IMPACT OF INTERNET COMMUNICATION TECHNOLOGY (ICT) ON THE ACCOUNTING PROFESSION IN NIGERIA. A STUDY OF THE INSTITUTION OF CHARTERED ACCOUNTANTS OF NIGERIA (ICAN

CHAPTER ONE

INTRODUCTION

 

 

1.1 BACKGROUND OF STUDY

Accounting is the process of identifying, classifying and recording, and presentation of financial economic activities of an entity with the aim of facilitating decision making by the users of the information Fidelis (2013). This process is usually done manually with the use of separate ledgers to record financial transactions. It involves the use of paper, books and pen to record and prepare financial statements and manual calculations. This task is tedious and time consuming and can therefore lead to several human errors. This occurrence might be minimal in small entities such as sole proprietorship. Kwanchukwu (2004). However, in big entities such as a public limited liability company, these errors can occur more often without possibility of being detected which can affect the entity on the long run.

There is no doubt that the manual system of accounting is cheaper than the automated accounting system which is one of the reasons why small businesses still use it. But as a business grows, there is the need for a shift from manual accounting system of financial transactions to automated processes i.e. Information and Communication Technology especially in today’s generation where most transactions are performed with the use of electronic gadgets such as Computers, Computer software and the internet Onaolapo et al. (2012). The Accountant only needs to enter the transactions into the software which simply performs computations and presentation thereby relieving the accountant of such task. Any company with large size seeking to be efficient and effective in it financial operations would need to adopt an automated system of accounting. For a company to attain efficiency and effectiveness, it would require capacity to process accurate and timely information, hence, the need for Information and Communication Technology.

Information and Communication Technology (ICT) is often used as an extended synonym for information technology (IT), but is a more specific term that stresses the role of unified communications and the integration of telecommunications (telephones lines and wireless signals), computers as well as necessary enterprise software, middleware, storage, and audio-visual systems, which enables users to access, store, transmit and manipulate information. ICT is an umbrella term that includes any communication device or application, encompassing; radio, television, cellular phones, computer and network hardware and software. Jordan (1999)

Information technology has been around for a long time as long as people have been around because there were always ways of communicating through technology available at a point in time. There are four (4) main ages that divide up the history of information technology These ages include; pre-mechanical, mechanical, electromechanical and electronic only the latest age i.e. electronic and some of the electromechanical age really affects us today. Yusuf, M.O. (2005).

In the recent past, before the inception of ICT, accountants of an organization were using a socially acceptable behavioral method of reporting accounting and economic reports, carried out during accounting year ends Kwanchukwu (2004). Accounts prepared include statement of account, statement of financial position, cash book, and statement of cash flow. The ICT, on accounting practice in Nigeria has become a subject of fundamental importance and concerns to all business enterprise and is gradually becoming a prerequisite for local and international competitiveness. It is obvious that the way accountants plan and take decision on what and how to provide their service in the accounting profession has been affected immensely by Information and Communication Technology (ICT). This has continued to change the manner in which accounting practice and their corporate relationships are organized worldwide and the variety of innovative device available to improve and facilitate the speed and quality service delivery. A major ICT has been made on accounting is the ability of companies to develop and use computerized system to track and record financial transactions properly and accurately. The recording of business transaction manually on ledgers, papers, spread sheets etc has been translated and computerized for quick and easy presentation of individual financial transaction and give report on it. (Granlund & Mouritsen, 2003).Shanker(2008)ascertains that the use of ICT in many organization has assisted in reducing transactional cost, overcome the constraints of distance and have cut across geographic boundaries thereby assisting to improve coordination of activities within organizational boundaries. It is very clear that, the computerized accounting system have improved the functionality of accounting departments by increasing the timeliness of accounting information and report preparation of statement of cash flow, market shares report and departmental profit & loss are now more accessible with computerized system.

Computerized accounting systems have internal check and balance measure to ensure that all transactions and accounts are properly balanced before the financial statement is finally prepared. It also will not allow journal entries to be out of balance when posting, ensuring that individual transactions are properly recorded.

Since the inception of information and communication technology (ICT), accountants can now process large amount of financial information and process it quickly through computerized accounting system. Quicker processing time for individual transactions has also lessened the amount of time needed to choose out each accounting period. Transactions that would have taken an accountant months or years to prepare are done quickly and faster and thereby cutting high cost that would have resulted in preparing the reports (Pricewaterhousecoopers, June 2008).This study therefore seeks to examine the impact of Information and Communication Technology in Nigeria a study of The Institute of Chartered Accountants of Nigeria (ICAN)  . This study focused on the overall performance of accounting  and how the adoption of Information and Communication Technology impacts on their daily operations.

1.2 STATEMENT OF PROBLEM

Accountant’s worth is now reflected in higher order critical-thinking skills, such as designing, business processes, developing e-business, model in providing independent assurance and integrating strategic knowledge. Hence, most companies have derived a way of recording and reporting transactions. ICAN are expected to take advantage of  ICT to automate existing processes for conducting business in new and innovative ways. Growth within management accounting and information system is becoming prominent with the advent of ICT. Enterprise Resource Planning(ERP)system, Software and ancillary equipment such as Automated Teller Machine(ATM), Debitcards, Electronic commerce, Computer hardware, Database, Internet, Intranet, Telecommunication, Oracle, Peachtress, Accounting software and Statistical Package of Social Sciences etc. are related products emanating from ICT. Ogbu (2011)

This study seeks to evaluate the degree of ICT adoption by ICAN in the preparation and presentation of financial reported accounts. To what extent are ICAN members literate with the use of ICT? How relevant is ICT to ICAN?

1.3 OBJECTIVES OF STUDY

The main objective of the study is to examine Impact Of Internet Communication Technology (ICT) A Study Of  ICAN ,Nigeria

The specific objectives of the study are to:

Assess the impact of ICT on financial transaction report of  ICAN

Examine the effect of ICT implementation on the financial performance of ICAN

Evaluate the challenges associated with integration of  ICT in accounting profession.

