THE IMPACT OF FINANCIAL ACCOUNTING QUALITY ON THE CORPORATE PERFORMANCE OF BUSINESS ORGANIZATION (A CASE STUDY OF NIGERIAN BREWERY INDUSTRY)


Content

Abstract

 

This study examines the impact of financial accounting quality on the corporate performance of business organization. Providing high quality financial reporting information is important because it will positively influence capital providers and other stakeholders in making investment, credit, and similar resource allocation decisions enhancing overall market efficiency. The broad objective of the study is to ascertain if the adoption of IFRS by the organization moderates the effect of financial reporting quality. The primary source of data collection was used and the simple random sampling was used to select 23 personnel as the sample size. The chi-square statistical tool was used to test the stated hypotheses and the findings revealed that the level of corruption perception in the organization moderate the effect of financial reporting quality on corporate performance. It was concluded that the financing reporting quality issued by the financial reporting standard of Nigeria encourages uniformity as well as provides a common ground for evaluation of business performance. It was recommended among others that users of financial statement should be efficiently knowledgeable on statement of financial reporting standard paying attention to the disclosure requirement so as to enable them to defect non-compliance with such financial reporting standard.

 

 

 

 


TABLE OF CONTENTS

Title Page                                                                                i

Certification                                                                            ii

Dedication                                                                              iii

Acknowledgments                                                                  iv

Abstract                                                                                  v

Chapter One: Introduction                                        1

1.1    Background to the Study                                                      1

1.2    Statement of Problem                                                            3

1.3    Research Questions                                                               4

1.4    Objectives of the Study                                                          4

1.5    Statement of Hypotheses                                                       5

1.6    Significance of the Study                                                       5

1.7    Scope of the Study                                                                 7      

1.8    Limitations of the Study                                                         7

Chapter Two: Review of Related Literature        9

2.1    Introduction                                                                           9

2.2    Concept of Financial Reporting                                             10

2.3    Meaning of Corporate Performance                                      13

2.4    Corporate Performance Measurement                                 14

2.5    The Relationship Between Financial Reporting Quality

and Financial Performance                                                   15

2.6    Impact of Financial Reporting Quality on profitability        18

2.7    The Effect of Financial Reporting Quality on Investment Efficiency                                                                                   20

2.8    Financial Reporting Quality and Sub-Optimal

Investment Levels                                                                  23

2.9    Measurement Methods to Assess the Quality of Financial Reporting                                                                                25

2.10  Moderating Factors in the Relationship between

Financial Reporting Quality and Financial Performance    29

Chapter Three: Research Method and Design             33

3.1    Introduction                                                                           33

3.2    Research design                                                                     33

3.3    Description of the Population of the Study                          33

3.4    Sample Size                                                                            34

3.5    Sampling Techniques                                                            34

3.6    Sources of Data Collection                                                    34

3.7    Method of Data Presentation                                                35

3.8    Method of Data Analysis                                                       35

Chapter Four: Data Presentation, Analysis and Interpretation                                                            37

4.1    Introduction                                                                           37

4.2    Presentation of Data                                                              37

4.3    Data Analysis                                                                         37

4.4    Hypothesis Testing                                                                 47               Chapter Five: Summary of Findings, Conclusion

and Recommendations                                                 55

5.1    Introduction                                                                           55

5.2    Summary of Findings                                                            55

5.3    Conclusion                                                                             56

5.4    Recommendations                                                                 57

References                                                                     59

Appendices                                                                              61


CHAPTER ONE

INTRODUCTION

1.1   Background to the Study

The quality of financial statements is not an indicator that can be easily quantified, as it cannot be observed directly, being based on the perception of the users of financial information. Each category of users has its own expectations and perceptions regarding what information is useful and of good quality.

Recent studies in the field of economics and accounting are analyzing more and more the term of financial accounting quality. One of the main objectives of the large number of papers upon this subject consists of finding an appropriate measure for it. That is why, it is important to understand what financial accounting quality represents and how it can be explained and quantified.

Due to the markets and business globalization, geographical expansion and the greater demand for information and transparency among investors, stakeholders and society in general, market agents find their toehold in the quality of their financial reporting and their main source of knowledge on company strategy.

