., & Croux, C. (2009). Robust regression in Stata. The Stata Journal, 9(3), 439-453.
Warfield, T. D., Wild, J. J., & Wild, K. L. (1995). Managerial ownership, accounting choices, and informativeness of earnings. Journal of accounting and economics, 20(1), 61-91.
Yu, D., Ding, C., He, N., Wang, R., Zhou, X., & Shi, L. (2019). Robust estimation and confidence interval in meta-regression models. Computational Statistics & Data Analysis, 129, 93-118.
Yiu, D. W., Wan, W. P., & Xu, Y. (2019). Alternative governance and corporate financial fraud in transition economies: Evidence from China. Journal of Management, 45(7), 2685-2720.
Zadeh, F. N., Salehi, M., & Shabestari, H. (2018). The relationship between corporate governance mechanisms and internet financial reporting in Iran. Corporate Governance: The International Journal of Business in Society, 18(1), 1-22.
Zoubi, T. A., & Al-Khazali, O. (2007). Empirical testing of the loss provisions of banks in the GCC region. Managerial Finance, 33(7), 500.
Akewushola, R.O., & Saka, R.O. (2018). Executive Compensation and Organizational Financial Performances: Evidence from Selected Diversified Firms in Nigeria. Journal of Business and Management, 20(3), 08-17.
Amiram, D., Bozanic, Z., Cox, J. D., Dupont, Q., Karpoff, J. M., & Sloan, R. (2018). Financial reporting fraud and other forms of misconduct: a multidisciplinary review of the literature. Review of Accounting Studies, 23(2), 732-783.
Akgün, A. İ. (2016). The Reliability of Financial Reporting within Corporate Governance: Evidence from Turkey. Journal of Accounting & Finance, 71, 179-199.
Armstrong, C., Guay, W., & Weber, J. (2010). The role of information and financial reporting in corporate governance and debt contracting. Journal of Accounting and Economics, 50 (2-3), 179–234
Bebchuk, L., Grinstein, Y., & Peyer, U. (2010). Lucky CEOs and lucky directors. Journal of Finance, 65(6), 2363-2401.
Beest, F.V, Braam, G., & Boelens, S. (2009). Quality of Financial Reporting: measuring qualitative characteristics. Nijmegen Center for Economics (NiCE) Institute for Management Research Radboud University Nijmegen.
Bergstresser, D., & Philippon, T. (2006). CEO incentives and earnings management. Journal of Financial Economics 80(3), 511-529.
Biddle, G. C., Hilary, G., & Verdi, R. S. (2009). How does financial reporting quality relate to investment efficiency? Journal of Accounting and Economics, 48, 112–131.
Bolo, G. & Hassani, S. A. (2007). Earnings management and its measurement: A theoretical approach. Iranian Association of Certified Public Accountants, 4(12), 72-88.
Bushman, R. M., & Smith, A. J. (2001). Financial accounting information and corporate governance. Journal of accounting and Economics, 32(1-3), 237-333.
Basu, S., Hwang, L. S., Mitsudome, T., & Weintrop, J. (2007). Corporate governance, top executive compensation and firm performance in Japan. Pacific-Basin Finance Journal, 15(1), 56-79.
Barakat, F. S. Q., Perez, M. V. L., Ariza, L. R., Barghouthi, O. A., & Islam, K. M. A. (2020). The impact corporate governance on internet financial reporting: empirical evidence from palestine. International Journal of Accounting & Finance Review, 5(4), 1-22. https://doi.org/10.46281/ijafr.v5i4.852
Cao, Y., Myers, J. N., Myers, L. A., & Omer, T. C. (2015). Company reputation and the cost of equity capital. Review of Accounting Studies, 20(1), 42-81.
Chaigneau, P. (2018). The optimal timing of CEO compensation. Finance Research Letters, 24, 90-94.
Chen, T. (2010). Analysis on accrual-based models in detecting earnings management. Lingnan Journal of Banking, Finance and Economics, 2(5), 58-65.
Carpenter, T. D., & Reimers, J. L. (2005). Unethical and fraudulent financial reporting: Applying the theory of planned behavior. Journal of Business Ethics, 60(2), 115-129.
Cheng, Q., Warfield, T., & Ye, M. (2011). Equity incentives and earnings management: evidence from the banking industry. Journal of Accounting, Auditing & Finance, 26(2), 317-349.