Analyze the importance of ICT in training requirement of an accountant.

1.4 RESEARCH QUESTIONS

For the purpose of this study, the following questions have been put forth in line with the of research objectives;

To what extent has ICT impacted on the transaction report of ICAN?

What are the challenges associated with adoption of ICT in ICAN?

How has ICT improve the financial performance of  ICAN?

What are the importance of ICT in training requirement of accountants?

1.5 RESEARCH HYPOTHESES

The following null hypotheses are formulated to  guide the study:

Hypothesis One:

H0; ICT has no significant impact on transaction report of ICAN

Hypothesis Two:

H0; ICT has no significant impact on improved financial performance of ICAN

Hypothesis Three:

H0; There are no challenges associated with integration of ICT into accounting profession in ICAN

Hypothesis Four:

H0; ICT has no importance in training requirement of accountant

1.6 SIGNIFICANCE OF THE STUDY

The efficiency of accounting practice and the factors that affect the use of ICT covers a wide aspect; ranging from the profession, statutory and a host of several other factors but this work is restricted to cover the impact within accounting practice and profession. The level of ICT investment by companies obtained will help our result to focuses  on financial statement.

This study also serves as a guide for further research work in the impact of ICT on business and finance. Findings from the study will also prove useful to students in the field of accounting.

1.7 SCOPE OF THE STUDY

The scope of this study is to evaluate the impact of ICT on accounting profession in Nigeria. The research work adopts ICAN as a study area.

1.8 ORGANIZATION OF THE STUDY.

CHAPTER ONE; This chapter comprises of the background of the study, statement of the problem, objectives of the study, research questions, research hypothesis, significance of the study, scope of the study, organization of the study and definition of terms.

CHAPTER TWO; critically review related literature, conceptual clarification and theoretical framework relevant to the research study.

 

CHAPTER THREE; Examined the research methodology. It presents the research design, the population, the sample size, the nature and source of data, the method of data collection, the techniques of data analysis, the decision rule and the summary.

 

CHAPTER FOUR; Discussed data analysis which includes; data presentation, test of hypothesis and the results of findings.

CHAPTER FIVE; this chapter gives the summary of findings and conclusion from the research work. Recommendations, limitations of the study and suggestion for further research are also presented.

 

1.9 DEFINITION OF TERMS

a.Information and Communication Technology(ICT):This to the automated means of originating, processing, storing and communicating information and includes recording device, communication system, computer system( including hardware and software component and data)and other electronic devices(AIC PA 2006a, AU319.02).

 

b.Accounting information system (AIS): Is a system of collection, storage and processing of financial and accounting data that is used by decision makers.

 

c.Enterprise Resource Planning (ERP): Is an integrated information system that serves all departments within an enterprise.

 

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Jul 22

Fraud In The Nigerian Banking Systems, Problems And Prospects

ABSTRACT

 

This project, “fraud in the Nigeria Banking Systems problem and prospect a case study of First Banking of Nigeria plc Abakaliki and Oceanic Bank Plc Abakaliki branches”, was carried out to examine the various types of fraud as well as the causes and sources. It was also meant to explore significant effects of fraud on banks. Finally, the study was equally embarked upon to proffer possible remedies, detection measures, prevention and control of the subject matter in the Nigeria Banking system. Data was collected through the questionnaire (Primary) and interviews as secondary data thus serving the inductive research method. Statistical analysis techniques such as the chi-square distribution test- analysis techniques and percentages were adopted to analyze the data collected after which several findings were made, which included: the desire to get rich quick  accounts greatly for persistent bank fraud and that the internal control system in the Nigerian banks is weak and ineffective .After which it was concluded that, the money laundering (prohibition) Act is the best strategy to combating fraud in the banking industry.

CHAPTER ONE

1.1                 BACKGROUND OF THE STUDY

                        The entire world has become increasingly aware of the destructive effect of a lack of accountability and transparency in both public and private life. This awareness is so pervasive throughout the world that governments, business organizations and non- governmental organizations alike are involved in crusades to promote accountability and transparency and prevent corrupt practices in all its ramifications. These crusades have gathered so much steam that international award for the “Most corrupt” and least corrupt country” in the world now exist. It is very unfortunate, and a national embarrassment that our father land which we hope to give to our children as a legacy has repeatedly won the former rather than the later price.

The fraudulence for which our nation was given a price is not located in the sky over our land; it is the aggregation and multiplication of little acts of fraudulence in our interactions with one another (Ezeogu 2007:10).

The dark days of  tyranny, military rule and social enslavement were  thought to be the period in which corruption festered in Nigeria and fraud became common place, but have you ever thought of the role some fraud stars played in the inability of some commercial banks to meet their obligations to its customers, owners, stake holder and the economy?

Has it ever occurred to you to search out how a sizable proportion of financial institutions had liabilities exceeding the market value of their asset, which may lead to ruins and other portfolio shifts and eventually, collapse of the financial system?

Society has long adopted to plunder the noble Nigerian identity and from military to civilian regimes, pubic office holders had followed strictly the unwritten constitution to live up to societal expectations. Values were waded off in exchange for graft and pecuniary benefits, millions were defrauded of their rights to good education, basic health, good roads and electricity, housing has become the preserve of the rich and professionals have lost chunk of their respectability.

The entire world has become increasingly aware of the destructive effect of a lack of accountability and transparency in both public and private life. This awareness is so pervasive throughout the world that governments, business organizations alike are involved in crusades to promote accountability and transparency and prevent corrupt practices in all its ramifications.

Fraud and errors are occurrences and like winds, they blow no good to any firm, industry, association, business organization and government. Instead they bring regrets, reduced patronage, losses, distress and failure to such business and organizations as mentioned above.

