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Corporate Governance Disclosure in Developing Countries: A Comparative Analysis in Nigerian and South African Banks:

Corporate Governance Disclosure in Developing Countries: A Comparative Analysis in Nigerian and... This research examines corporate governance disclosure in Nigerian and South African Banks using the unweighted disclosure index technique. This research provides a cross-sectional examination of corporate governance disclosure practices in the annual reports of listed banks in Nigeria and South Africa. The results suggest that Nigerian and South African banks have a high level of corporate governance disclosure. However, Nigeria and South African banks have low levels of voluntary corporate governance disclosure. Furthermore, in reporting of voluntary corporate governance disclosure, Nigerian banks appear to be collating information with no link to the overall business strategy of the organization while the South African banks have a more robust approach to voluntary corporate governance disclosure as they apply international guidelines such as the Global Reporting Initiative to their disclosure. Keywords corporate governance disclosure, voluntary disclosure, developing countries, Nigeria, South Africa The model of corporate governance in developing coun- Background of the Study tries has embraced both market-based and insider approaches In the last decade, corporate governance has become a lexi- to corporate governance (Humayun & Adelepo, 2012). con in developing countries, particularly because of the Privatization of government-owned business enterprises is increasing level of corporate governance scandals that have one example of market-based corporate governance prac- occurred in America, Europe, Asia, and Africa, as well as the tices (Ahunwan, 2002). Of recent, the increasing trend of global financial crisis that occurred in the last decade privatization mantra has followed decades of state ownership (Bhasin, 2010; Okpara, 2009). The recent global financial and control of business enterprises (Oyejide & Soyibo, crisis has demonstrated that lack of transparency in business 2001)—a common characteristic of most developing coun- practices, responsible corporate executives and shareholders tries in Africa. After the period of independence, state owner- rights, could lead to possible business failures of even strong ship was done more as a sign of national pride and sovereignty economies due to diminishing investors’ confidence rather than any practical economic considerations (Ayittey, (Solomon, 2010). Developing countries, in particular, have 1989). With the unsustainability of most state-owned enter- been warned of the consequences of adopting poor corporate prises by developing countries in Africa, most African coun- governance practices that may cause the shares of businesses tries have carried out far-reaching economic reforms that to be sold for billions of dollars less than they ought to if have focused on privatizing most government-run state their firms had put in place good corporate governance prac- enterprises (Adekoya, 2011; Isukul & Chizea, 2015). The tices and policies (Anon., 2001). Bernard Black conducted a study to determine whether corporate governance matters, in Rivers State University of Science and Technology, Port Harcourt, terms of share price. He found that it made a huge difference Nigeria (Black, 2001). Equally, Russian firms that saw a significant Baze University, Abuja, Nigeria rise in their share prices were firms that adopted and imple- Corresponding Author: mented corporate governance reforms (Miller, 2002). These Araniyar C. Isukul, Faculty of Management Science, Rivers State University are some of the genuine explanations that have deepened the of Science and Technology, Nkpolu, Port Harcourt, Rivers State P.M.B. interest in corporate governance among policy makers in 508, Nigeria. Email: isukula@yahoo.com developing countries across Asia and Africa. Creative Commons CC BY: This article is distributed under the terms of the Creative Commons Attribution 4.0 License (http://www.creativecommons.org/licenses/by/4.0/) which permits any use, reproduction and distribution of the work without further permission provided the original work is attributed as specified on the SAGE and Open Access pages (https://us.sagepub.com/en-us/nam/open-access-at-sage). 2 SAGE Open role of government in these countries has been redefined to Solomon, 2008; R. Gray, Bebbington, & Walters, 1993). focus on creating and providing the necessary infrastructure, Business firms provide disclosure through several mediums: enabling environment and regulatory framework for corpo- standardized annual reports that include the financial state- rate governance firms and business enterprises to thrive ment of the firm, management analysis and discussion, foot- (Adegbite, 2012). notes, and other regulatory requirements and fillings (Berndt Also, a common feature of corporate governance in devel- & Leibfried, 2007). Also, business firms engage in voluntary oping countries is the inclination toward an insider approach, disclosure through various communication channels such as with a prevalence of family-owned, closely guarded business managerial forecasts, press releases, financial analyst pre- enterprises and the problems and issues that arise with fam- sentations, Internet sites, conference calls, and other corpo- ily-oriented business structures (Adegbite & Nakajima, rate reports such as corporate social responsibility and 2012). The board executives of most of these businesses are sustainability reports ( Cheng & Courtenay, 2006). Finally, filled with family members and close friends; often times, there are also disclosures about firms made by information none of them are qualified for sensitive positions they occupy intermediaries such as financial press, industry experts, and (Samaha & Dahawy, 2010). In a business environment such financial analysts (Healy & Palepu, 2001). as this, the executives are more inclined to further their own The timeliness, adequacy, and availability of appropriate personal interests to the detriment of other critical stakehold- information about financial and market securities are critical ers and shareholders (Yakasai, 2001). As a means of checking for both market confidence and pricing efficiency the excesses of board members, independent directors have (Abdelkarim, Shahin, & Arqawi, 2009; Brennan & Solomon, been advocated as a panacea to curb the improper executive 2008). For investors to make critical decisions and sound action (Solomon, 2010). However, in developing countries judgments on the value of market securities, they need to be this is not the case, as the business community can be regarded well informed of the relevant facts (Haniffa & Cooke, 2002). as quite small and also there is an interlocking of personal and Information disclosure is considered an important element financial interests (Nenova, 2005). In such developing coun- that is needed for the effective operation of financial and tries, independent directors are more likely to be rubber security markets. Presently, regulators are increasingly dis- stamps and as such are unlikely to act as effective checks turbed about the quality of both financial and nonfinancial against executive excesses (Tsamenyi, Enninful-Adu, & information disclosure of firms (Abdelkarim et al., 2009). Onumah, 2007). The weak nature of financial and capital Of significant importance, to note, is how corporate gov- market infrastructure and poor legal enforcement mecha- ernance disclosure practice has evolved. Initially, disclosure nisms implies that shareholder protection, especially minority simply focused on a firm’s financial statement: At present, shareholders and property rights of individuals and corpora- corporate disclosure is used as a strategic business tool in tions, are not effectively protected (Humayun & Adelepo, risk assessment and value creation (Belkaoui & Karpik, 2012; La Porta, Lopez-de-Silanes, & Shleifer, 2002). 1989). Recently, the emergence of detailed, extensive, and To address the myriads of issues affecting corporate gov- comprehensive corporate governance disclosure strategies ernance in developing countries, Okike (2007) emphasize that include every aspect and facet of a firm’s performance the importance of strengthening domestic institutions—They has largely resulted in expanding and broadening not just the maintain that it is important for financial institutions to scope but also the scale of information released by corpora- improve transparency, risk management, and self-regulation. tions (Eng & Mak, 2003). Disclosure strategies have signifi- Furthermore, they encourage the adoption of international cantly expanded to include economic, environmental, and standards and best practices in accounting, auditing, and cor- social information, and are now considered as key ingredi- porate governance disclosure as a means of improving cor- ents of many firms’ investors’ requirements and criteria porate governance standards and practices. Adegbite (2010) (Abdelkarim et al., 2009; Richardson & Welker, 2001). also proffers solutions to tackling corporate governance In countries with developed capital market and effective problems in developing countries; he maintains that solu- legal/regulatory frameworks, a significant amount of tions to corporate governance problems in developing coun- research on corporate governance disclosure has been exe- tries must be tackled within the institutional context. He cuted (Bushman, Chen, Engel, & Smith, 2004; Marston & suggests that homegrown solutions should be applied to Shrives, 1991). Unfortunately, this is not the case with coun- address the issues, rather than the easier option of applying tries with less developed markets. In less developed coun- solutions that have worked in developed countries without tries, there is a paucity of research on corporate governance regard to whether they are applicable to developing disclosure; in all sincerity, this should not be so (Adelepo, countries. 2011; Bhasin, 2010; Oluwagbemiga, 2014). Compared with corporate governance disclosure in developed countries, in developing countries there are generally lower disclosure Statement of the Research Problem standards, weaker regulatory and legal systems, as well as Corporate governance disclosure is crucial for the function- limited enforcement capacity (Nenova, 2005; Okike, 2007); ing of an effective and efficient financial market (Brennan & there is significant state ownership or holding of many Isukul and Chizea 3 private business corporations in developing countries agency theory is that managers’ (agents) and the owners’ (Samaha, Dahawy, Hussainey, & Stapleton, 2012), and board (principals) interest are not aligned (Jensen & Meckling, effectiveness and independence tend to be weak and ineffec- 1976). The managers or directors are more interested in max- tive (Ahunwan, 2002). imizing their own wealth, power, and prestige while safe- From the onset, the intention of this research was to select guarding their reputations; on the contrary, shareholders are some of the best banks in Africa to examine their corporate more inclined to maximize the value of their shares and asset governance disclosure practices, as larger banks are known holdings (Eisenhardt, 1989). This divergence in the align- to have better disclosure practices than smaller banks, ment of interests has been the cause of severe tension because corporate governance disclosure tends to generate between agents and principals. Donaldson and Davis (1991) considerable costs to firms (Maingot & Zeghal, 2008). More posit that these divergences of interest could sometimes lead importantly, the research intends to examine the current state to what they call “agency loss.” Agency loss may occur when of corporate governance disclosure practices in Nigerian and the returns to the residual claimants (the owners) fall short or South African banks so as to understand and inform on the below what they would be if the principals, the owners, exer- nature, focus, and extent of corporate governance disclosure cise direct control of the corporation (Guilding, Warnken, in the Nigerian and South African banking industries. This Ardill, & Fredline, 2005). will inform to what extent corporate governance disclosure According to the agency theory, in a bid to address these in Nigerian and South African banks is similar and different, tensions and resolve the differences, the principals have and if there are differences, what the differences are exactly. developed a number of policy incentives that seek to align The research questions this article intends to address are as the interests of agents alongside theirs (Hill & Jones, 1992). follows: Some of the policy prescriptions include incentive schemes for managers which recompense them monetarily for enhanc- Research Question 1: To what extent do Nigerian and ing shareholders’ interest. These schemes constitute plans South African banks disclose corporate governance infor- allowing senior executives to obtain shares of the company mation in their annual report, and what are the levels of usually at a reduced price, consequently aligning financial disclosure of nonfinancial information? interest of executives with those of shareholders (Jensen & Research Question 2: Is the disclosure of nonfinancial Meckling, 1976). There are other policies designed in a simi- information linked to the overall business strategy of the lar manner; however, they are targeted at increasing the lev- banks? els of transparency and corporate governance disclosure (Bushman & Smith, 2001). Business management and This article intends to contribute to the burgeoning research accounting researchers have applied themselves to investi- on corporate governance disclosure in developing countries gating mechanisms of transparency (financial reporting and with particular emphasis on South African and Nigerian voluntary disclosure) which sought to align interests of Banks. Thus far, there is a paucity of research on compara- shareholders and managers (e.g., Bushman & Smith, 2001; tive corporate governance disclosure in developing countries Healy, Hutton, & Palepu, 1999; Healy & Palepu, 2001; as most research in developing countries tends to focus on Hermanson, 