Darweesh, M. S. (2015). Correlations between corporate governance, financial performance, and market value.
Dechow, P. M, Sloan, R. G., & Sweeney, A. P. (1995). Detecting Earnings Management. The Accounting Review, 70(2), 193-225.
Dimitrova, J., Gorgieva-Trajkovska, O., Koleva, B., NACHKOVA, A., & Dimitrova, E. (2016). Corporate governance and financial reporting in macedonia through the prism of independent auditors reports. Economic Development/Ekonomiski Razvoj, 18(3).
Devers, C. E., Cannella Jr, A. A., Reilly, G. P., & Yoder, M. E. (2007). Executive compensation: A multidisciplinary review of recent developments. Journal of management, 33(6), 1016-1072.
Efendi, J., Srivastava, A., & Swanson, E. P. (2007). Why do corporate managers misstate financial statements? The role of option compensation and other factors. Journal of financial economics, 85(3), 667-708.
Financial Accounting Standards Board. (1978). Objectives of financial reporting by business enterprises (No. 1). Financial Accounting Standards Board.
Gomez-Mejia, L. R., & Balkin, D. B. (1992).Compensation organizational strategy and firm performance. Cincinnati: South-Western. Publication. 1st Edition
Goodwin, J., & Seow, J. L. (2002). The influence of corporate governance mechanisms on the quality of financial reporting and auditing: Perceptions of auditors and directors in Singapore. Accounting & Finance, 42(3), 195-223.
Greckhamer, T. (2011). Cross-cultural differences in compensation level and inequality across occupations: A set-theoretic analysis. Organization Studies, 32(1), 85-115.
Habib, A., & Jiang, H. (2015). Corporate governance and financial reporting quality in China: A survey of recent evidence. Journal of International Accounting, Auditing and Taxation, 24, 29-45.
Herath, S. K., & Albarqi, N. (2017). Financial reporting quality: A literature review. International Journal of Business Management and Commerce, 2(2), 1-14.
Hong, B., Li, Z., & Minor, D. (2016). Corporate governance and executive compensation for corporate social responsibility. Journal of Business Ethics, 136(1), 199-213.
Habib, A., Ranasinghe, D., & Huang, H. J. (2018). A literature survey of financial reporting in private firms. Research in Accounting Regulation, 30(1), 31-37.
Iatridis, G. E. (2018). Accounting Discretion and Executive Cash Compensation; An Empirical Investigation of Corporate Governance, Credit Ratings and Firm Value. Journal of International Financial Markets, Institutions & Money, 1, 23-39.
IASB. (2008). Exposure Draft on an improved Conceptual Framework for Financial Reporting: The Objective of Financial Reporting and Qualitative Characteristics of Decision-useful Financial Reporting Information. London.
Kalyani, S., Mathur, N., & Gupta, P. (2019). Does corporate governance affect the financial performance and quality of financial reporting of companies? A study on selected Indian companies. In Business Governance and Society (pp. 105-125). Palgrave Macmillan, Cham.
Kanagaretnam, K., Lobo, G. J., & Mathieu, R. (2004). Earnings management to reduce earnings variability: evidence from bank loan loss provisions. Review of Accounting and Finance, 3(1), 128-148.
Ke, B., Petroni, K., & Safieddine, A. (1999). Ownership concentration and sensitivity of executive pay to accounting performance measures: Evidence from publicly and privately-held insurance companies. Journal of Accounting and Economics, 28(2), 185-209.
Krishnan, G. & Parsons, L. (2008). Getting to the Bottom Line: An Exploration of Gender and Earnings Quality. Journal of Business Ethics, 78(1), 65-76.
Maijoor, S. J., & Vanstraelen, A. (2006). Earnings management within Europe: the effects of member state audit environment, audit firm quality and international capital markets. Accounting and business research, 36(1), 33-52.
Mohammadi, S. M. (2014). The relationship between financial reporting quality and investment efficiency in Tehran stock exchange. International Journal of Academic Research in Business and Social Sciences, 4(6), 104-113.
Monah, A., & Okojie, O. (2018). The Effects of International Financial Reporting Standards Adoption on Earnings Management: Evidence from Commercial Banks in Liberia.
Nerantzidis, M., (2018). Enhancing financial reporting: challenges and opportunities in corporate governance statements, Corporate Governance: The International Journal of Business in Society, 18(5), 773-778.