According to Jonas and Blanchet (2010), financial reporting is not only a final output; the quality of this process depends on the influence and category of the report, including disclosure of the company’s transactions, information about the selection and application of accounting policies and knowledge of the judgments made. Financial information issued by a company has become an essential resource for any market participant, since it provides a reduced amount of information asymmetries between managers, investors, regulatory agencies, society and other stakeholders. Therefore, one of the main questions that arises about the quality of financial reporting is its effect on subsequent performance of a company, i.e. how the market values this higher perceived quality.

According to previous evidence, those companies with better quality of financial information are associated with subsequent higher performance, due to the fact that the market positively assesses those companies which are more committed to the issuance of good information for shareholders and other stakeholders, aiming to reduce or avoid information asymmetries between market participants (Ahmed & Duellmand, 2011). Furthermore, the manager’s decision and his discretional behaviour have an influence on corporate performance through the strategic management process. Thus, it is necessary to know the manager’s actions, decisions and behaviour, corporate strategy and accounting policies among others, to highlight and determine the causes of firm’s company performance.

1.2   Statement of Problem

The study analyzes the impact of financial accounting quality on the corporate performance of business organization using Nigerian Brewery Industry as the case study. Financial reporting quality has been on a decline place in corporate management of business organizations in Nigeria. Another problem is the level of corruption perception in the country of origin moderates and the effect of financial reporting quality on corporate performance.

1.3   Research Questions

The following are the research questions;

i.      How does the adoption of IFRS by the organization moderates the effect of financial reporting quality?

ii.     How effective is the accounting system of the organization on financial reporting quality?

iii.    How does corruption perception in the organization moderate the effect of financial reporting quality?

1.4   Objective of the Study

The broad objective of this study is to examine the impact of financial accounting quality on the corporate performance of business organization. However, the following are the sub-objectives;

i.      To ascertain if the adoption of IFRS by the organization moderates the effect of financial reporting quality.

ii.     To determine how the accounting system of the organization moderates the effect of financial reporting quality.

iii.    To examine the level of corruption perception in the organization and how it moderate the effect of financial reporting quality.

1.5   Statement of Hypotheses

Hypothesis One

The adoption of IFRS by the organization does not moderate the effect of financial reporting quality.

Hypothesis Two

The accounting system of the organization does not moderate the effect of financial reporting quality.

Hypothesis Three

The level of corruption perception in the organization does not moderate the effect of financial reporting quality on corporate performance.

1.6   Significance of the Study

        Shareholders/Business Financers: As a result of the separation stakeholders influence from maximum control in modern organization, a practices of financial accounting quality is implemented on behalf of shareholders to reduced agency cost and information asymmetry.

        The General Public: The researcher is beneficial to members of the public by providing them with accurate understanding of the meaning, purpose and impact of financial accounting quality on corporate performance as it may deemed fit and how it affect firms in particular and the entire economy.

        Users of financial statements: Users of financial statements can get further insight about financial strength and weakness of a company if they properly analyze information reported in these statements. Therefore, financial analysis is the process of identifying financial strength establishing relationship between the items in the statement of position and statement of comprehensive income.

        Future Researchers: This study will be of great use to intending researchers in this aspect of accounting. From this, one can affirm that this work when completed will be of immense use to various parties within the business and academic setting.  


1.7   Scope of the Study

This study examines the impact of financial accounting quality on the corporate performance of business organization using Nigerian Brewery Industry as the case study. Benin City of Edo State was majorly focused on and this study covered a time frame of 5 years (2011 – 2015) and it adopted a sample size of 23 for effective survey.   

1.8   Limitations of the Study

In the course of this study, some problems were encountered.

Firstly, the study was carried out amidst a tight academic schedule; thus, frequent interruption with lectures, test and private reading was not uncommon.

Secondly, financial means was a major setback. The researcher’s financial means was grossly inadequate as a result; the compass of the researcher’s movement and the study was circumscribed. It was difficult to obtain some information as they were deemed to be confidential by the companies visited.

Insufficient books in the library also limited the effort of the researcher in carrying out an in-depth research on the project work.

In the face of the above limitations, it was virtually impossible to carryout an in-depth study. However, every attempt possible has been to capture the main purpose and the objectivity of the study.

 

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