It is not also interesting to know that like the ‘canker worm’, they have eaten deep into the fabrics of the Nigerian financial institutions especially the banks.

It is not uncommon to day to hear of fraudulent acts like uninsured deposits, theft of identity, forged or fraudulent documents, wire fraud, cover of losses by rogue traders, demand draft fraud, and payment card fraud, cheque kitting, management fraud, Automated teller machine fraud etcetera in our banks.

Ojaide (2000:18) posits, “Frauds are acts of dishonesty, deceit, falsifications and manipulations perpetuated to gain undue monetary and non- monetary benefits”. He further states that accounting, fraud and fraudulent practices are illegal acts involving misappropriation of assets (cash, stocks, book debts, fixed assets) manipulation and falsification of accounting books and records etcetera. In his opinion, the get rich quick attitude of many Nigerians, greed, poverty and the falling standard of living are some of the reasons for the increase in the rate of fraud and fraudulent practices in Nigeria.

Although, frauds, errors and forgeries in banks are global phenomena, their growth Nigeria have been astounding. Bank frauds and errors in general inflict untold hardship on bank owners, staff, customers and their family members, as most bank failures are always associated with larger scale frauds.

Frauds and errors and their effects on banks in Nigeria today created room for doubt on the reliability of financial record and reports kept by management except perhaps on the very small scale business. The financial report user is not in a position to process and produce financial accounting information personally, nor has he the day to day knowledge of company affairs with which he can use as a base for his judgment.

Modern day banking in Nigeria can be traced to the period 1892 when the first commercial bank- African Banking corporation- was established. The bank was the first to open its branch in lagos. The founder was mess’s Elder Dempster and Co; a shipping firm based in Liverpool.

On account of difficulties experienced in the area of management, the bank decided   to transfer its interest to Elder Dempster and Co. in 1893. In response to the changes through management restructuring, the bank metamorphosed to form a new bank known as the British Bank of West Africa (BBWA) in 1894, with an initial capital of £10,000. Okoro S. A (2001:17) affirms that: “The Bank of British West Africa was the first surviving bank in Nigeria and registered in London a limited liability company in March 1894 with first Lagos branch being opened the same year.

Following the establishment of this Lagos Branch, other branches sprang up in other countries of West Africa like Ghana, free town to mention but a few. The BBWA later opened its second Nigerian branch in old calabar in 1900 that is, six years later. During this period of dynamism, there was complete absence of legislations governing the banking operations in Nigeria. This culminated in the banking distress experienced in the 1930s. At least about 21 banks failure were recorded between 1930 and 1952. In reaction to this ugly development that was ravaging the banking, the then colonial government set up a commission of enquiry under sir, patron to investigate the cause and proffer remedies/solutions. Consequent upon their report, the first banking legislation was passed in 1952. At this time foreign dominance of the industrial sector was intense even till after independence. This made the government to launch the indigenization policy in 1972 which conferred on the Nigerian Government 40% equity share in all companies registered in Nigeria. As a result of this enterprise promotion decree (i.e. indigenization decree), the federal government acquired huge equity share in the BBWA. Similarly following the decree demand, the BBWA changed its name to First Bank of Nigeria limited in 1973.

Oceanic Bank Plc is one Nigerians foremost financial services institution. The Bank was incorporated on March 26 1990 under the Companies and Allied Matters Act (CAMA) 1990 of Nigeria as a private limited liability company and was granted a commercial banking license on April 10 1990. It commenced business on June 12, 1990.

Fourteen years later, on June 4 2004, oceanic Bank converted to a public liability company. Its shares were listed on the Nigeria’s stock exchange on June 25, 2004. Over the years, Oceanic Bank has built its success on excellent service, delivered in a friendly environment through professional staff, leveraging on world class technology.

Today oceanic Bank services customers spread across tiers of Government, corporate organizations small and medium enterprises and individuals. The Bank’s commitment to value creation for all its stakeholders has earned it a solid reputation as a responsible corporate citizen and employer of choice.

Recently (in 2010), the Central Bank of Nigeria rescued some nine banks referred to as “troubled banks” who had been hit by bank and security fraud to the tune of N620 billion ($ 4.1 billion).

Commercial banks occupy an indispensable position in the Nigerian Economy. They are the pivot upon which other business firms and activities revolve and a “circuit Pipe’’ through which all financial transaction pass. Given the current travails of banking sub- sector the need to plug all areas of wastages, more than ever before, becomes compelling.

No where is fraud more serious than in banking, it is the biggest single cause of bank failure (Nwankwo 1991: 162).

‘‘One of the best ways of combating fraud is to mount an aggressive enlightenment campaign on the dangers posed by fraud to the economy and the banking industry, in particular”.

This research work is therefore done/carried out to give an in-depth and unique evaluation of the current state of fraudulent practices in the commercial banks in Nigeria with special reference to First Bank plc and Oceanic Bank plc, Abakaliki Branch offices. Hence, in this project work, the researchers’ attempt is geared towards drawing reader’s attention to the menace in the industry with a view to assisting bankers/customers in tackling the dreaded monster in their day to day transactions.

 

1.2                 STATEMENT OF PROBLEM

                        The threat posed by the existence of fraud and errors are of great concern to shareholders, bank customers, the pubic and private investors,  creditors, government agencies and the entire citizenry.

The   inability of a bank to meet its obligations to its customers, owners, stalk holders and the economy occasioned by felt weakness in its operations which has rendered it either illiquid or insolvent have been ascribed by many to fraud.

Some argue that the rate of financial impropriety in the Nigerian financial system is so alarming and is evidenced or caused by poor, weak and inefficient accounting system. Others say that so many banks are inadequately computerized and that this has prevented the management from detecting fraud early enough.