2000). Apparently, transparency in the form of disclosure practices of a single country. This research intends increased corporate governance disclosure is considered an to focus on comparative corporate governance by investigat- important instrument for aligning management and share- ing disclosure practices of South African and Nigerian holders’ interest (Brennan & Solomon, 2008). Also, it serves Banks. In so doing, it extends the research on corporate gov- as a means of mitigating the information asymmetry that ernance disclosure in developing countries beyond the single exists between management and shareholders. case study. This research article begins by exploring the vari- ous theoretical frameworks on corporate governance— Institutional Theory agency theory, institutional theory, and stakeholder theory. It goes on to examine the literature on corporate governance in In contrast, institutional theory maintains that the quality of Nigeria and South Africa, and research on corporate gover- institutions tends to influence corporate governance practices nance disclosure. It follows with the justification of the (Aguilera & Jackson, 2003; Fiss, 2008). This is more so in methodology adopted in the analysis of the result and discus- developing countries where the quality of institutions is poor; sion of the findings. corporate governance practices tend to suffer as a result (Adegbite & Nakajima, 2012; Klapper & Love, 2002). Institutional deficiencies such as weak investor protection, Agency Theory poor enforcement of contracts, high levels of corruption in pri- In corporate governance research, agency theory has been vate and public sectors, lax regulatory environment, and unsta- used to investigate corporate governance disclosure (Brennan ble political institutions are important determinants in the & Solomon, 2008; Cohen, Krishnamoorthy, & Wright, 2004; quality of corporate governance (Adegbite, Amaeshi, & Healy & Palepu, 2001). The basic assumption about the Nakajima, 2013; Claessens, 2006). While agency theory 4 SAGE Open focuses on the relationship between the principal and the agent between various stakeholders of the firm (Schwarzkopf, (Jensen & Meckling, 1976), institutional theory goes beyond 2006; Solomon, 2010). Stakeholder theory broadens the the principal/agent relationship—It looks at the broader context stakeholders’ relationship beyond the principal/agent rela- and environmental influences that are capable of influencing tionship to include other critical stakeholders whose activi- corporate governance (Amenta & Ramsey, 2010; Meyer, 2007; ties can significantly influence or impact on the business Scott, 2004). Institutional theory acknowledges that for any activities of the firm (Donaldson & Preston, 1995; Hill & business or firm to function effectively, it needs an enabling Jones, 1992). Another similarity between the stakeholder environment where the rule of law is sacrosanct, viable institu- theory and agency theory is that both theories focus on the tions that protect investors and business firms, and the removal creation of value: Agency theory is intent on providing of unnecessary bureaucratic bottlenecks that escalate the costs shareholder value while stakeholder theory aims at maximiz- of doing business (Adegbite & Nakajima, 2012). ing value for a diverse group of stakeholders (Reynolds, Previous definitions of institutions paid significant atten- Schultz, & Hekman, 2006). Of particular importance in tion to the formal element of institutions (North, 1990). The stakeholder theory is the expanding of the roles of businesses term institutions were narrowly defined as enabling and beyond the narrow profit-seeking motive to include social constraining human behavior (Helmke & Levitsky, 2003). and ethical obligations of businesses to its various stakehold- Institutions were regarded as formalized structures of writ- ers (Bosse, Phillips, & Harrison, 2009; Parmar et al., 2010). ten rules, regulations, and codes that have to be obeyed In doing so, stakeholder theory is redefining the roles and (Hodgson, 2006); failure to comply with the rules and laws responsibilities of business by suggesting that while making resulted in punishments in the form of fines and fees or profit is important, businesses have other nonmonetary and physical incarceration depending on the gravity of the nonpecuniary obligations that they need to fulfill (Solomon, offense (Nutt-Powell, 1978). A common thread which has 2010). been woven through these research studies is the focus on Stakeholder theory argues that business organizations formal institutions to the detriment of the informal elements have relationships with a diverse group of people and that it of institutions (Scott, 2007; Tsai, 2006). Informal institu- can foster, support, and maintain the interests of these groups tions were not given much academic consideration. At the by balancing and taking into consideration their needs and time, a common critique and frustration with venturing into interests (Freeman, Wicks, & Parmar, 2004; Phillips, research on informal institutions was the difficulty in mea- Freeman, & Wicks, 2003). Stakeholders can be classified suring, appraising, assessing, and evaluating informal insti- into two distinct categories (Reynolds et al., 2006): primary tutions (Peng & Jiang, 2010). Informal institutions can be stakeholders and the secondary stakeholders. The primary described as manifestations of a society’s normative con- stakeholders include the following group of people: share- figuration; they symbolize society’s decisions about the holders, investors, employees, suppliers, customers, local desirability of actions and events. community, and government. The secondary stakeholders Recently, a broader definition has been sought to include the can be described as those groups of persons who are not formal and informal nature of institutions. Ménard and Shirley directly involved in the firms’ business activity but can sig- (2008) define institutions as “the written and unwritten rules, nificantly influence the operations of the business. norms and constraints that humans devise to reduce uncertainty To date, the influence of stakeholder theory in the field of and control their environment” (p. 1). These include (a) written finance, economics, and accounting is obvious (Strand & rules and agreements that govern contractual relations and cor- Freeman, 2015). It is standard practice for multinational cor- porate governance; (b) constitutions, laws, and rules that gov- porations and big businesses to include elements of corpo- ern politics, government, finance, and society more broadly; rate social reporting in their financial reports. The inclusion and (c) unwritten codes of conduct, norms of behavior, and of corporate social reporting in financial reports is an attempt beliefs. Institutional theory maintains that institutions have the by businesses to recognize the importance of other stake- ability to form, build, and create institutional pressures that holders who are not necessarily shareholders/managers. nudge business firms to seek for social conformity and legiti- Furthermore, by inclusion of social and environmental macy. Again, institutional theory posits that multilevel influ- reports in their financial statements, businesses are begin- ences are more important than market pressures and market ning to realize that they do have social and environmental mechanisms in influencing behavior of business organizations. obligations to critical stakeholders whose activities can However, institutional theorists have been criticized for failure influence their business operations. to take into consideration individual-level explanations and In summary, stakeholder theory suggests that the roles of influences on organizations. business should be redefined and businesses do have moral, ethical, and social obligations that they need to address. Doing this not only ensures that interests of the various inter- Stakeholder Theory est groups will be met, but it also ensures that business orga- It does appear that stakeholder theory is similar to agency nizations are allowed to focus on their business operations theory; both theories focus on a nexus of relationships without any undue distractions that may arise as a result of Isukul and Chizea 5 conflicts between business and its stakeholders (Strand & comprehensive legislation’s corporate governance reforms, Freeman, 2015). However, identification and balancing of South Africa has been affected by major corporate gover- the interests of the various stakeholders is not as simple as nance failures in recent years. The collapse of corporations the stakeholder theory implies—It, in fact, can be a cumber- such as Macmed, Regal Treasury Bank, and Leisurenet are some and complex process (Schwarzkopf, 2006). And some- particularly significant (Sara, 2004). In an effort to reform times, it will be impossible for firms to identify and balance and address peculiar corporate governance problems in the needs of the various stakeholders for a variety of reasons, South Africa, Armstrong et al. (2005) recommend that the some of which may be that the resources to do so are not following issues need to be resolved: intentional regulatory available, or the requests made by the various stakeholders and bureaucratic strangling of small- and medium-scale are unrealistic and therefore impossible to satisfy (Solomon, business enterprises, addressing the problem of a weak, 2010). incompetent, and ineffective board structure, and also the issue of independence of board. Corporate Governance in Nigeria and Research on Corporate Governance South Africa Disclosure In Nigeria, corporate governance practices and conduct have been characterized by endemic corruption, poor transpar- Corporate governance disclosure practices do not and cannot ency, and disclosure practices, as well as significant political develop in a vacuum. Adhikari and Tondkar (1992) maintain interferences in corporate governance activities, conse- that the levels of corporate governance disclosure tend to quently distorting and undermining corporate governance reflect the underlying institutional and environmental influ- development (Ahunwan, 2002; Okike, 2004, 2007; Oyejide ences that affect managers and business firms in different & Soyibo, 2001; Yakasai, 2001). In recent times, ongoing countries. There are a variety of environmental factors that corporate governance reforms have been initiated to improve influence disclosure practices by companies, they have been corporate governance practices in Nigeria. Some of these identified (Radebaugh & Gray, 1993), and these factors reforms include the following: the 2003 Code of Conduct for include regulatory framework, capital markets, economy, Corporate Governance, the 2006 mandatory Code of Conduct enforcement mechanisms, and culture (Cooke & Wallace, for Nigerian Banks post consolidation, the 2007 Code of 1990; Haniffa & Cooke, 2002). Most research papers on cor- Conduct for Shareholders Association in Nigeria, consolida- porate governance disclosure has focused on disclosure tion of Nigerian banks, and the increase in the minimum of issues of developing countries and have been researched capital base. These measures were taken to prevent a repeat from an agency theory perspective (e.g., Bushman & Smith, of the incident that occurred when several banks were bailed 2001; Healy et al., 1999; Healy & Palepu, 2001; Hermanson, out by the Central Bank of Nigeria (CBN) for inability to 2000). Again, agency theory perspective has used transpar- perform their banking obligations as a result of financial fail- ency as a tool and mechanism for aligning the interest share- ure, fraudulent activities by bank managers, and question- holders and management. The influence of corporate able business practices (Ogbeche & Koufopoulos, 2007; governance on disclosure has been examined at the level of Isukul and Chizea, 2016). country (Bushman et al., 2004; Francis et al., 2003) and also The story in South Africa is not entirely different. Among at the level of the firm (Beekes & Brown, 2006; E. C. M. emerging countries in the world, South Africa stands out as a Cheng & Courtenay, 2006). The extant research predicts that very interesting case in which to examine how specific cor- the governance variables likely to influence corporate gover- porate governance reforms have emerged or unfolded (West, nance disclosure can be classified into two categories: exter- 2006). Armstrong, Segal, and Davis (2005) identify a num- nal governance mechanism in the form of political ber of government legislations that have been designed to institutions, legal system, and freedom of the press for the influence and strengthen corporate governance in South country-level studies (Aguilera, Filatotchev, Gospel, & Africa: the Companies Act (1973), the Insider Trading Act Jackson, 2008; Claessens, 2006; La Porta et al., 2002); and (1998), the Public Finance Management Act (1999), and the internal governance mechanisms that involve regulatory Securities Services Act (2004). In addition, South Africa ini- oversight, ownership concentration, share ownership by tiated the publication of corporate governance guidelines and directors and managers, organizational structure of the cor- codes of practice with the King I Report (1994), King II poration, and costs of voluntary corporate governance dis- Report (2002), King III Report (2009), and King IV Report closure (Bushman et al., 2004; E. C. M. Cheng & Courtenay, (2016), instigating an unprecedented global interest in corpo- 2006). rate governance in Africa. The King IV report makes particu- In developing countries, research on corporate gover- lar emphasis on enhancing accountability through disclosure nance disclosure are few and have focused on some of the of executive remunerations in three sections of the financial following issues: overall levels of disclosure using disclo- report: the overview of the remuneration policy, background sure index extracted from corporate governance literature, statement, and implementation report. In spite of several levels of compliance with international standards and 6 SAGE Open domestic regulation, and institutional factors that hinder, meet these new requirements were expected to merge for constrain, and hamper corporate governance disclosure failing to do so, and those