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- Earnings Management and Corporate Governance Practices in Nigeria
- Financial Accounting Theory and Practices and Corporate Governance in Nigeria
- Firm Characteristics, Corporate Governance and Audit Delay in Nigeria
- Corporate Governance and Share Price
Corporate Governance and Market for Audit Services
The purpose of this study is to examine whether efficient corporate governance regime dependent on the level of competitiveness of the market for audit services. A further objective is to provide an insight into how weak corporate governance practice leads to corporate failure. The researcher used primary source of data towards obtaining authentic information on the topic. However, the issues now bother on whether independence of auditors contributes to the growth of effective and efficient corporate governance and f efficient and effective corporate governance contribute the economic growth of the nation in general. In testing the hypothesis chi-square was used. The summary of findings includes the efficient cooperation governance regime which dependent on the level of competitiveness of the market for audit services and conclusion was made, that for quantitative governance, it is imperative for an organization to seek for reliable audit services. Recommendation was made on the fact that there is need for a regulatory framework for auditors in Nigeria, for this we improve their performance and positively affect the growth of Nigerian economy.
TABLE OF CONTENTS
Title Page i
Table of Contents vi
Chapter One: Introduction 1
1.1 Background to the Study 1
1.2 Statement of Problem 4
1.3 Research Questions 5
1.4 Objective of the Study 6
1.5 Statement of Hypothesis (es) 6
1.6 Significance of the Study 7
1.7 Scope of the Study 8
1.8 Limitations of the Study 9
1.9 Definition of Terms 9
Chapter Two: Literature Review 11
2.1 Introduction 11
2.2 Strong/Weak Governance 14
2.3 Corporate Governance and Demand of Audit Services 16
2.4 Auditors and Directors Independences 17
2.5 The Roles of External Auditors 18
2.6 Mechanism for Effective Audit Function 19
2.7 The Code of Best Practices on Corporate Governance in Nigeria 21
2.8 Corporate Governance Legislation in Nigeria Disclosure and Transparency Issues 22
2.9 Appointment of Auditor Responsibilities in Nigeria 23
2.10 Equity and Debt Financing 25
2.11 Corporate Governance Code and Guidelines 27
2.12 Corporate Governance Mechanism and control 28
2.13 Internal Corporate Governance Control 28
2.14 External Corporate Governance Control 30
2.15 Standard of Corporate Governance in Nigeria 30
Chapter Three: Research Method and Design 32
3.1 Introduction 32
3.2 Research Design 32
3.3 Description of Population of the Study 33
3.4 Sample Size 33
3.5 Sampling Techniques 33
3.6 Sources of Data Collection 34
3.7 Method of Data Presentation 34
3.8 Method of Data Analysis 34
Chapter Four: Data Presentation, Analysis and Interpretation 36
4.1 Introduction 36
4.2 Data Presentation 36
4.3 Data Analysis 36
4.4 Hypothesis Testing 46
Chapter Five: Summary of Findings, Conclusion and Recommendations 48
5.1 Introduction 48
5.2 Summary of Findings 48
5.3 Conclusion 49
5.4 Recommendations 50
Appendix I 53
Appendix II 54
1.1 Background to the Study
Corporate governance is all about running an organization in a way that guarantees that its owners are stakeholders receiving a fair return on their investment. Corporate governance has been part of research since Berle and Mean’s (1932) publication on “Separation of Corporate Ownership from Control”. The important of separation of ownership from management is vital feature of modern firm. Corporate governance is concerned with the way in which all parties interested in the well.-being of the firm attempt to ensure that managers and other members take measure or adopt mechanism that safeguard the interest of the shareholders.
Clarkson and Deck (1997) define corporate governance as 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. A typical firm is characterized by numerous owners having no management function and managers with no equity interest in the firm. Shareholders or owners of equity are large in numbers and an average shareholder. Control a minute proportion of the shares of the firm. This gives rise to shareholders to take no interest in monitoring of managers, who are left to themselves and maybe pursuing interest different from those of the owners of equity. Corporate governance has found a way to address this problem which arises and a number of significant researches have been conducted towards resolving it.
Magdi and Nedareh (2002) emphasize the need for auditor’ s to act in the interest of the stakeholders particularly minority shareholders or investors by ensuring that only action that facilitate delivery of optimum returns and other favourable outcome are taken at all times. One of the stated policies on corporate governance is to protect the outside shareholders claim of the firm assets. There is no one simple factor that contributes to institutional problems than the lack of effective governance. The governance of a county for example refers to the power and action of the legislature. The narrow view perceives corporate governance in terms of issue relating to shareholder protection, management control and the popular principal agency problems of economic theory. No company can achieve the principle of good corporate governance without a reliable audit services.