More so, as the ultimate motive of most business are to maximize profit, but financial embezzlement, capital    flight, and other fraudulent practices result in low profit which in turn could lead to bank distresses.

Equally, non compliance to with the existing laws and legislations like Banks and Other Financial Institutions Decree(BOFID), money laundering(prohibition) Act, to mention but a few makes crime detection cumbersome for the Nigerian commercial Banks. It is on these aforementioned problems that this research study is built. The researcher will delve deeply into these matters to enable him establish a link between fraud and commercial bank performance in Nigeria.

 

1.3                 OBJECTIVE OF STUDY

                        The study will investigate and identify the root causes and the effects of fraud on banks operation with a focus on the oceanic Bank Plc and first Bank of Nigeria Plc Abakaliki Branches. The following objectives will guide this research.

  1. To identify the causes of fraud in the Nigerian banking system.
  2. To examine the concept, ‘fraud’, bringing out its various types.
  3. To find out the reasons people indulge in fraudulent practices in Banks and other financial institutions.
  4. To determine the dangers or consequences of bank fraud.
  5. To identify the existing laws relating to banking and the legal process for prosecuting fraudsters in banks

 

1.4                 RESEARCH QUESTIONS

                        The following research questions, which the study will attempt to answer, have been asked:

What are the causes of fraud in our banks?

To what extent has the management been able to detect fraud and fraudsters?

Why do people indulge in bank fraud?

What are the dangers of fraudulent acts in banks?

Are there laws and legislation put in place by the government on bank fraud?

1.5                 RESEARCH HYPOTHESIS

                        In carrying out this research, the following hypotheses have been formulated.

HYPOTHESIS 1

Ho:                 The desire to get rich quick does not account for persistent bank fraud.

H1:                 the desire to get rich quick accounts for persistent bank fraud

HYPOTHESIS 2

Ho:                 Anti-money laundering law is not the best strategy to combating fraud in the banking industry.

H1:                 Anti-money laundering law is the best strategy to combating fraud in the banking industry.

HYPOTHESIS 3

Ho:                 The internal control system in the Nigerian banks is not weak and in effective

H1:                 The internal control system in the Nigerian banks is weak and in effective

 

1.6                 SIGNIFICACNE OF THE STUDY

                        Everyone needs information so as to be empowered. These include, the financial system participants, owners of banks and other institutions and the general public. At the completion of this research, which is carried out, as a partial fulfillment of the award of Master of Business Administration (MBA) degree in accountancy, the study is significant in the following ways and to the following persons as enumerated below.

It is to enable the student/researcher, bank customers and staff including management to have a thorough idea of fraud.

To empower private and public investors of commercial banks, other banks and the financial institution in general.

To help students and other researchers get information on their study for the award of various degrees.

To increase the volume of literature in the various library for library users.

To help the banks solve of their fraud related problem, if they will have time to read the recommendations made in this study.

To help the participants and operators- the Central Bank, commercial Banks, Securities  and Exchange Commission (SEC), the Stock Exchange etcetera access their performance and the efficiency of their banks and then develop polices that will benefit the generality of the  people.

To increase the reliance of the share holders on the best strategy of combating fraud, that would be recommended in this research.

To stare up research students into carrying out further research studies on areas not covered by the study.

 

1.7                 SCOPE OF THE STUDY  

                        The study concentrates on Banks as part of the financial institutions and more specifically, on banks within the Ebonyi state capital Abakaliki from the period of inception till date (2010/2011); the banks being first bank of Nigeria plc.

-Oceanic Bank plc

The choices were made, from a sample of fourteen Banks within the state capital. They are, First Bank of Nigeria Plc, standard Trust Bank Plc, Union Bank Plc, Hallmark Bank plc, Diamond Bank Plc, platinum Habib Bank, Plc, Guarantee Trust Bank plc, Zenith Bank plc, Afex Bank Plc, Guidance express bank plc, oceanic Bank plc, intercontinental Bank Plc, First inland Bank plc.

 

1.8                 LIMITATIONS OF THE STUDY

                        The limitations of this research includes, the reluctances of the staff of the banks met to release the information needed for this study which was partly due to their busy schedules and the quest to protect their good will.

Also, the research is limited to the publications of institutions like the CBN, ICAN, the Banks involved, and the Acts in use, text books, and Browsed materials from the internet and of course my lecture notes.

Equally, another limitation is the lack of sufficient fund (money), which relatively affected the mobility of the researcher, the frequency of interviews discussions, the acquisition of the materials used and the general delay in the time used to carry out this study.

More so, since the research was carried out within the academic session, the availability of time was another limitation to this study. This was made much complex by the tight academic calendar and schedule of the researcher, who had to also, meet up with his numerous courses within the same session.

 

 

1.9                 DEFINITIONS OF TERMS 

                        The following terms as operational in this study are hereby defined.

(I)                    COMMERCIAL BANKS: They are banks that function to accept deposit from their customers; provide credit facilities like overdrafts loan and other advances, cheque transactions, provide agency services, foreign exchange transactions, investment and portfolio management, consultancy, save-keeping of assets and other services.

(ii)                  INDIGENOUS BANKS: These are banks owned and controlled by either the government or the private citizen’s or both.

(iii)                 NEW GENERATION BANKS: These are banks established in the after math of Nigerian independence following the government deregulation and liberalization of the financial sector in 1986.

(iv)                 BANK CUSTOMERS: In this study, bank customers refer to any one who either keeps or maintains an account with the bank or has any other thing to do with the bank that makes him/her stay within the bank premises during hours of operation.

(v)                   BANK DISTRESS: This is the inability of a bank to meet its obligations to its customers, owners, stalk holders and the economy, occasioned by felt weakness in its operation which has rendered it either illiquid or insolvent.