who failed to meet the new mini- (Mensah, 2002; Samaha & Dahawy, 2010; Tsamenyi et al., mum capital base requirements would have their licenses 2007). In general, the research on corporate governance dis- revoked. In actual fact, these banking reforms were con- closure for many developing countries reveals a low or mini- structed to prevent the emergence of a banking crisis that mal level of disclosure (Agyei-Mensah, 2012; Barako, 2007; could result from inherently weak banks characterized by Samaha et al., 2012; De Zoysa & Rudkin, 2010). persistent undercapitalization, high levels of nonperforming Samaha et al. (2012) assess corporate governance disclo- loans, illiquidity, insolvency, and poor corporate governance sure of Egyptian firms listed on the Egyptian Stock Exchange practices (Uchendu, 2005). (ESA), and they find that the level of corporate governance As of December 2013, the Nigerian Banking Industry disclosure by Egyptian firms to be minimal; however, they comprised of 20 domestic banks and four foreign banks. The also find that levels of disclosure of corporate governance six Tier 1 banks (Zenith Bank, United Bank for Africa, are high for items that are considered mandatory under the Access Bank, First Bank, Equatorial Trust Bank, and Egyptian Accounting Standard. They conclude that the levels Guaranty Trust Bank) accounted for 70% of the industry’s of corporate governance disclosure are lower for companies total assets of $136 billion as at December 2012. The other with duality position, and levels of corporate governance dis- banks (18 in number) held less than 35% of total assets. For closure increase with the number of independent directors on that reason, it should not come as a surprise that research on the board. Agyei-Mensah (2012) investigates the extent to the Nigerian banking industry focuses on the five leading which Ghanaian firms comply with International Accounting banks. According to CBN, Nigerian banks operate through Standards and also with the levels of corporate governance an extensive network that includes over 5,585 DMBs and disclosure. The findings of the research reveal that most of close to 12,755 automated banking machines (ABMs) across the firms listed in the Ghana Stock Exchange did not over- the country. In total, these financial institutions have over whelmingly comply with International Accounting Standards 136 billion dollars in assets, which represent a 300.5% disclosure requirements. increase in assets within 7 years of the banking consolidation The pioneering research on corporate governance disclo- (Umar & Olatunde, 2007). sure in Nigeria was done by Wallace (1988). His findings In comparison, South African banks appear to have a bet- reveal that most of the companies in the study had a high ter developed and more robust banking infrastructure than level of corporate governance disclosure with respect to bal- Nigerian Banks. They have a large sophisticated financial ance sheet, valuation method, and historical items. However, structure and a highly competitive banking industry which is the companies did not adequately comply with the disclosure dominated by both local and foreign banks. The total finan- requirements and also the levels of corporate governance dis- cial sector asset is an estimated 298% of GDP and exceeds closure were poor, an estimated 43.11%. A similar study on those of most developing economies. Commercial banks corporate governance disclosure in South Africa was done assets alone are an estimated 112% of GDP, while the insur- by Fire and Meth (1986), who did a comparative analysis of ance-sector gross assets are 67% of GDP. The South African corporate governance disclosure in South Africa and the Reserve Bank (SARB) maintains that total banking sector United Kingdom. For South Africa, the study revealed low assets recorded, on average, an annual growth rate of 7.2% levels of disclosure for listed South African firms, and this during a 3-year period (2011-2014), reaching US$362 billion was found to be common with other studies done on corpo- by December of 2014. On the whole, Southern African banks rate governance disclosure in developing countries. Although are well capitalized and, more often than not, have lower the findings are not encouraging, they are consistent with nonperforming loan ratios in comparison with the other Street and Gray (2001), Barako (2007), and Dahawy (2009) developing countries. who find similar results with companies in other developing In South Africa, there are 31 registered banks which com- countries. prise of 17 South African Banks, 14 foreign banks, and three mutual banks. Also, 41 international banks have authorized representative offices in South Africa; however, these repre- Characteristics of the Banking Sector in sentative offices do not collect financial deposits. Five major Nigeria and South Africa commercial banks continue to dominate the South African Prior to the banking consolidation reforms in 2004, there banking industry: the Amalgamated Bank of South Africa were a total of 89 banks in Nigeria with a total of 3,200 (ABSA), Nedbank, FirstRand Bank, Investec, and Standard deposit money banks (DMBs), and total employment in the Bank group—These banks account for an estimated 85% of sector has gone up from about 55,000 before reforms to over total assets and have significant international presence. 77,519 currently (Gunu, 2009). The banking consolidation According to the SARBs, South African banks function exercise by the CBN demanded that all deposit banks through sophisticated and intricate networks that consist of increase their minimum capital base from US$15 million to 5,144 DMBs and close to 27,953 ABMs throughout the US$200 million by December 2005. Banks that failed to country. Isukul and Chizea 7 disclosure research. A particular research paper was of Method immense significance (Maingot & Zeghal, 2008). A number In constructing a disclosure index, numerous studies and of their suggested essential elements of disclosure have been approaches have been developed; this is done with the pur- adapted and integrated into the coding sheet. The second step pose of ensuring that a scoring scheme can be designed that was the use of supplementary points of interest that were will serve as a useful guideline for assessing and determining revealed when examining the 2013 annual reports of the five the disclosure levels of annual reports (Ceft, 1961; Cooke, largest banks in Nigeria (United Bank for Africa, Guaranty 1989; Marston & Shrives, 1991). In business and accounting Trust Bank, Zenith Bank, First Bank of Nigeria [FBN], research, there are two known methods of designing a disclo- Access Bank) and five largest banks in South Africa sure index: weighted disclosure index (Botosan, 1997; (FirstRand, African Bank, Nedbank, Capitec Bank, and Buzby, 1974; Eng, Hong, & Ho, 2001) and unweighted dis- Standard Bank). The coding guideline and instruction is as closure index (Akhtaruddin, 2005; Archambault & follows: A positive score of 1 is given to any bank when it Archambault, 2003; Raffournier, 1995). Both have been used discloses the statement in question; if it fails to disclose, the in various accounting and business research papers in mea- bank is given a score of 0. suring the degree of disclosure in annual reports. Both tech- In collecting the data for this research, a methodological niques used in measuring disclosure in annual reports are not approach was used in selecting the Nigerian and South without their flaws; the unweighted disclosure index, for African banks under the study. To make the list, the Nigerian example, has been criticized for making the basic assump- and South African banks had to rank among the top 50 banks tion that all items in the annual reports are equally important in Africa. Second, the banks in consideration had to have to the information users. The use of a weighted disclosure their annual reports available on their Internet websites; index has also been criticized because of the possibility of banks in Nigeria and South Africa which had no Internet introducing a bias toward specific information users. presence were not considered. Having done this, the follow- However, the use of the unweighted disclosure index tech- ing banks in Nigeria emerged for consideration: First Bank, nique addresses the issue of subjectivity that arises in assign- United Bank for Africa, Guarantee Trust Bank, and Access ing of different weights to different items when user Bank. For South Africa, the following banks made the list: preference of annual reports remain unknown (Adrem, 1999; African Bank, FirstRand, Standard Bank, Nedbank, and S. J. Gray, Meek, & Roberts, 1995). As a result of the critique Capitec Bank. In analysis of the annual report, the corporate against the use of weighted scoring technique, unweighted governance disclosure index was used as a guideline. The disclosure technique has become the norm that is applied in index served as a useful guide in deciding what issues in cor- conducting research for this type of studies (Arvidsson, porate governance disclosure had to be examined and what 2003). In his considered opinion, Wallace (1988) maintains had to be ignored. that all disclosed items should be given equal consideration It is important to state that the Internet has significantly and that they should be of equal importance to the average enhanced data collection in developing countries and has users (Ahmed & Courtis, 1999). In this research, therefore, made it convenient for researchers to collect data from the voluntary corporate governance disclosure in annual reports confines of their own offices; they do not have to travel long for five Nigerian and five South African banks for the year distances and spend outrageous amounts of money and time 2013 was considered and scored on a dichotomous basis. A in different cities. It is essential that the term corporate gov- score of 1 is assigned to a company’s disclosure of an item ernance voluntary disclosure should be defined. In this and 0 for nondisclosure of an item. For all of the annual research, corporate governance voluntary disclosure has reports selected for this research, to calculate the disclosure been defined as the prudent and discretionary release of score, the number of items that have been disclosed in the financial as well as nonfinancial information through annual annual report was divided by the total number of items rele- reports, that is, information that is considered over and above vant to the particular bank, which the report covers. the mandatory requirements with regard to Nigerian and The total disclosure score for each firm is South African company laws, regulatory requirements, and professional accounting standards. Dd = j, i=1 Discussion of Findings where di is 1 if an item is disclosed and 0 if not; m is the In Table 1, the descriptive statistics indicates that South number of voluntary items disclosed in the annual reports African and Nigerian banks both have similar unitary board (here m = 51). structure that consists of a mix of executive and nonexecutive The coding sheet on disclosure of corporate governance directors. The United Nations (UN; 2006) guidance on good in Nigerian and South African banks, seen in its entirety in corporate governance disclosure recommends specifically that the appendix, has 51 elements. The first step that was taken the composition of the board regarding the balance of execu- was reviewing the extant literature on corporate governance tive and nonexecutive directors should be disclosed: The 8 SAGE Open Table 1. Structure of Executive Board, Board Meetings, and Number of Committees. Male Female Nonexecutive Board meetings Number of Company directors directors Total directors in a year committees First Bank 11 3 14 4 4 6 United Bank for Africa 14 5 19 7 6 6 Guaranty Trust Bank 10 4 14 7 4 5 Zenith Bank 13 2 15 7 4 5 Access Bank 12 5 17 9 4 4 Total 60 19 79 34 African Bank 9 2 11 6 11 5 FirstRand 16 4 20 17 6 4 Standard Bank 15 2 17 14 7 Nedbank 11 3 14 11 5 6 Capitec Bank 16 2 18 9 6 6 Total 67 13 80 57 Table 2. Summary of Corporate Governance Disclosure for Nigerian and South African Banks. Banks Possible score UBA GTB ZEN FBN ACS RAND AFN NED CAP STD 1. Board structure and directors profile 12 11 10 5 10 10 7 6 9 9 11 2. Financial information and corporate information 11 9 10 8 11 9 5 8 6 9 8 3. Board independence and board committee 11 8 8 5 10 6 6 9 6 8 9 4. Corporate social responsibility disclosure 4 3 4 4 4 1 0 3 0 0 4 5. Information on website 4 4 4 4 4 4 3 3 3 3 3 6. Remuneration of board 8 4 4 4 4 4 3 3 3 3 3 Total score 50 39 40 30 43 34 24 32 27 32 38 Percentage of disclosure 78.4 76.5 58.8 82.4 68.6 47 66.7 56.9 64.7 78.4 Note. UBA = United Bank for Africa; GTB = Guaranty Trust Bank; ZEN = Zenith Bank; FBN = First Bank of Nigeria; ACS = Access Bank; RAND = FirstRand; AFN = African Bank; NED = Nedbank; CAP = Capitec Bank; STD = Standard Bank. composition of the board should be disclosed, in particular the General Corporate Governance balance of executives and nonexecutive directors, and whether Disclosure of the Banks any of the nonexecutives have any affiliations (direct or indi- A summary of corporate governance disclosure for Nigerian rect) with the company. Table 1 also shows that the mix of and South African banks can be seen in Tables 2 and 3. The executive directors for South African and Nigerian banks are coding sheet was divided into six different sections: (a) The both male dominated with fewer women holding executive board structure and directors profile are basically about infor- positions in both banks. In Nigerian Banks, women account mation that relates to the board of directors, for example, the for 24.05% of the total board of directors, while in South number of directors, qualifications of the directors, number of African banks women account for only 16.25% of the total years on board, and biography of the directors; (b) financial board of directors, a much lower percentage when compared information and corporate information deal with the following with that of Nigerian Banks. With regard to the number of issues, for example, summary of financial data for at least a committees, all banks in South Africa and Nigeria have at least minimum of 2 years, share price information, corporate mis- three committees. The UN (2006) categorically