Okolo (1998) define audit as a conscientious and objective examination and inquiry into any statement of account relating to money or money worth, the underlying document and the physical assets were possible as will enable the auditor to form an opinion as to whether or not the financial statement present a true and fair view of whatever it purposes to represent and to report accordingly. Audit is an independent examination of an expression of an opinion on the financial statement of an enterprise. The auditor dictates the successful and unsuccessful project. A research was carried out in US audit market, indicating the serve to monitor management, contribution to companies over all corporate governance thereby protecting shareholders interests. Although in some countries like Germany, the demand for auditing as a monitoring mechanism may be limited since the companies there relied more on debt than on equity capital. The demand for auditing as a monitoring mechanism in Germany is limited since private debt holders, as the major capital providers have more direct oversight of management relative to dispersed minority shareholders. German law also limits audit firm liabilities, suggesting the auditing does not play an insurgence role in Germany as it does in other countries like United States.
1.2 Statement of Problem
Corporate governance practice is still growing in Nigeria and has not reached a mature stage. As a result, financial reporting suffered some set back which weaken investors’ confidence on publishing financial statements.
According to Sarbanes-Oxley Act (2002), corporate governance has been identified as a tool for sound financial system. Poor corporate governance has recently caused corporate failures all over the world thereby causing inefficient financial system. The market for audit services is highly competitive, for this reason the audit market that is supposed to give a helping hand has also failed in many countries like Nigeria. Auditors are supposed to give reliable and competent financial information to protect the shareholders wealth in the favour of management for them to be re-appointed in the next Annual General Meeting.
1.3 Research Questions
In the course of this study the following research questions where formulated.
i. What is the influence of composition of auditors on firm performances?
ii. What is the relationship between board size and firm financial performance?
iii. What is the relationship between separation of the posts of CEO and board chair have to do with firm performance?
iv. What is the extent of shareholding related to firm financial performance?
1.4 Objective of the Study
The essence of this study is to find out if efficient
corporate governance regime dependent on the level of competitiveness of the market for audit services. The following are also the reason for this study to;
i. Know the influence of composition of auditors on firm performances.
ii. Determine the relationship between board size and firm financial performance.
iii. Determine the relationship between separation of the posts of CEO and board chair have to do with firm performance.
iv. Ascertain the extent of shareholding related to firm financial performance.
1.5 Statement of Hypotheses
The assumption made to direct the trust of this study is:
HO: Efficient corporate governance regime does not dependent on the level of competitiveness of the market for audit services.
HI: Efficient corporate governance regime dependent on the level of competitiveness of the market for audit services.
HO: There is no significance relationship between board size and firm financial performance.
HI: There is significance relationship between board size and firm financial.
1.6 Significance of the Study
This study will be significance in the following ways;
i. Researchers: It is our design that this study will provide additional insights into the relationship between corporate governance mechanism and market for audit services.
ii. Nigeria Stock Exchange: It is hope that the evidence would serve as important quantitative information into the cauldron of policy in the developing Stock Exchange Market in Nigeria.
iii. The Nation: The need for the study of this kind is even more important in an environment like Nigeria which is characterized by growing calls for effective corporate governance especially in the quoted companies.
iv. Auditors: It is also going to be useful for the ongoing privatization programme that government of Nigeria is doing. Corporate governance encourages market for Audit Services to improve the growth of the Nation.
1.7 Scope of the Study
The study involves essentially corporate governance application and demand for audit service in corporate outfits in Nigeria. It is designed to cover the various issues in corporate governance and market for audit services in Nigeria. However, it should be noted that corporate governance is applicable to countries, state owned enterprises, private limited companies and pubic limited companies. There will be a general study of corporate governance and market for audit services from 2010 – 2014, that is four years. With special reference to Benin City, Edo state using a sample size of 50 for effective survey.
1.8 Limitations of the Study
The study is impeded by a number of limitations such as reliability of financial report of firms or companies used for the study as some of the companies may not be sincere enough to report their activities the way they are. The time stipulated for the completion of the research work also serves as limitation of the study.
The smallness of the sample size, reluctance of respondents to filling the questionnaires and the difficulty in determining who actually filled the questionnaires in situations where it was not filled immediately were also issues encountered. Lastly, statistical tools which include correlation and regression analyses have their own limitations also.
1.9 Definition of Terms
i. Audit Committee: A committee of board of director’s with responsibilities, for a range of audit related issues and in particular the conduct of the external and the company’s relationship with its auditors.
ii. Efficient Market Hypothesis: In finance, the efficient market hypothesis (EMH) asset that financial market are efficient.
iii. External Auditors: It refers to that audit professional who perform independent annual audits of organization financial statements.
iv. Financial Statement: A statement containing financial information, the main financial statement of a company is the balance sheet and profit and loss account in the annual report and accounts.
v. Internal Auditors: They are employee of an enterprise who is specifically assigned by the management to conduct a review of the accounting and internal control system.
vi. Independence: Free from the influence of another individual.
vii. Principle for Corporate Governance: This can be defined as the relationship among the company’s participant which depend on certain principle and standard.
viii. Strong Corporate Governance: This means firm with the independent board of directors and independent audit.