(vi)                 Money laundering: Simply defined; money laundering implies hiding, moving and investing the proceeds of criminal conduct/activities, in series of multiple transactions used to deceive government authorities as to the origin, existence and application of illicit /illegal sources of income  and the eventual processing of such income to give it a  tog of legitimacy

(vii)                EXPATRIATE BANK: This is banks owned and controlled by foreign investors with profit maximization as their major objectives.

(viii)              BANK LEGISLATIONS: these are rules, customs, conventions or regulations of the bank for observance by its members.

  • FINANCIAL SYSTEM: A financial system is a composition of various institutions, markets, instruments and operators, collectives segregated into, primary system participants, financial intermediaries, financial markets, financial instruments and financial system regulators; that interact within an economy to provide financial services.

 

INTERNAL CONTROL

Control is not only internal check and internal audit but the whole system of controls, financial and otherwise, established by the management in order  to carry on the business of the bank in an orderly manner, safeguard its assets and  secure as far as possible the accuracy and reliability of its records.

BANK TELLER

Bank Teller is an employee of the banks studied who deal directly with most customers. In some places, this employee is known as cashier.

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Jun 15

EVALUATING CORPORATE GROWTH AND SURVIVAL THROUGH MERGERS AND ACQUISITIONS

EVALUATING CORPORATE GROWTH AND SURVIVAL THROUGH MERGERS AND ACQUISITIONS. (A STUDY OF SOME SELECTED BANKS IN NIGERIA).

ABSTRACT

This study ascertains the influence of merger and acquisition as a growth and survival strategy. The crisis facing so many corporate firms as a result of capital inadequacy has led to the collapsing of so many firms. As a result, it is the objectives of this study to evaluate the impact of merger and acquisition on growth and survival of corporate firms using banks as study, to ascertain whether the banks have grown and survived as result of merger and acquisition.  A survey research method was applied. Data were collected through primary and secondary sources. The population samples were drawn from two groups i.e. Access Bank and First City Monument Bank.  A judgmental sampling technique in which 45 and 50 of each samples were selected was adopted for convenience sake. Data were analyzed using “Z” test as an inferential statistics for testing of differences in perception of participants on merger and acquisition as a means of growth and survival and improving its earning per share. Ratios of the banks used for study were employed for evaluation purposes. A regression analysis was adopted to express the quantitative relationship among variables i.e. Return on Capital Employed (ROCE) and Earning per Share (EPS), used in this study -the financial ratios for pre-merger and post-merger. The result obtained after the analysis showed that merger and acquisition act as a means for growth and survival and improvement of earning per share of the banks. Based on this, the study recommends that firms should re-train and re-educate its employees on the new company’s culture so as to ensure a smooth transition and improved processes

CHAPTER ONE

INTRODUCTION

  • Background of Study

Growth is necessary to determine the performance and continuity of any business organization. Without growth, a business can hardly survive and attract funds from shareholders.

The use of merger and acquisition as a growth and survival strategy in an economy like Nigeria appears to be on the increase in recent times. This is not surprising, considering the large number of business failures as result of adverse micro and macro economic climate (Igweike, 2008).

In the face of such hostile business climate, however, some business organization that belongs to the “wise group’’ started thinking of how to pull their resource together by the way of merger and acquisition as a survival cum growth strategy.

Business merger and acquisition has played an important role in the growth and survival of many firms in Europe, USA, and Nigeria. Firms are less likely to grow through mergers and acquisitions when stocks are booming (Beckenstein, 1979).

Aggregate financial market conditions do not impact on the nature of merger or acquisition. The relation between GDP growth and growth of firms through mergers and acquisitions is positive when firms seek immediate increases in production capacity in a growing economy. The desire for firm to grow through a merger or an acquisition might in turn be tempered by bad business conditions. In overall the empirical evidence between GDP growth and growth of firms through mergers and acquisitions is limited and mixed (Beckenstein, 1979). Industry variables are operationalized by assessing concentration and sales growth in the industry. According to Luypaert (2008), in highly concentrated industries, firms tend to recognize the impact of their policies and actions on one another. This could influence reactions to changes in competitive behavior like quantity restrictions, tacit collusion and horizontal mergers and acquisitions to increase the concentration within an industry which may help firms to realize market power. Thus, a positive relation between industry concentration and external growth may arise particularly in related mergers and acquisitions. Conversely, when the industry is already highly concentrated, it could have a lower incidence of mergers and acquisitions as there is less room left for further consolidation. Also, antitrust authorities may closely scrutinize newly planned deals when industries are already highly concentrated.  Large and profitable firms often have or can better access financial resources that are needed to acquire other firms. Moreover large firms are expected to engage more in diversifying mergers and acquisitions as there may be few opportunities left for growth in their own industry ceteris paribus. These financial resources can also create value when used to acquire a financially constrained target firm thus a positive relation between profitability, firm size and merger and acquisition (Gaughan, 2002).

 

  • Statement of Problem

In height of the confusion and tumults of the modern business environment globally, some firms have folded up while others only managed to keep afloat. It is but interesting to observe that in the midst of such unfavorable business environment, some enterprises do not merely survive but post super profit. The logical question is what factors could account for the divergent fortunes of some firm of identical size and status in the same industry and operating in the same economy?

Merger and acquisition has become one of the fashionable surviving strategy for many companies.

It is therefore, the intention of the study to investigate the effect of merger and acquisition on the performance of some selected banks in Nigeria.

Further more the study will also seek to establish any possible relationship as otherwise between profitability of a company or increase in its earning per share and its merger and or acquisition scheme.

At this junction, it may be pertinent to acknowledge the view of some experts that many business fusion and acquisition had often resulted in disappointment, as the profit level of the business organization went down. Should this be, the organization wishing to diversify or expand its operation would be compelled to seek out any ailing firm with suitable production plant and technology as well as good distribution network.