states that the sion statement, and statement disclosure relating to competi- establishing of board committee is intended to “facilitate ful- tive position in the industry; (c) board independence and board fillment of certain of the board’s functions and address some committee relate to, among other things, disclosure involving potential conflict of interests” (p. 15). The King II Report separating the roles of the chairman and chief executive offi- (2002) report and the Nigerian Code on Corporate Governance cer (CEO), independence of the board committees, and duties are both very clear on committee representation and state that for effective governance of the company’s affairs, all compa- of the various committees; (d) corporate social responsibility nies should have a minimum of two committees which should disclosure is specific to corporate governance disclosure on include remuneration committee and audit committee. community involvement/participation, statement on corporate Isukul and Chizea 9 Table 3. Descriptive Statistics of Corporate Governance Disclosure for Nigerian and South African Banks. Nigerian banks South African banks M SD Variance Maximum Minimum M SD Variance Maximum Minimum 1. Board structure and directors profile 9.2 2.38 5.7 12 5 8.4 1.94 3.8 12 6 2. Financial information and corporate 9.4 1.14 1.3 11 8 7.2 1.64 2.7 11 5 information 3. Board independence and board committee 7.4 1.94 3.8 11 5 7.6 1.51 2.3 11 6 4. Corporate social responsibility disclosure 3.2 1.3 1.7 4 1 1.4 1.94 3.8 4 0 5. Information on website 4 0 0 4 4 3 0 0 4 3 6. Remuneration of board 4 0 0 8 4 3 0 0 8 3 Percentage of disclosure 72.9% 60% social responsibility, and environmental projects/activities marginal improvements over the years, as most of the studies taken; (e) information on website section deals with the disclo- in question are over a decade old. sure of corporate governance information on the Internet, for Another explanation could be the small sample size of the example, availability of online annual reports, online proxy study in question which examined Nigerian and South circulars and notices of annual meeting, and having a corpo- African banks that were regarded as the best ranking banks, rate governance webpage; and (f) remuneration of board sec- and as such this may not reflect the disclosure practices of all tion is about issues relating to remuneration of the executives, banks in Nigeria and South Africa. If a larger sample size is number of shares owned by directors, and loans to directors. considered to include more banks, the results may be differ- A cursory glance at the summary of corporate governance ent. One of the noticeable trends in corporate governance in disclosure for Nigerian and South African banks reveals that developing countries is the development of regulations and Nigerian banks, on average, tend to disclose more corporate codes of corporate governance targeted at improving corpo- governance information than South African banks. In gen- rate governance practices and policies (Bhasin, 2013; eral, the Nigerian banks’ annual reports tend to be more volu- Samaha et al., 2012), which is in line with global best prac- minous than the annual reports from their South African tice. Still, there is room for improvement: The overall disclo- counterparts. Some of the Nigerian banks’ annual reports sure score for Nigerian and South African banks is 72.9% were more than 300 pages, while those of South Africa were and 62.7%, respectively. between 180 to 260 pages. Surprisingly, one would have It is possible for developing countries to improve their expected that South African banks would have better corpo- levels of corporate governance disclosure over time, and rate governance disclosure scores than that of Nigerian while the average percentage score for corporate governance Banks; South African banks tend to be multinational banks disclosure for Nigerian and South African banks appears with a global spread, are more sophisticated, and have vast high, this is not the case when individual bank corporate gov- branch networks across the globe when compared with the ernance disclosure scores are examined, for instance, a Nigerian banks which are all indigenous banks. South Nigerian bank, Zenith’s overall corporate governance disclo- African banks tend to disclose less information in three core sure scores 58.8%, while a South African bank, Rand’s over- areas: board structure and director profile, financial and cor- all corporate governance scores 47%. This simply implies porate information, and corporate social responsibility dis- that while, on average, corporate governance scores for closure. A genuine reason for the difference in the levels of Nigerian and South African banks appear high, individual disclosure between Nigerian banks and South African banks bank scores may differ. In reality, that means some banks is as a result of mandatory corporate governance disclosure would have better corporate governance scores than others. requirements demanded of Nigerian banks by the regulatory authorities. In addition, we find in the overall level of disclo- Board Structure and Directors Profile sure, there is a 4% margin between FBN and Standard Bank, but the margin increases significantly between FBN and The King and the CBN corporate governance code recom- African Bank at 13%, and FBN and Capitec Bank at 17%. mend the separation of the role of the chairman and the CEO. However, the average disclosure score for Nigerian banks Both roles are considered too powerful to be given to a lone and South African banks is quite high (72.9% and 60%) individual to execute. This is considered good corporate gov- when compared with developing countries such as Brazil, ernance practice, as outlined in the CBN’s Corporate 32.65% (Patel, Balic, & Bwakira, 2002); Bangladesh, 43.5% Governance Code and the King report, and all Nigerian and (Akhtaruddin, 2005); and Ghana, 52% (Tsamenyi et al., South African banks in the study have complied with this 2007). A plausible explanation could be that corporate gover- guideline requiring them to separate the roles of the chair- nance practices in developing countries have had some man and the CEO. In addition to regulatory requirements, the 10 SAGE Open Table 4. Board Structure and Directors Profile. Table 5. Financial Information and Corporate Information. Nigerian South African South Nigeria Africa Number of directors 5/5 5/5 Summary of financial data for at least 2 years 5/5 5/5 Duties of board of directors 4/5 1/5 Share price information 4/5 3/5 Number of meetings 4/5 2/5 Retained profits 5/5 5/5 Chairman identified 5/5 5/5 Bank loans 5/5 5/5 CEO identified 5/5 5/5 Foreign currency fluctuation during the year 2/5 5/5 Minimum qualifications of directors 4/5 5/5 General information about the economy 5/5 3/5 Name 5/5 5/5 Corporate mission statement 5/5 1/5 Residence 0/5 0/5 Business environment (economics, politics) 5/5 3/5 Qualification and occupation 4/5 5/5 Statement disclosure relating to competitive 1/5 0/5 Number of years on board 2/5 4/5 position in industry Photos of members 5/5 2/5 Corporate contribution to national economy 5/5 3/5 Biography of members 3/5 4/5 Significant issues during the year 5/5 3/5 Percentage of disclosure 92% 86% Percentage of disclosure 85.4 65.4 Nigerian and South African banks have disclosed more Corporate Social Responsibility information in terms of qualifications of directors, photo- graphs of directors, and the number of years they have served Disclosure on the board. The King report encourages South African companies to report However, there is evidence to suggest that Nigerian banks on corporate social responsibility, but this is not the case in tend to disclose a bit more information about the board struc- Nigeria as none of the regulatory agencies require that compa- ture and directors profile than their South African counter- nies should report on corporate social responsibility. However, parts. With regard to disclosure on board structure and there is an awareness of the importance of integrating corporate director profile, Nigerian banks score 92% while South social responsibility disclosure as part of the banks’ environ- African banks score 86%. The slight differences in scores mental, social, and ethical risk strategies (Carroll & Shabana, were as a result of the following in Table 4: Only one South 2010; Kotler & Lee, 2006; Porter & Kramer:, 2002; Tencati, African bank disclosed information regarding duties of the Perrini, & Pogutz, 2004; Weber, 2008). Both Nigerian and directors of the board, and two of the banks had photographs South African banks seem to recognize that nonfinancial risks of members of the board. can pose significant threats to their business activities and so have decided to design effective strategies to tackle nonfinan- cial risks that may threaten the continuity of the business. South Financial and Corporate Information African banks tend to be more systematic in the reporting of The findings of the research reveal that Nigerian and corporate social responsibility; they abide by regulations of the South African banks follow international and domestic King report and also apply international standards such as the guidelines in disclosing their financial and corporate global reporting initiative in their corporate governance volun- information as well as the operating results. The UN, the tary disclosure. Sadly, with regard to corporate social responsi- King III report, and the CBN Corporate Governance Code bility disclosure for Nigerian banks, disclosure appears to be a all request that corporate entities disclose their financial compiling and collation of information at the end of the year. and corporate information so that shareholders and stake- Certainly, this should not be so; nonfinancial disclosure should holders can understand the nature and present state of be linked to the overall business strategy of the organization. affairs of the business. Furthermore, in corporate social responsibility disclosure, In Table 5, the financial and corporate information disclo- many of the Nigerian banks in the study have not taken the time sure reveals that Nigerian banks scored 85.4% while South to adopt any international guideline in their reporting. African banks scored 65.4%, a 20% point difference. In the Consequently, there is no uniformity in the way the corporate areas of summary of financial data, disclosure of retained governance voluntary disclosure is done (see Table 6). profits, and bank loans, Nigerian and South African banks tend to be at par, in terms of the levels of disclosure. However, Board Independence and Board Nigerian banks tend to disclose a bit more information in the Committee areas of general information about the economy, corporate mission statement, business environment, and contribution Board independence is an integral element of corporate gov- to national economy. ernance practices. Research maintains that an independent Isukul and Chizea 11 Table 6. Corporate Social Responsibility Disclosures. Table 8. Remuneration of Board. South South Nigeria Africa Nigeria Africa Statement on corporate social responsibility 4/5 2/5 CEO salary 3/5 5/5 Statement on environmental policy 3/5 2/5 Number of shares owned by CEO 3/5 5/5 Environmental projects/activities taken 4/5 2/5 Explanation of CEO stock requirement 0/5 0/5 Information on community involvement/ 5/5 1/5 Loans to CEO 0/5 0/5 participation Directors’ salary 3/5 5/5 Percentage of disclosure 80% 35% Number of shares owned by directors 3/5 4/5 Explanation of directors’ stock requirements 0/5 1/5 Loans to directors 0/5 0/5 Table 7. Board Independence and Board Committee. Percentage of disclosure 30% 50% South Nigeria Africa South African banks’ score of 50%. For Nigerian and South Separate section outlining board independence 1/5 2/5 African banks, none of the five banks disclosed any issues Separation of the role of chairman and CEO 4/5 5/5 relating to loans to CEO, explanation of CEO stock require- Capable of determining independence of board 1/5 5/5 ments, and loans to directors. On the whole, South African remuneration review banks disclose more information relating to remuneration of Capable of determining independence of audit 5/5 5/5 board than Nigerian Banks. committee Capable of determining independence of 4/5 4/5 conduct review or risk committee Corporate Governance Voluntary Number of committees 5/5 5/5 Disclosure of Nigerian and South Duties of committees 3/5 4/5 Number of meetings 5/5 3/5 African Banks Number of members 5/5 3/5 A more informative sign or indicator of a bank’s corporate Identify chairmen 4/5 2/5 governance disclosure is the level of voluntary corporate Percentage of disclosure 74 76 governance disclosure (Mensah, 2002; Oluwagbemiga, 2014; Samaha & Dahawy, 2010; Tsamenyi et al., 2007). Voluntary corporate governance disclosure is simply board enhances corporate governance practices as boards of explained as information that banks provide that they are not directors who do not have pecuniary and material interests obligated to disclose or divulge under any form of regula- invested in the corporation tend to give more independent tion. In determining which items of the coding sheet were valuations and are less swayed to protect managerial inter- mandatory and which items were voluntary, a review of the ests to the detriment of shareholders. The UN, the King III disclosure requirements of the Nigerian Stock Exchange, report, and the CBN Corporate Governance Code all stress Corporate Governance Code for Nigerian Banks, Corporate the importance of an independent board of directors. In dis- Matters Allied Act, King Report, South African Stock closure relating to board independence and board committee, Exchange, United Nations Corporate Governance Code, and Nigerian banks and South African banks tend to have similar Organization for Economic Co-Operation and Development levels of disclosure as the Nigerian banks’ score of 74% is (OECD) Governance Code was taken. 