Corporate Governance and Classification Shifting: Empirical Study of Quoted Manufacturing firms in Nigeria

Abstract

Reported high profile accounting scandals involving such entities as Xerox, Enron, WorldCom, Adelphia, Tyco, Parmalat, One-Tel, HIH, and Cadbury Nigeria Plc, have been a source of serious concerns about corporate governance practices in general and attentions have been directed at quality of financial reporting of corporate entities. This study assessed the nexus between corporate governance and classification shifting of quoted manufacturing firms in Nigeria for a ten-year period covering from 2010-2019. Board Composition, Board Independence and Institutional Ownership were used to proxy Corporate Governance, while the dependent variable; Classification Shifting was measured by Unexpected Core Earnings. In line with the objectives of the study, three hypotheses were formulated. Ex-Post facto research design was employed.  Seventeen (17) quoted manufacturing firms constituted the sample size of this study. Secondary data were extracted from the annual reports and accounts of the sampled firms and were analysed using E-Views 10.0 statistical software. The study employed descriptive statistics and inferential statistics using Pearson correlation and Panel Least Square (PLS) regression analysis. Findings from the empirical analysis showed that there is a significant negative relationship between Board Composition, Board Independence, Institutional Ownership and Unexpected Core Earnings at 5% level of significance. It was recommended inter alia that there should be an efficient monitoring and disciplining mechanism that aligns the interest between managers and shareholders. This reduces potential conflict of interest between shareholders and its manager and the ability of managers to manage earnings is curtailed.

Keywords:     Corporate governance, Classification Shifting, Board Composition, Board Independence, Institutional Ownership