 

 

 

 

 

 

 

 

 

 

 

 

  • Objectives Of Study

The study is a deliberate effort to evaluate merger and acquisition as a strategy of survival and growth. The objectives of the study include:

  1. To appraise the financial position of the banks before and after the mergers and acquisitions.
  2. To know whether these banks selected has grown and survived through mergers and acquisitions.
  • To find out whether the profitability of these banks has grown as a result of the merger and acquisition.

 

  • Statement Of Hypothesis

The hypotheses formulated for this study are:

  • Ho: Corporate firms have not grown and survived through mergers and acquisitions.

Hi:    Corporate firms have grown and survived                                through mergers and acquisitions.

  • Ho: The earning per share of the banks has not            improved since the mergers and

Hi:    The earning per share of the banks has improved since the mergers and acquisitions.

 

  • Scope and Limitation of Study

This study evaluates corporate growth and survival through mergers and acquisition with special reference to Access bank and First City Monument Bank. The study will not cover the entire banks that were merged and acquired, due to time constraint and finances. Time constraint poses a problem since it will be an uphill task to visit all the banks that were merged since they are dispersed all over the country. Finance; due to lack funds the researcher may not be able to visit all the branches of the banks selected for study. Thus, the materials required for the study may not be easily collected.  Hence the researcher will base her conclusion(s) on the findings from the two banks selected for the study.

 

 

 

  • Significance of Study

With the recent increase in the incidence of investigation and bankruptcy of corporate firms together with dwindling economic situation of the country, there is need for the examination of the effect of business merger and acquisition in the performance of Nigeria business organization. It is however believed that with the study of the companies that are involved with the strategy of merger and acquisition as a means of survival, one would be able to assess the profitability and viability of the strategy being widely adopted in the Nigeria business environment as a survival cum growth strategy.

  • Investors: This study will benefit the investor with regards to assessing the financial position of the firm.
  • Management: Results obtained will help management to assess the effect of merger and acquisition on the performance of the company.
  • Researcher: This study will serve as a secondary source of data for research purposes.

It is in the light of the foregoing that the subject of this study is considered very significant.

 

1.7   Definition of Terms

Merger: A merger is a process where two previously autonomous companies combine to form a larger company under the common control of a new company comprising of all or a substantial number of the shareholders of both companies. As a result of this arrangement a new company is thereby formed.

Acquisition: An acquisition may be defined as transactions or a series of transactions, where a person (individual, group of individuals, or company) acquires control over the assets of a company either directly or indirectly by obtaining control of the management of such a company.

Growth: This is the process of increasing or developing in size.

Survival: This is the state of continuing to live or to exist.

Corporate Firm: This means a business organization of people who work as a team towards achieving an objective.

Conglomerate: This is when two firms in completely different industries merge, such as a brewing company merging with a high technology company. For example, Nigerian Brewery (NBL) has diversified its businesses through mergers and acquisitions, allowing NBL to get into new areas.

Pre-merger: This is the period before the merger arrangement, where the individual companies have separate identities.

Post-merger: This period after merger arrangement has occurred and a new company has been formed.

 

1.8   A Brief History of Access Bank:

Access Bank Plc is a full service commercial bank with headquarters in Nigeria and operations cross Sub-Saharan Africa and the United Kingdom.  It was incorporated in February 1989 as a privately owned financial institution and commenced banking operations in May 1989.  It was listed on the Nigerian Stock Exchange in 1998. The Bank’s Over the Counter (OTC) Global Depository Receipts (GDRs) are traded on the London Stock Exchange.

In deploying products and services, Access Bank adheres to responsible business practices and readily commits resources to social investments in fulfillment of its corporate social responsibility convictions.  The Bank has more than 1,000,000 investors.  The Bank’s Shareholders’ fund is in excess of US$1.2 billion and its strategic intent is to rank among the top 3 Nigerian banks by 2012. Access bank is a full service commercial bank with a network of over 100 branches and service outlets. In 2005 it acquired Marina and Capital Bank (the former Commercial Bank- Credit Lyonnais Nigeria).

The Bank demonstrates exemplary performance in its financial and non-financial disclosures. Its strengths include a highly diverse Board membership; competent, dynamic and responsible management; strong economic value and good ethical practices and transparent processes.  The list of international organizations that are in partnership with Access Bank Plc includes the Netherlands Development Finance Company (FMO), the International Finance Corporation (IFC), Visa International, US EXIM and China EXIM Bank.  The understanding and commitment of the Bank’s employees, over 850,000 Shareholders, millions of customers and several partners across the world have been critical to Access Bank’s progress and success. The impact of business merger with Intercontinental Bank is multidimensional and have resulted in geometrical growth across key performances.

 

1.9   A Brief History of First City Monument Bank

First City Monument Bank (FCMB) is a full service banking group, headquartered in Lagos, Nigeria.

FCMB is the flagship company of the First City Group, one of Nigeria’s leading comprehensive financial services providers. From its early origins in investment banking as City Securities Limited in 1977, FCMB (established in 1982) has emerged as one of the leading financial services institutions in Nigeria, a top 10 bank with subsidiaries that are market leaders in their respective segments.

FCMB was incorporated as a private limited liability company on 20 April 1982 and granted a banking license on 11 August 1983. On 15 July 2004, the Bank changed its status from a private limited liability company to a public limited liability company and was listed on the Nigerian Stock Exchange by introduction on 21 December 2004. During the consolidation of 2005, the bank merged with Cooperative Development bank Limited, Nigerian -American Bank limited and eventually acquired Midas Bank limited.