2% lower than South African banks’ score of 76%. Out of 51 items that were listed on the coding sheet, 20 of Still, when a meticulous examination of board indepen- the items were found to be completely voluntary. The list of dence and board committee in Table 7 is undertaken, the these voluntary corporate governance items with the fre- findings reveal that in relation to sections dealing with out- quency of their governance disclosure is displayed in Table lining board independence and determining independence of 9. In comparing the levels of disclosure, a comparative anal- board remuneration, Nigerian banks perform worse than ysis was done between Nigerian and South African banks. In their South African banks’ counterparts. In Table 8, corporate general, the results show that Nigerian and South African governance disclosure relating to remuneration of board of banks have poor levels of voluntary corporate governance Nigerian and South African banks, the tables reveal low lev- disclosure, with South African banks faring a bit better with els of disclosure for Nigerian and South African banks on a score of 38.9% while Nigerian banks scored 28.4%. More both issues. In fact, corporate governance disclosure on South African banks had disclosure of online information, remuneration of the board of directors appears to be the least online annual reports, number of years on board, and online disclosed for Nigerian and South African banks, with links to corporate governance webpages than their Nigerian Nigerian banks scoring 30%, that is 20% lower than the banks’ counterparts. However, there are some issues in 12 SAGE Open Table 9. Governance Information Disclosed Voluntarily. Furthermore, corporate governance disclosure in Nigerian and South African banks appears to be heading South toward greater stakeholder inclusivity, again reflecting a Voluntary information disclosed Nigeria Africa deeper shift from the prevailing shareholder and agency Residence 0/5 0/5 theory framework and toward a stakeholder-oriented Occupation 4/5 5/5 framework. Here, corporate governance disclosure is tar- Number of years on board 2/5 4/5 geted at disclosing information to a wide variety of users Capable of determining independence of 1/5 5/5 of corporate annual reports as well as internal and external board remuneration review stakeholders. Nevertheless, with regard to disclosure of Capable of determining independence of 4/5 4/5 nonfinancial information, by which we mean disclosure conduct review or risk committee relating to social, environmental, and ethical reporting or Photos of members 5/5 2/5 corporate social responsibility as the names imply, it Biography of members 3/5 4/5 appears there is significant room for improvement in dis- Explanation of CEO stock requirement 0/5 0/5 closure practices. As it stands, social, environmental, and Explanation of director stock requirement 0/5 1/5 ethical reporting or corporate social responsibility appears Number of related directors 0/5 0/5 to be a collation of information at the end of the year. Reasons for relations 0/5 0/5 Certainly, this should not be the case. Nonfinancial infor- Online link to corporate governance 3/5 5/5 webpage mation disclosure should be linked to the overall business Number of affiliates 0/5 0/5 strategy of the organization. Many Nigerian banks in the Reason of affiliation 0/5 0/5 study failed to link nonfinancial disclosure to their overall Past committee experience 0/5 0/5 business strategy. Nonfinancial disclosure appeared to be Separate section outlining board 1/5 2/5 done for the sake of disclosure, without any thought of independence criteria how to align nonfinancial disclosure with their business Online histogram of organization 0/5 0/5 strategy. As it stands, most of the banks in question have Minimum qualification for directors 4/5 5/5 not taken the time to adopt any international standard or Number of directors who can sit on and 0/5 0/5 guidelines in the disclosure of nonfinancial information. outside the board Consequently, directors and managers who are saddled Percentage of disclosure 28.4% 38.9% with the responsibility of corporate governance disclosure in developing countries need to think carefully about cor- porate governance disclosure. Corporate governance dis- voluntary corporate governance disclosure where Nigerian closure should not be taken for granted nor should it be and South African banks record poor levels of voluntary dis- done in a haphazard manner. A lot of thought and meticu- closure and they include residence of directors, explanation lous deliberation should go into deciding what should be of CEO stock requirements, past committee experience, and disclosed and also aligning what is disclosed with the number of directors who can sit on and outside the board. overall business strategy of the firm. Corporate gover- nance disclosure matters, and better disclosure practices Summary and Conclusion have immense benefits for the firm such as attracting investors and enhancing firms’ capacity to attract loans at The findings of this research are inconsistent with previous lower interest rates. corporate governance research on Nigeria and South Africa (Fire & Meth, 1986; Wallace, 1988). Previous research had While this research has examined corporate gover- found low levels of disclosure for South African and nance disclosure in Nigerian and South African banks, Nigerian companies listed on the stock exchange. One sen- there is still the need to conduct further research on corpo- sible explanation would be that the previous research rate governance in developing countries. It would be papers are more than two decades old; a lot of significant interesting to have a longitudinal research on corporate changes have happened over the period that would have governance in developing countries like Nigeria and enhanced disclosure practices such as the introduction of South Africa to examine how corporate governance dis- corporate governance codes intended to improve the levels closure has evolved. Another direction that necessitates of transparency and disclosure. The emergence of informa- further research would be the examination of corporate tion communication technology and availability of Internet governance disclosure in other industries, as the banking technology are responsible for enhancing corporate gover- sector represents just one among several. This would help nance disclosure as business organizations can place elec- ascertain whether the level of corporate governance dis- tronic copies of their annual reports online as well as other closure in the banks is similar to that of other industries or relevant corporate governance information not included in if it is different, and if different, what those differences the annual report. may be. Isukul and Chizea 13 Appendix Corporate Governance Disclosure Coding Sheet. Coding sheet Bank name UBA GTB ZEN FBN ACS RAND AFN NED CAP STD Information on website 1. Online information 2. Online proxy circular and notice of annual meeting 3. Online annual report 4. Online histogram of organization 5. Online link to corporate governance webpage 6. Online link to corporate social responsibility web page Subtotal Board 7. Number of directors 8. Duties of board of directors 9. Number of meetings 10. Chairman identified 11. CEO identified 12. Minimum qualifications of directors Subtotal Profile of director 13. Name 14. Residence 15. Qualification and occupation 16. Number of years on board 17. Photos of members 18. Biography of members Subtotal Remuneration of board 19. CEO salary 20. Number of shares owned by CEO 21. Explanation of CEO stock requirement 22. Loans to CEO 23. Directors’ salary 24. Number of shares owned by directors 25. Explanation of directors’ stock requirements 26. Loans to directors Subtotal Board independence 27. Separate section outlining board independence 28. Separation of the role of chairman and CEO 29. Capable of determining independence of board remuneration review 30. Capable of determining independence of audit committee 31. Capable of determining independence of conduct review or risk committee Subtotal Financial information 32. Summary of financial data for at least 2 years 33. Share price information 34. Retained profits 35. Bank loans 36. Foreign currency fluctuation during the year Subtotal (continued) 14 SAGE Open Appendix (continued) Coding sheet Bank name UBA GTB ZEN FBN ACS RAND AFN NED CAP STD Corporate information 37. General information about the economy 38. Corporate mission statement 39. Business environment (economics, politics) 40. Statement disclosure relating to competitive position in industry 41. Corporate contribution to national economy 42. Significant issues during the year Subtotal Committees 43. Number of committees 44. Duties of committees 45. Number of meetings 46. Number of members 47. Identify chairmen Subtotal Corporate social responsibility disclosure 48. Statement on corporate social responsibility 49. Statement on environmental policy 50. Environmental projects/activities taken 51. Information on community involvement/participation Subtotal Total score Percentage of disclosure Note. UBA = United Bank for Africa; GTB = Guaranty Trust Bank; ZEN = Zenith Bank; FBN = First Bank of Nigeria; ACS = Access Bank; RAND = FirstRand; AFN = African Bank; NED = Nedbank; CAP = Capitec Bank; STD = Standard Bank. Declaration of Conflicting Interests Adekoya, A. A. (2011). Corporate governance reforms in Nigeria: Challenges and suggested solutions. Journal of Business The author(s) declared no potential conflicts of interest with respect Systems, Governance and Ethics, 6(1), 38-50. to the research, authorship, and/or publication of this article. Adelepo, I. (2011). Voluntary disclosure practices among listed companies in Nigeria. Advances in Accounting, 27, 338-345. Funding Adhikari, A., & Tondkar, R. H. (1992). Environmental factors The author(s) received no financial support for the research, author- influencing accounting disclosure requirements of global stock ship, and/or publication of this article. exchanges. 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Encyclopedia of social theory (pp. 408-414). Thousand Oaks, CA: Sage. Author Biographies Scott, W. R. (2007). Institutions and organizations: Ideas and Araniyar C. Isukul is a lecturer in the Banking and Finance depart- interests (3rd ed.). Thousand Oaks, CA: Sage. ment at the Rivers State University of Science and Technology, Solomon, A. (2010). Corporate governance and accountability. Port Harcourt, Rivers State, Nigeria. He has an MA and DBA both London, England: John Wiley. from the Newcastle Business School of Northumbria University in Strand, R., & Freeman, R. E. (2015). Scandinavian cooperative Newcastle. His principal research interest lies in the area of corpo- advantage: The theory and practice of stakeholder engagement rate governance, corporate governance disclosure, corporate social in Scandinavia. Journal of Business Ethics, 127, 65-85. responsibility, and financial inclusion. Street, D. L., & Gray, S. J. (2001). Observance of international accounting standards: Factors explaining non-compliance. John J. Chizea is a lecturer in the Economics department at Baze Athens: Certified Accountants Educational Trust. University, Abuja, Nigeria. He earned his PhD at the Newcastle Tencati, A., Perrini, F., & Pogutz, S. (2004). New tools to foster Business School of Northumbria University in Newcastle. His corporate socially responsible behavior. Journal of Business research encompasses areas of financial development and governance, Ethics, 53, 173-190. specifically as they relate to economic growth and development. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png SAGE Open SAGE

Corporate Governance Disclosure in Developing Countries: A Comparative Analysis in Nigerian and South African Banks:

SAGE Open , Volume 7 (3): 1 – Jul 14, 2017

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Abstract

This research examines corporate governance disclosure in Nigerian and South African Banks using the unweighted disclosure index technique. This research provides a cross-sectional examination of corporate governance disclosure practices in the annual reports of listed banks in Nigeria and South Africa. The results suggest that Nigerian and South African banks have a high level of corporate governance disclosure. However, Nigeria and South African banks have low levels of voluntary corporate governance disclosure. Furthermore, in reporting of voluntary corporate governance disclosure, Nigerian banks appear to be collating information with no link to the overall business strategy of the organization while the South African banks have a more robust approach to voluntary corporate governance disclosure as they apply international guidelines such as the Global Reporting Initiative to their disclosure. Keywords corporate governance disclosure, voluntary disclosure, developing countries, Nigeria, South Africa The model of corporate governance in developing coun- Background of the Study tries has embraced both market-based and insider approaches In the last decade, corporate governance has become a lexi- to corporate governance (Humayun & Adelepo, 2012). con in developing countries, particularly because of the Privatization of government-owned business enterprises is increasing level of corporate governance scandals that have one example of market-based corporate governance prac- occurred in America, Europe, Asia, and Africa, as well as the tices (Ahunwan, 2002). Of recent, the increasing trend of global financial crisis that occurred in the last decade privatization mantra has followed decades of state ownership (Bhasin, 2010; Okpara, 2009). The recent global financial and control of business enterprises (Oyejide & Soyibo, crisis has demonstrated that lack of transparency in business 2001)—a common characteristic of most developing coun- practices, responsible corporate executives and shareholders tries in Africa. After the period of independence, state owner- rights, could lead to possible business failures of even strong ship was done more as a sign of national pride and sovereignty economies due to diminishing investors’ confidence rather than any practical economic considerations (Ayittey, (Solomon, 2010). Developing countries, in particular, have 1989). With the unsustainability of most state-owned enter- been warned of the consequences of adopting poor corporate prises by developing countries in Africa, most African coun- governance practices that may cause the shares of businesses tries have carried out far-reaching economic reforms that to be sold for billions of dollars less than they ought to if have focused on privatizing most government-run state their firms had put in place good corporate governance prac- enterprises (Adekoya, 2011; Isukul & Chizea, 2015). The tices and policies (Anon., 2001). Bernard Black conducted a study to determine whether corporate governance matters, in Rivers State University of Science and Technology, Port Harcourt, terms of share price. He found that it made a huge difference Nigeria (Black, 2001). Equally, Russian firms that saw a significant Baze University, Abuja, Nigeria rise in their share prices were firms that adopted and imple- Corresponding Author: mented corporate governance reforms (Miller, 2002). These Araniyar C. Isukul, Faculty of Management Science, Rivers State University are some of the genuine explanations that have deepened the of Science and Technology, Nkpolu, Port Harcourt, Rivers State P.M.B. interest in corporate governance among policy makers in 508, Nigeria. Email: isukula@yahoo.com developing countries across Asia and Africa. Creative Commons CC BY: This article is distributed under the terms of the Creative Commons Attribution 4.0 License (http://www.creativecommons.org/licenses/by/4.0/) which permits any use, reproduction and distribution of the work without further permission provided the original work is attributed as specified on the SAGE and Open Access pages (https://us.sagepub.com/en-us/nam/open-access-at-sage). 