Othman, H. B., & Mersni, H. (2014). The use of discretionary loan loss provisions by Islamic banks and conventional banks in the Middle East region: A comparative study. Studies in Economics and Finance, 31(1), 106-128
Oba, V. C. (2014). Board Dynamics and Financial Reporting Quality in Nigeria. Review of International Comparative Management, 15(2), 226-236.
Ogbonna, G. N., & Ebimobowei, A. (2012). Effect of ethical accounting standards on the quality of financial reports of banks in Nigeria. Current Research Journal of Social Sciences, 4(1), 69-78.
Omoregie, O. K., & Kelikume, I. (2017). Executive compensation and banking sector performance: evidence from Nigeria. The Journal of Developing Areas, 51(2), 1-15.
Otten, J. A. (2008). Theories on executive pay: A literature overview and critical assessment. Munich Personal RePEc Archive (MPRA).Retrieved from mpra.ub.uni-muenchen.de/6969/ Accessed on 9/03/2019.
Rahman, K. M., & Bremer, M. (2016). Effective Corporate Governance and Financial Reporting in Japan. Asian Academy of Management Journal of Accounting and Finance (AAMJAF), 12(1), 93-122.
Researcher’s Compilation. (2019). Retrieved from http://www.nse.com.ng/issuers/listed-securities/listed-companies
Roberts, D. R. (1956). A general theory of executive compensation based on statistically tested propositions. The Quarterly Journal of Economics, 70(2), 270-294.
Safari, M., Cooper, B. J., & Dellaportas, S. (2016). The influence of remuneration structures on financial reporting quality: Evidence from Australia. Australian Accounting Review, 26(1), 66-75.
Simnett, R., Vanstraelen, A., & Chua, W. (2009).Assurance on Sustainability Reports: An International Comparison. The Accounting Review, 84(3), 937-967.
Shin, E. D., Lee, J., & Joo, I. K. (2009). CEO compensation and US high tech and low-tech firm’s corporate performance. Contemporary management research, 5(1), 93-106.
Solomon, J. & Solomon, A. (2006). Private Social, Ethical and Environmental Disclosure. Accounting, Auditing & Accountability Journal, 19(4), 564-591.
Sun, F., Wei, X., & Huang, X. (2013). CEO compensation and firm performance: Evidence from the US property and liability insurance industry. Review of Accounting and Finance, 12(3), 252-267.
Throop, G. M., Starik, M., & Rands, G. P. (1993). Sustainable strategy in a greening world: Integrating the natural environment into strategic management. Advances in strategic management, 9, 63-92.
Verardi, V., & Croux, C. (2009). Robust regression in Stata. The Stata Journal, 9(3), 439-453.
Warfield, T. D., Wild, J. J., & Wild, K. L. (1995). Managerial ownership, accounting choices, and informativeness of earnings. Journal of accounting and economics, 20(1), 61-91.
Yu, D., Ding, C., He, N., Wang, R., Zhou, X., & Shi, L. (2019). Robust estimation and confidence interval in meta-regression models. Computational Statistics & Data Analysis, 129, 93-118.
Yiu, D. W., Wan, W. P., & Xu, Y. (2019). Alternative governance and corporate financial fraud in transition economies: Evidence from China. Journal of Management, 45(7), 2685-2720.
Zadeh, F. N., Salehi, M., & Shabestari, H. (2018). The relationship between corporate governance mechanisms and internet financial reporting in Iran. Corporate Governance: The International Journal of Business in Society, 18(1), 1-22.
Zoubi, T. A., & Al-Khazali, O. (2007). Empirical testing of the loss provisions of banks in the GCC region. Managerial Finance, 33(7), 500.
Published
2021-08-29
How to Cite
T., A. E., O., A. E., Tajudeen, A., Godwin, I., & I., A. G. (2021). EXECUTIVE COMPENSATION AND FINANCIAL REPORTING QUALITY OF NIGERIAN FINANCIAL SERVICE INDUSTRY. International Journal of Accounting & Finance Review, 7(1), 130-147. https://doi.org/10.46281/ijafr.v7i1.1310
Section
Research Paper/Theoretical Paper/Review Paper/Short Communication Paper
Copyright (c) 2021 Adeoye Ebunoluwa T., Akinkoye Ebenezer O., Ayoola Tajudeen, Inneh Godwin, Agelebe Glory I.
This work is licensed under a Creative Commons Attribution 4.0 International License.