The Bank completed the acquisition of Finbank Plc in February 2012. Following the acquisition, the FCMB Group now has 1.7 million customers, 330 branches and cash-centers spread across every state of the Federal Republic of Nigeria and a presence in the United Kingdom (through its FSA-authorized investment banking subsidiary, FCMB UK) and a representative office in the Republic of South Africa

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Jun 15

Effect of Corporate Governance on Firm Financial Performance in Nigeria A Study of Non Financial Performance Companies Registered with Nigerian Stock Exchange NSEs

Effect of Corporate Governance on Firm Financial Performance in Nigeria A Study of Non Financial Performance Companies Registered with Nigerian Stock Exchange NSEs

CHAPTER ONE

1.1       BACKGROUND OF THE STUDY

One feature of Modern Corporation is the separation of ownership from management. Hitherto, the typical business is owned and managed by the same individual or group of persons. Thus a firm was characterized by its numerous owners having no management function, and managers with no equity interest in the firm. Under the new dispensation, however, professional managers who are considered more competent than the owner manager are hired to run and manage the affairs of the company (Wikipedia, 2007). Thus it was important that an appropriate framework be put in place that would guarantee transparency, accountability and fairness in the management of companies (Howard, 2000)

Corporate governance is therefore about ensuring that various mechanisms are in place to guarantee that the goals pursued by managers do not different from that of the owners of the company. Tricker, who conceived the term “corporate governance” back in 1984, made the very clear distinction between management and control in taking the position that: “if management is about running business, governance is about seeing that is run properly”

Corporate governance is concerned with ways in which all parties interested in the well-being of the firm (the stakeholders) attempt to ensure that managers and other insiders take measures or adopt mechanisms that safeguard the interests of the stakeholders. Such measures are necessitated by the separation of ownership from management, an increasingly vital feature of the modern firm.

The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. Therefore, by doing this it also provides the structure through which the company’s objectives are set and the means of attaining those objectives and monitoring performance. This definition is in line with the submissions of, Wolfensohn (1999) Uche (2004) and Akinsulire (2006).

The board of directors is central to the corporate governance mechanism in market economies. The board is one of the most important and possibly beneficial internal mechanisms of corporate control (Manne, 1965; Alchian and Demetz, 1972; Bonnierand Bruner, 1989). The importance of internal control mechanisms has arguably increased following legal and regulatory developments that curtailed activity in the external market for corporate control (Jensen, 1991; Denis and Denis, 1995). The board is viewed as a primary means for shareholders to exercise control over top management, along with external markets for corporate control and institutional and concentrated shareholding.

A change in the composition of a firm’s board can take the form of a new appointment or some form of removal from the board: new appointment, resignation, retirement or death. Each of these changes may or may not be considered significant by the market. Change can also take the form of an increase or decrease in the proportion of outside directors to inside directors.

Effective corporate governance therefore reduces the “control rights” shareholders and creditors confer on managers which increases the probability that managers invest in positive net present value projects.  Thus, the relationship between the board and management, according to Al-Faki (2006), should be characterized by transparency to shareholders, and fairness to other Stakeholders. This will in effect mitigate the agency cost as predicted by Jensen and Meckling (1976) and boost corporate performance.

Furthermore, corporate performance is an important concept that relates to the way and manner in which financial resources available to an organization are judiciously used to achieve the overall corporate objective of an organization, it keeps the organization in business and creates a greater prospect for future opportunities.

Moreover, the financial scandals around the world and the recent collapse of major corporate institutions in the USA, South East, Europe and Nigeria such as Adelphia, Enron, World Com, Commerce Bank and recently XL Holidays, Pollybeck, Xerox, Cadbury, BCCI communication. Most public Nigerian corporations, such as NITEL, NNSL, NEPA, and NRC were either dead or simply drain pipes of public resources to mention but a few which have all been attributed to poor corporate governance was caused by greed, lax oversight of company board members and incompetent national body at noting the issues on time.

A review of the status of corporate governance in Nigeria from the sectorial perspectives- public, financial and real sectors reveals the absence of strong commitment to the tenets of good corporate governance. In view of the importance attached to the institution of effective corporate governance, the Federal Government of Nigeria, through her various agencies came up with various institutional arrangements to protect the investors of their hard earned investment from unscrupulous management and directors of listed firms in Nigeria. These institutional arrangements, produced the “Code of corporate governance best practices” issued in November 2003.

The code proposes that the business of a firm should be managed under the direction of a board of directors at which they delegate to the CEO and other management staff on the day to day management of the affairs of the firm. The best practices of the code also recommend that the board sees to the appointment of a qualified person as the CEO and other management staff. The directors, with their wealth of experience, are expected to provide leadership and direct the affairs of the business with high sense of integrity, commitment to the firm, its business plans and long-term shareholder value. In addition, the board provides other oversight functions. Thus there are other mechanisms of corporate governance which includes; the audit committee, shareholders rights and privileges.

The emergence of mega banks in the post consolidation era prompted the Central Bank of Nigeria to issue a new code of corporate governance which became operative in 2006. In the same vein, the Nigerian Securities and Exchange Commission (SEC), published the revised Code of Corporate Governance in September, 2009 after consultations with other regulatory bodies. The new code was issued to address the weaknesses of the 2003 code and to improve the mechanism for its enforceability.

Internationally, organisations such as UN and OECD have been advocating for levels of corporate behaviour. In UK, corporate governance is dealt with in a “combined code” report which is a combination of series of reports developed by independent committees such as the Cadbury report (1992), Greenbury report (1995), Hampel report (1998), Turnbull report (2002-2003). In USA, the Sarbanes-Oxley Act (2000), have been developed so as to reduce or avoid high scandals in corporations.

According to IFAC report (2008), “companies are mirrors of the societies in which they operate and they influence each other”, therefore all stakeholders responsible for promoting sound corporate governance such as the board, the management , audit committee and regulators are all challenged and compelled to ensure that sound corporate governance exist (Williams 2001).

1.2       STATEMENT OF THE PROBLEM

It is has been noted that the recent global events concerning high-profile corporate failures and fraud scandals in the national as well as international scene have put back on the policy agenda and intensified debate on the efficacy of sound corporate governance mechanisms as a means of increasing firms’ financial performance and their sustainability.