2 SAGE Open role of government in these countries has been redefined to Solomon, 2008; R. Gray, Bebbington, & Walters, 1993). focus on creating and providing the necessary infrastructure, Business firms provide disclosure through several mediums: enabling environment and regulatory framework for corpo- standardized annual reports that include the financial state- rate governance firms and business enterprises to thrive ment of the firm, management analysis and discussion, foot- (Adegbite, 2012). notes, and other regulatory requirements and fillings (Berndt Also, a common feature of corporate governance in devel- & Leibfried, 2007). Also, business firms engage in voluntary oping countries is the inclination toward an insider approach, disclosure through various communication channels such as with a prevalence of family-owned, closely guarded business managerial forecasts, press releases, financial analyst pre- enterprises and the problems and issues that arise with fam- sentations, Internet sites, conference calls, and other corpo- ily-oriented business structures (Adegbite & Nakajima, rate reports such as corporate social responsibility and 2012). The board executives of most of these businesses are sustainability reports ( Cheng & Courtenay, 2006). Finally, filled with family members and close friends; often times, there are also disclosures about firms made by information none of them are qualified for sensitive positions they occupy intermediaries such as financial press, industry experts, and (Samaha & Dahawy, 2010). In a business environment such financial analysts (Healy & Palepu, 2001). as this, the executives are more inclined to further their own The timeliness, adequacy, and availability of appropriate personal interests to the detriment of other critical stakehold- information about financial and market securities are critical ers and shareholders (Yakasai, 2001). As a means of checking for both market confidence and pricing efficiency the excesses of board members, independent directors have (Abdelkarim, Shahin, & Arqawi, 2009; Brennan & Solomon, been advocated as a panacea to curb the improper executive 2008). For investors to make critical decisions and sound action (Solomon, 2010). However, in developing countries judgments on the value of market securities, they need to be this is not the case, as the business community can be regarded well informed of the relevant facts (Haniffa & Cooke, 2002). as quite small and also there is an interlocking of personal and Information disclosure is considered an important element financial interests (Nenova, 2005). In such developing coun- that is needed for the effective operation of financial and tries, independent directors are more likely to be rubber security markets. Presently, regulators are increasingly dis- stamps and as such are unlikely to act as effective checks turbed about the quality of both financial and nonfinancial against executive excesses (Tsamenyi, Enninful-Adu, & information disclosure of firms (Abdelkarim et al., 2009). Onumah, 2007). The weak nature of financial and capital Of significant importance, to note, is how corporate gov- market infrastructure and poor legal enforcement mecha- ernance disclosure practice has evolved. Initially, disclosure nisms implies that shareholder protection, especially minority simply focused on a firm’s financial statement: At present, shareholders and property rights of individuals and corpora- corporate disclosure is used as a strategic business tool in tions, are not effectively protected (Humayun & Adelepo, risk assessment and value creation (Belkaoui & Karpik, 2012; La Porta, Lopez-de-Silanes, & Shleifer, 2002). 1989). Recently, the emergence of detailed, extensive, and To address the myriads of issues affecting corporate gov- comprehensive corporate governance disclosure strategies ernance in developing countries, Okike (2007) emphasize that include every aspect and facet of a firm’s performance the importance of strengthening domestic institutions—They has largely resulted in expanding and broadening not just the maintain that it is important for financial institutions to scope but also the scale of information released by corpora- improve transparency, risk management, and self-regulation. tions (Eng & Mak, 2003). Disclosure strategies have signifi- Furthermore, they encourage the adoption of international cantly expanded to include economic, environmental, and standards and best practices in accounting, auditing, and cor- social information, and are now considered as key ingredi- porate governance disclosure as a means of improving cor- ents of many firms’ investors’ requirements and criteria porate governance standards and practices. Adegbite (2010) (Abdelkarim et al., 2009; Richardson & Welker, 2001). also proffers solutions to tackling corporate governance In countries with developed capital market and effective problems in developing countries; he maintains that solu- legal/regulatory frameworks, a significant amount of tions to corporate governance problems in developing coun- research on corporate governance disclosure has been exe- tries must be tackled within the institutional context. He cuted (Bushman, Chen, Engel, & Smith, 2004; Marston & suggests that homegrown solutions should be applied to Shrives, 1991). Unfortunately, this is not the case with coun- address the issues, rather than the easier option of applying tries with less developed markets. In less developed coun- solutions that have worked in developed countries without tries, there is a paucity of research on corporate governance regard to whether they are applicable to developing disclosure; in all sincerity, this should not be so (Adelepo, countries. 2011; Bhasin, 2010; Oluwagbemiga, 2014). Compared with corporate governance disclosure in developed countries, in developing countries there are generally lower disclosure Statement of the Research Problem standards, weaker regulatory and legal systems, as well as Corporate governance disclosure is crucial for the function- limited enforcement capacity (Nenova, 2005; Okike, 2007); ing of an effective and efficient financial market (Brennan & there is significant state ownership or holding of many Isukul and Chizea 3 private business corporations in developing countries agency theory is that managers’ (agents) and the owners’ (Samaha, Dahawy, Hussainey, & Stapleton, 2012), and board (principals) interest are not aligned (Jensen & Meckling, effectiveness and independence tend to be weak and ineffec- 1976). The managers or directors are more interested in max- tive (Ahunwan, 2002). imizing their own wealth, power, and prestige while safe- From the onset, the intention of this research was to select guarding their reputations; on the contrary, shareholders are some of the best banks in Africa to examine their corporate more inclined to maximize the value of their shares and asset governance disclosure practices, as larger banks are known holdings (Eisenhardt, 1989). This divergence in the align- to have better disclosure practices than smaller banks, ment of interests has been the cause of severe tension because corporate governance disclosure tends to generate between agents and principals. Donaldson and Davis (1991) considerable costs to firms (Maingot & Zeghal, 2008). More posit that these divergences of interest could sometimes lead importantly, the research intends to examine the current state to what they call “agency loss.” Agency loss may occur when of corporate governance disclosure practices in Nigerian and the returns to the residual claimants (the owners) fall short or South African banks so as to understand and inform on the below what they would be if the principals, the owners, exer- nature, focus, and extent of corporate governance disclosure cise direct control of the corporation (Guilding, Warnken, in the Nigerian and South African banking industries. This Ardill, & Fredline, 2005). will inform to what extent corporate governance disclosure According to the agency theory, in a bid to address these in Nigerian and South African banks is similar and different, tensions and resolve the differences, the principals have and if there are differences, what the differences are exactly. developed a number of policy incentives that seek to align The research questions this article intends to address are as the interests of agents alongside theirs (Hill & Jones, 1992). follows: Some of the policy prescriptions include incentive schemes for managers which recompense them monetarily for enhanc- Research Question 1: To what extent do Nigerian and ing shareholders’ interest. These schemes constitute plans South African banks disclose corporate governance infor- allowing senior executives to obtain shares of the company mation in their annual report, and what are the levels of usually at a reduced price, consequently aligning financial disclosure of nonfinancial information? interest of executives with those of shareholders (Jensen & Research Question 2: Is the disclosure of nonfinancial Meckling, 1976). There are other policies designed in a simi- information linked to the overall business strategy of the lar manner; however, they are targeted at increasing the lev- banks? els of transparency and corporate governance disclosure (Bushman & Smith, 2001). Business management and This article intends to contribute to the burgeoning research accounting researchers have applied themselves to investi- on corporate governance disclosure in developing countries gating mechanisms of transparency (financial reporting and with particular emphasis on South African and Nigerian voluntary disclosure) which sought to align interests of Banks. Thus far, there is a paucity of research on compara- shareholders and managers (e.g., Bushman & Smith, 2001; tive corporate governance disclosure in developing countries Healy, Hutton, & Palepu, 1999; Healy & Palepu, 2001; as most research in developing countries tends to focus on Hermanson, 2000). Apparently, transparency in the form of disclosure practices of a single country. This research intends increased corporate governance disclosure is considered an to focus on comparative corporate governance by investigat- important instrument for aligning management and share- ing disclosure practices of South African and Nigerian holders’ interest (Brennan & Solomon, 2008). Also, it serves Banks. In so doing, it extends the research on corporate gov- as a means of mitigating the information asymmetry that ernance disclosure in developing countries beyond the single exists between management and shareholders. case study. This research article begins by exploring the vari- ous theoretical frameworks on corporate governance— Institutional Theory agency theory, institutional theory, and stakeholder theory. It goes on to examine the literature on corporate governance in In contrast, institutional theory maintains that the quality of Nigeria and South Africa, and research on corporate gover- institutions tends to influence corporate governance practices nance disclosure. It follows with the justification of the (Aguilera & Jackson, 2003; Fiss, 2008). This is more so in methodology adopted in the analysis of the result and discus- developing countries where the quality of institutions is poor; sion of the findings. corporate governance practices tend to suffer as a result (Adegbite & Nakajima, 2012; Klapper & Love, 2002). Institutional deficiencies such as weak investor protection, Agency Theory poor enforcement of contracts, high levels of corruption in pri- In corporate governance research, agency theory has been vate and public sectors, lax regulatory environment, and unsta- used to investigate corporate governance disclosure (Brennan ble political institutions are important determinants in the & Solomon, 2008; Cohen, Krishnamoorthy, & Wright, 2004; quality of corporate governance (Adegbite, Amaeshi, & Healy & Palepu, 2001). The basic assumption about the Nakajima, 2013; Claessens, 2006). While agency theory 4 SAGE Open focuses on the relationship between the principal and the agent between various stakeholders of the firm (Schwarzkopf, (Jensen & Meckling, 1976), institutional theory goes beyond 2006; Solomon, 2010). Stakeholder theory broadens the the principal/agent relationship—It looks at the broader context stakeholders’ relationship beyond the principal/agent rela- and environmental influences that are capable of influencing tionship to include other critical stakeholders whose activi- corporate governance (Amenta & Ramsey, 2010; Meyer, 2007; ties can significantly influence or impact on the business Scott, 2004). Institutional theory acknowledges that for any activities of the firm (Donaldson & Preston, 1995; Hill & business or firm to function effectively, it needs an enabling Jones, 1992). Another similarity between the stakeholder environment where the rule of law is sacrosanct, viable institu- theory and agency theory is that both theories focus on the tions that protect investors