The issue of structure of the board of directors as a corporate governance mechanism has received considerable attention in recent years from academics, market participants, and regulators. It continues to receive attention because boards of directors have been largely criticized for the decline in shareholders’ wealth. They have been in the spotlight for fraud cases that had resulted in the failure of major corporations in the national and international scene.

Another recent issue in the corporate governance scene is the rapid change in the period from 1999 to 2006  were  hundreds of firms converted from dual CEO leadership structure to non-dual structure, while a much smaller number of firms converted in the opposite direction. This recent trend is partly due to several high-profile cases where powerful dual CEOs were found to abuse their tremendous power at the expenses of the company and shareholders.

There have also been debates on the issue of gross negligence on the part of auditors and audit committee members in discharging their duties properly. Thus, the high incident of poor corporate performances recorded in Nigeria shows audit committee members who are required to check the activities of board have failed to effectively discharge their checkmating functions. Its activities remains obscure as little or nothing is heard about the committee’s impact on sensitive corporate governance issues, particularly those that border on their regular statutory functions.

These high corporate fraud scandals and poor corporate management by directors and managers, as well as the inability of the audit committee to carry out their checkmating and monitoring roles have raised doubts  on the performance and sustainability of most Nigerian companies and brought to the fore the need for good corporate governance.

1.3       OBJECTIVES OF THE STUDY

The main purpose of this study is to ascertain the effect of corporate governance on financial performance of companies. More specifically, this study is designed to;

  1. To evaluate the extent to which the board size of a company affects its Return on Equity.
  2. To ascertain the impact of Board composition structure on Profit margin and Return on Equity.
  3. To evaluate the relevance of the audit committee on Profit margin and Return on Equity.
  4. To ascertain the significance of CEO non-duality on Profit margin.

1.4       RESEARCH QUESTIONS

The study attempts to find answers to the following specific questions:

  1. To what extent does Board size affect Return on Equity? Does the number of Outside directors significantly boost corporate Profit margin and Return on Equity?
  2. Is there any contributory impact of the audit committee on Profit margin and Return on Equity?
  3. To what extent does CEO duality boost or impede corporate Profit margin?

1.5       RESEARCH HYPOTHESES

In this investigation, the following hypothesis will be tested.

  1. H0: There is a negative relationship between Board size and Return on Equity.
  2. H0: There is no significant impact between Board composition on Profit margin and Return on Equity.
  3. H0: There is no significant impact of Audit committee on Profit margin and Return on Equity.
  4. H0: There is no significant impact of CEO duality on Profit margin 

1.6       SIGNIFICANCE OF THE STUDY

This study extends and contributes to the body of research using Nigerian data to investigate the likely impact of sound corporate governance on firms’ financial performance in Nigeria. The findings would be useful to;

Stakeholders in the Nigerian Stock Exchange (NSE) as it provide evidence on the relationship between board structure and firm’s financial performance.

Board of Directors and management will take a clue from this research work to review how strategic and the effective roles they play at improving firm’s performance and the dire need of eschewing sound corporate governance cultures in organisations they find themselves in.

Auditors and Audit committee members will become more enlightened of the need to uphold high professional and ethical standards expected of them in boosting corporate performance and thus contributing towards the sustainability of Nigerian companies in whole.

It will also provide information to regulatory Authorities on the expected roles they play in instilling sound corporate discipline and also the positive impacts sanctions and penalties given to corporate miscreants’ aid in enhancing sound corporate performance.

Finally, this work will be beneficial to future researchers and academicians who want to broaden their knowledge horizon in this area of study.

1.7       SCOPE OF THE STUDY

“Corporate governance and firm financial performance; a case study of Non-financial companies registered with NSE”, in view of the wide nature of this topic, the researcher limits the study to the factors or effects of sound corporate governance on the performance of non-financial companies, which are the composition of board size, the number of outside directors, CEO duality and impact of existence of audit committee in corporations. The study covers a period of five years (2010 – 2014). Viable and relevant primary information were also sought from top and senior public and private individuals in Nigeria specifically in Port-Harcourt, Lagos and Abuja to support the researcher’s findings.

 

1.8       LIMITATIONS OF THE STUDY

During the course of the research work, the researcher encountered the following limitations.

The researcher experienced initially poor-cooperation from NSE officials. But however, with constant visitations and patience, I was able to get the necessary materials needed to facilitate the successful completion of the work.

Also, this research work was not only tactful but time consuming as in most times, huge amount of time was required in pursuit of relevant data for the study.

Funds were also required to visit relevant places and make necessary travels in search of relevant materials which were limited. But with the support of guardians, the researcher has been able to make such relevant visits so as to produce a good research work.

1.9       DEFINITION OF TERMS

GOVERNANCE: The act, process, or power of governing. It relates to decisions that define expectations, grant power, or verify performance.

CORPORATION: A Company or group of people authorized to act as a single entity (legally a person) and recognized as such in law.

FINANCIAL PERFORMANCE– Business results relating to company’s financial health, such as revenues, expenses, and profits.

OECD- ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT: An International economic organization of 34 countries founded in 1961 to stimulate economic progress and world trade i.e. assists governments to tackle the economic, social and governance challenges of their globalized economics.

SEC- SECURITIES AND EXCHANGE COMMISSION: The regulatory authority governing the Nigeria stock exchange market having surveillance over the exchange to forestall breaches of market rules and to deter unfair manipulation and trading.

NSE- NIGERIAN STOCK EXCHANGE: A markets which provides a platform by which registered companies trade their securities’- shares, stocks, bonds etc.

CAMA- COMPANY AND ALLIED MATTERS ACT (1990):  A law which provides for the formation of corporate entities and also sets a time and structure for corporate governance. It provides that every corporate entity must have a memorandum and Articles of Association which is the constitution.

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