and business firms, and the removal creation of value: Agency theory is intent on providing of unnecessary bureaucratic bottlenecks that escalate the costs shareholder value while stakeholder theory aims at maximiz- of doing business (Adegbite & Nakajima, 2012). ing value for a diverse group of stakeholders (Reynolds, Previous definitions of institutions paid significant atten- Schultz, & Hekman, 2006). Of particular importance in tion to the formal element of institutions (North, 1990). The stakeholder theory is the expanding of the roles of businesses term institutions were narrowly defined as enabling and beyond the narrow profit-seeking motive to include social constraining human behavior (Helmke & Levitsky, 2003). and ethical obligations of businesses to its various stakehold- Institutions were regarded as formalized structures of writ- ers (Bosse, Phillips, & Harrison, 2009; Parmar et al., 2010). ten rules, regulations, and codes that have to be obeyed In doing so, stakeholder theory is redefining the roles and (Hodgson, 2006); failure to comply with the rules and laws responsibilities of business by suggesting that while making resulted in punishments in the form of fines and fees or profit is important, businesses have other nonmonetary and physical incarceration depending on the gravity of the nonpecuniary obligations that they need to fulfill (Solomon, offense (Nutt-Powell, 1978). A common thread which has 2010). been woven through these research studies is the focus on Stakeholder theory argues that business organizations formal institutions to the detriment of the informal elements have relationships with a diverse group of people and that it of institutions (Scott, 2007; Tsai, 2006). Informal institu- can foster, support, and maintain the interests of these groups tions were not given much academic consideration. At the by balancing and taking into consideration their needs and time, a common critique and frustration with venturing into interests (Freeman, Wicks, & Parmar, 2004; Phillips, research on informal institutions was the difficulty in mea- Freeman, & Wicks, 2003). Stakeholders can be classified suring, appraising, assessing, and evaluating informal insti- into two distinct categories (Reynolds et al., 2006): primary tutions (Peng & Jiang, 2010). Informal institutions can be stakeholders and the secondary stakeholders. The primary described as manifestations of a society’s normative con- stakeholders include the following group of people: share- figuration; they symbolize society’s decisions about the holders, investors, employees, suppliers, customers, local desirability of actions and events. community, and government. The secondary stakeholders Recently, a broader definition has been sought to include the can be described as those groups of persons who are not formal and informal nature of institutions. Ménard and Shirley directly involved in the firms’ business activity but can sig- (2008) define institutions as “the written and unwritten rules, nificantly influence the operations of the business. norms and constraints that humans devise to reduce uncertainty To date, the influence of stakeholder theory in the field of and control their environment” (p. 1). These include (a) written finance, economics, and accounting is obvious (Strand & rules and agreements that govern contractual relations and cor- Freeman, 2015). It is standard practice for multinational cor- porate governance; (b) constitutions, laws, and rules that gov- porations and big businesses to include elements of corpo- ern politics, government, finance, and society more broadly; rate social reporting in their financial reports. The inclusion and (c) unwritten codes of conduct, norms of behavior, and of corporate social reporting in financial reports is an attempt beliefs. Institutional theory maintains that institutions have the by businesses to recognize the importance of other stake- ability to form, build, and create institutional pressures that holders who are not necessarily shareholders/managers. nudge business firms to seek for social conformity and legiti- Furthermore, by inclusion of social and environmental macy. Again, institutional theory posits that multilevel influ- reports in their financial statements, businesses are begin- ences are more important than market pressures and market ning to realize that they do have social and environmental mechanisms in influencing behavior of business organizations. obligations to critical stakeholders whose activities can However, institutional theorists have been criticized for failure influence their business operations. to take into consideration individual-level explanations and In summary, stakeholder theory suggests that the roles of influences on organizations. business should be redefined and businesses do have moral, ethical, and social obligations that they need to address. Doing this not only ensures that interests of the various inter- Stakeholder Theory est groups will be met, but it also ensures that business orga- It does appear that stakeholder theory is similar to agency nizations are allowed to focus on their business operations theory; both theories focus on a nexus of relationships without any undue distractions that may arise as a result of Isukul and Chizea 5 conflicts between business and its stakeholders (Strand & comprehensive legislation’s corporate governance reforms, Freeman, 2015). However, identification and balancing of South Africa has been affected by major corporate gover- the interests of the various stakeholders is not as simple as nance failures in recent years. The collapse of corporations the stakeholder theory implies—It, in fact, can be a cumber- such as Macmed, Regal Treasury Bank, and Leisurenet are some and complex process (Schwarzkopf, 2006). And some- particularly significant (Sara, 2004). In an effort to reform times, it will be impossible for firms to identify and balance and address peculiar corporate governance problems in the needs of the various stakeholders for a variety of reasons, South Africa, Armstrong et al. (2005) recommend that the some of which may be that the resources to do so are not following issues need to be resolved: intentional regulatory available, or the requests made by the various stakeholders and bureaucratic strangling of small- and medium-scale are unrealistic and therefore impossible to satisfy (Solomon, business enterprises, addressing the problem of a weak, 2010). incompetent, and ineffective board structure, and also the issue of independence of board. Corporate Governance in Nigeria and Research on Corporate Governance South Africa Disclosure In Nigeria, corporate governance practices and conduct have been characterized by endemic corruption, poor transpar- Corporate governance disclosure practices do not and cannot ency, and disclosure practices, as well as significant political develop in a vacuum. Adhikari and Tondkar (1992) maintain interferences in corporate governance activities, conse- that the levels of corporate governance disclosure tend to quently distorting and undermining corporate governance reflect the underlying institutional and environmental influ- development (Ahunwan, 2002; Okike, 2004, 2007; Oyejide ences that affect managers and business firms in different & Soyibo, 2001; Yakasai, 2001). In recent times, ongoing countries. There are a variety of environmental factors that corporate governance reforms have been initiated to improve influence disclosure practices by companies, they have been corporate governance practices in Nigeria. Some of these identified (Radebaugh & Gray, 1993), and these factors reforms include the following: the 2003 Code of Conduct for include regulatory framework, capital markets, economy, Corporate Governance, the 2006 mandatory Code of Conduct enforcement mechanisms, and culture (Cooke & Wallace, for Nigerian Banks post consolidation, the 2007 Code of 1990; Haniffa & Cooke, 2002). Most research papers on cor- Conduct for Shareholders Association in Nigeria, consolida- porate governance disclosure has focused on disclosure tion of Nigerian banks, and the increase in the minimum of issues of developing countries and have been researched capital base. These measures were taken to prevent a repeat from an agency theory perspective (e.g., Bushman & Smith, of the incident that occurred when several banks were bailed 2001; Healy et al., 1999; Healy & Palepu, 2001; Hermanson, out by the Central Bank of Nigeria (CBN) for inability to 2000). Again, agency theory perspective has used transpar- perform their banking obligations as a result of financial fail- ency as a tool and mechanism for aligning the interest share- ure, fraudulent activities by bank managers, and question- holders and management. The influence of corporate able business practices (Ogbeche & Koufopoulos, 2007; governance on disclosure has been examined at the level of Isukul and Chizea, 2016). country (Bushman et al., 2004; Francis et al., 2003) and also The story in South Africa is not entirely different. Among at the level of the firm (Beekes & Brown, 2006; E. C. M. emerging countries in the world, South Africa stands out as a Cheng & Courtenay, 2006). The extant research predicts that very interesting case in which to examine how specific cor- the governance variables likely to influence corporate gover- porate governance reforms have emerged or unfolded (West, nance disclosure can be classified into two categories: exter- 2006). Armstrong, Segal, and Davis (2005) identify a num- nal governance mechanism in the form of political ber of government legislations that have been designed to institutions, legal system, and freedom of the press for the influence and strengthen corporate governance in South country-level studies (Aguilera, Filatotchev, Gospel, & Africa: the Companies Act (1973), the Insider Trading Act Jackson, 2008; Claessens, 2006; La Porta et al., 2002); and (1998), the Public Finance Management Act (1999), and the internal governance mechanisms that involve regulatory Securities Services Act (2004). In addition, South Africa ini- oversight, ownership concentration, share ownership by tiated the publication of corporate governance guidelines and directors and managers, organizational structure of the cor- codes of practice with the King I Report (1994), King II poration, and costs of voluntary corporate governance dis- Report (2002), King III Report (2009), and King IV Report closure (Bushman et al., 2004; E. C. M. Cheng & Courtenay, (2016), instigating an unprecedented global interest in corpo- 2006). rate governance in Africa. The King IV report makes particu- In developing countries, research on corporate gover- lar emphasis on enhancing accountability through disclosure nance disclosure are few and have focused on some of the of executive remunerations in three sections of the financial following issues: overall levels of disclosure using disclo- report: the overview of the remuneration policy, background sure index extracted from corporate governance literature, statement, and implementation report. In spite of several levels of compliance with international standards and 6 SAGE Open domestic regulation, and institutional factors that hinder, meet these new requirements were expected to merge for constrain, and hamper corporate governance disclosure failing to do so, and those who failed to meet the new mini- (Mensah, 2002; Samaha & Dahawy, 2010; Tsamenyi et al., mum capital base requirements would have their licenses 2007). In general, the research on corporate governance dis- revoked. In actual fact, these banking reforms were con- closure for many developing countries reveals a low or mini- structed to prevent the emergence of a banking crisis that mal level of disclosure (Agyei-Mensah, 2012; Barako, 2007; could result from inherently weak banks characterized by Samaha et al., 2012; De Zoysa & Rudkin, 2010). persistent undercapitalization, high levels of nonperforming Samaha et al. (2012) assess corporate governance disclo- loans, illiquidity, insolvency, and poor corporate governance sure of Egyptian firms listed on the Egyptian Stock Exchange practices (Uchendu, 2005). (ESA), and they find that the level of corporate governance As of December 2013, the Nigerian Banking Industry disclosure by Egyptian firms to be minimal; however, they comprised of 20 domestic banks and four foreign banks. The also find that levels of disclosure of corporate governance six Tier 1 banks (Zenith Bank, United Bank for Africa, are high for items that are considered mandatory under the Access Bank, First Bank, Equatorial Trust Bank, and Egyptian Accounting Standard. They conclude that the levels Guaranty Trust Bank) accounted for 70% of the industry’s of corporate governance disclosure are lower for companies total assets of $136 billion as at December 2012. The other with duality position, and levels of corporate governance dis- banks (18 in number) held less than 35% of total assets. For closure increase with the number of independent directors on that reason, it should not come as a surprise that research on the board. Agyei-Mensah (2012) investigates the extent to the Nigerian banking industry focuses on the five leading which Ghanaian firms comply with International Accounting banks. According to CBN, Nigerian banks operate through Standards and also with the levels of corporate governance an extensive network that includes over 5,585 DMBs and disclosure. The findings of the research reveal that most of close to 12,755 automated banking machines (ABMs) across the firms listed in the Ghana Stock Exchange did not over- the country. In total, these financial institutions have over whelmingly comply with International Accounting Standards 136 billion dollars in assets, which represent a 300.5% disclosure requirements. increase in assets within 7 years of the banking consolidation The pioneering research on corporate governance disclo- (Umar & Olatunde, 2007). sure in Nigeria was done by Wallace (1988). His findings In comparison, South African banks appear to have a bet- reveal that most of the companies in the study had a high ter developed and more robust banking infrastructure than level of corporate governance disclosure with respect to bal- Nigerian Banks. They have a large sophisticated financial ance sheet, valuation method, and historical items. However, structure and a highly competitive banking industry which is the companies did not adequately comply with the disclosure dominated by both local and foreign banks. The total finan- requirements and also the levels of corporate governance dis- cial sector asset is an estimated 298% of GDP and exceeds closure were poor, an estimated 43.11%. A similar study on those of most developing economies. Commercial banks corporate governance disclosure in South Africa was done assets alone are an estimated 112% of GDP, while the insur- by Fire and Meth (1986), who did a comparative analysis of ance-sector gross assets are 67% of GDP. The South African corporate governance disclosure in South Africa and the Reserve Bank (SARB) maintains that total banking sector United Kingdom. For South Africa, the study revealed low assets recorded, on average, an annual growth rate of 7.2% levels of disclosure for listed South African firms, and this during a 3-year period (2011-2014), reaching US$362 billion was found to be common with other studies done on corpo- by December of 2014. On the whole, Southern African banks rate governance disclosure in developing countries. Although are well capitalized and, more often than not, have lower the findings are not encouraging, they are consistent with nonperforming loan ratios in comparison with the other Street and Gray (2001), Barako (2007), and Dahawy (2009) developing countries. who find similar results with companies in other developing In South Africa, there are 31 registered banks which com- countries. prise of 17 South African Banks, 14 foreign banks, and three mutual banks. Also, 41 international banks have authorized representative offices in South Africa; however, these repre- Characteristics of the Banking Sector in sentative offices do not collect financial deposits. Five major Nigeria and South Africa commercial banks continue to dominate the South African Prior to the banking consolidation reforms in 2004, there banking industry: the Amalgamated Bank of South Africa were a total of 89 banks in Nigeria with a total of 3,200 (ABSA), Nedbank, FirstRand Bank, Investec, and Standard deposit money banks (DMBs), and total employment in the Bank group—These banks account for an estimated 85% of sector has gone up from about 55,000 before reforms to over total assets and have significant international presence. 77,519 currently (Gunu, 2009). The banking consolidation According to the SARBs, South African banks function exercise by the CBN demanded that all deposit banks through sophisticated and intricate networks that consist of increase their minimum capital base from US$15 million to 5,144 DMBs and close to 27,953 ABMs throughout the US$200 million by December 2005. Banks that failed to country. Isukul and Chizea 7 disclosure research. A particular research paper was of Method immense significance (Maingot & Zeghal, 2008). A number In constructing a disclosure index, numerous studies and of their suggested essential elements of disclosure have been approaches have been developed; this is done with the pur- adapted and integrated into the coding sheet. The second step pose of ensuring that a scoring scheme can be designed that was the use of supplementary points of interest that were will serve as a useful guideline for assessing and determining revealed when examining the 2013 annual reports of the five the disclosure levels of annual reports (Ceft, 1961; Cooke, largest banks in Nigeria (United Bank for Africa, Guaranty 1989; Marston & Shrives, 1991). In business and accounting Trust Bank, Zenith Bank, First Bank of Nigeria [FBN], research, there are two known methods of designing a disclo- Access Bank) and five largest banks in South Africa sure index: weighted disclosure index (Botosan, 1997; (FirstRand, African Bank, Nedbank, Capitec Bank, and Buzby, 1974; Eng, Hong, & Ho, 2001) and unweighted dis- Standard Bank). The coding guideline and instruction is as closure index (Akhtaruddin, 2005; Archambault & follows: A positive score of 1 is given to any bank when it Archambault, 2003; Raffournier, 1995). Both have been used discloses the statement in question; if it fails to disclose, the in various accounting and business research papers in mea- bank is given a score of 0. suring the degree of disclosure in annual reports. Both tech- In collecting the data for this research, a methodological niques used in measuring disclosure in annual reports are not approach was used in selecting the Nigerian and South without their flaws; the unweighted disclosure index, for African banks under the study. To make the list, the Nigerian example, has been criticized for making the basic assump- and South African banks had to rank among the top 50 banks tion that all items in the annual reports are equally important in Africa. Second, the banks in consideration had to have to the information users. The use of a weighted disclosure their annual reports available on their Internet websites; index has also been criticized because of the possibility of banks in Nigeria and South Africa which had no Internet introducing a bias toward specific information users. presence were not considered. Having done this, the follow- However, the use of the unweighted disclosure index tech- ing banks in Nigeria emerged for consideration: First Bank, nique addresses the issue of subjectivity that arises in assign- United Bank for Africa, Guarantee Trust Bank, and Access ing of different weights to different items when user Bank. For South Africa, the following banks made the list: preference of annual reports remain unknown (Adrem, 1999; African Bank, FirstRand, Standard Bank, Nedbank, and S. J. Gray, Meek, & Roberts, 1995). As a result of the critique Capitec Bank. In analysis of the annual report, the corporate against the use of weighted scoring technique, unweighted governance disclosure index was used as a guideline. The disclosure technique has become the norm that is applied in index served as a useful guide in deciding what issues in cor- conducting research for this type of studies (Arvidsson, porate governance disclosure had to be examined and what 2003). In his considered opinion, Wallace (1988) maintains had to be ignored. that all disclosed items should be given equal consideration It is important to state that the Internet has significantly and that they should be of equal importance to the average enhanced data collection in developing countries and has users (Ahmed & Courtis, 1999). In this research, therefore, made it convenient for researchers to collect data from the voluntary corporate governance disclosure in annual reports confines of their own offices; they do not have to travel long for five Nigerian and five South African banks for the year distances and spend outrageous amounts of money and time 2013 was considered and scored on a dichotomous basis. A in different cities. It is essential that the term corporate gov- score of 1 is assigned to a company’s disclosure of an item ernance voluntary disclosure should be defined. In this and 0 for nondisclosure of an item. For all of the annual research, corporate governance voluntary disclosure has reports selected for this research, to calculate the disclosure been defined as the prudent and discretionary release of score, the number of items that have been disclosed in the financial as well as nonfinancial information through annual annual report was divided by the total number of items rele- reports, that is, information that is considered over and above vant to the particular bank, which the report covers. the mandatory requirements with regard to Nigerian and The total disclosure score for each firm is South African company laws, regulatory requirements, and professional accounting standards. Dd = j, i=1 Discussion of Findings where di is 1 if an item is disclosed and 0 if not; m is the In Table 1, the descriptive statistics indicates that South number of voluntary items disclosed in the annual reports African and Nigerian banks both have similar unitary board (here m = 51). structure that consists of a mix of executive and nonexecutive The coding sheet on disclosure of corporate governance directors. The United Nations (UN; 2006) guidance on good in Nigerian and South African banks, seen in its entirety in corporate governance disclosure recommends specifically that the appendix, has 51 elements. The first step that was taken the composition of the board regarding the balance of execu- was reviewing the extant literature on corporate governance tive and nonexecutive directors should be disclosed: The 8 SAGE Open Table 1. Structure of Executive Board, Board Meetings, and Number of Committees. Male Female Nonexecutive Board meetings Number of Company directors directors Total directors in a year committees First Bank 11 3 14 4 4 6 United Bank for Africa 14 5 19 7 6 6 Guaranty Trust Bank 10 4 14 7 4 5 Zenith Bank 13 2 15 7 4 5 Access Bank 12 5 17 9 4 4 Total 60 19 79 34 African Bank 9 2 11 6 11 5 FirstRand 16 4 20 17 6 4 Standard Bank 15 2 17 14 7 Nedbank 11 3 14 11 5 6 Capitec Bank 16 2 18 9 6 6 Total 67 13 80 57 Table 2. Summary of Corporate Governance Disclosure for Nigerian and South African Banks. Banks Possible score UBA GTB ZEN FBN ACS RAND AFN NED CAP STD 1. Board structure and directors profile 12 11 10 5 10 10 7 6 9 9 11 2. Financial information and corporate information 11 9 10 8 11 9 5 8 6 9 8 3. Board independence and board committee 11 8 8 5 10 6 6 9 6 8 9 4. Corporate social responsibility disclosure 4 3 4 4 4 1 0 3 0 0 4 5. Information on website 4 4 4 4 4 4 3 3 3 3 3 6. Remuneration of board 8 4 4 4 4 4 3 3 3 3 3 Total score 50 39 40 30 43 34 24 32 27 32 38 Percentage of disclosure 78.4 76.5 58.8 82.4 68.6 47 66.7 56.9 64.7 78.4 Note. UBA = United Bank for Africa; GTB = Guaranty Trust Bank; ZEN = Zenith Bank; FBN = First Bank of Nigeria; ACS = Access Bank; RAND = FirstRand; AFN = African Bank; NED = Nedbank; CAP = Capitec Bank; STD = Standard Bank. composition of the board should be disclosed, in particular the General Corporate Governance balance of executives and nonexecutive directors, and whether Disclosure of the Banks any of the nonexecutives have any affiliations (direct or indi- A summary of corporate governance disclosure for Nigerian rect) with the company. Table 1 also shows that the mix of and South African banks can be seen in Tables 2 and 3. The executive directors for South African and Nigerian banks are coding sheet was divided into six different sections: (a) The both male dominated with fewer women holding executive board structure and directors profile are basically about infor- positions in both banks. In Nigerian Banks, women account mation that relates to the board of directors, for example, the for 24.05% of the total board of directors, while in South number of directors, qualifications of the directors, number of African banks women account for only 16.25% of the total years on board, and biography of the directors; (b) financial board of directors, a much lower percentage when compared information and corporate information deal with the following with that of Nigerian Banks. With regard to the number of issues, for example, summary of financial data for at least a committees, all banks in South Africa and Nigeria have at least minimum of 2 years, share price information, corporate mis- three committees. The UN (2006) categorically states that the sion statement, and statement disclosure relating to competi- establishing of board committee is intended to “facilitate ful- tive position in the industry; (c) board independence and board fillment of certain of the board’s functions and address some committee relate to, among other things, disclosure involving potential conflict of interests” (p. 15). The King II Report separating the roles of the chairman and chief executive offi- (2002) report and the Nigerian Code on Corporate Governance cer (CEO), independence of the board committees, and duties are both very clear on committee representation and state that for effective governance of the company’s affairs, all compa- of the various committees; (d) corporate social responsibility nies should have a minimum of two committees which should disclosure is specific to corporate governance disclosure on include remuneration committee and audit committee. community involvement/participation, statement on corporate Isukul and Chizea 9 Table 3. Descriptive Statistics of Corporate Governance Disclosure for Nigerian and South African Banks. Nigerian banks South African banks M SD Variance Maximum Minimum M SD Variance Maximum Minimum 1. Board structure and directors profile 9.2 2.38 5.7 12 5 8.4 1.94 3.8 12 6 2. Financial information and corporate 9.4 1.14 1.3 11 8 7.2 1.64 2.7 11 5 information 3. Board independence and board committee 7.4 1.94 3.8 11 5 7.6 1.51 2.3 11 6 4. Corporate social responsibility disclosure 3.2 1.3 1.7 4 1 1.4 1.94 3.8 4 0 5. Information on website 4 0 0 4 4 3 0 0 4 3 6. Remuneration of board 4 0 0 8 4 3 0 0 8 3 Percentage of disclosure 72.9% 60% social responsibility, and environmental projects/activities marginal improvements over the years, as most of the studies taken; (e) information on website section deals with the disclo- in question are over a decade old. sure of corporate governance information on the Internet, for Another explanation could be the small sample size of the example, availability of online annual reports, online proxy study in question which examined Nigerian and South circulars and notices of annual meeting, and having a corpo- African banks that were regarded as the best ranking banks, rate governance webpage; and (f) remuneration of board sec- and as such this may not reflect the disclosure practices of all tion is about issues relating to remuneration of the executives, banks in Nigeria and South Africa. If a larger sample size is number of shares owned by directors, and loans to directors. considered to include more banks, the results may be differ- A cursory glance at the summary of corporate governance ent. One of the noticeable trends in corporate governance in disclosure for Nigerian and South African banks reveals that developing countries is the development of regulations and Nigerian banks, on average, tend to disclose more corporate codes of corporate governance targeted at improving corpo- governance information than South African banks. In gen- rate governance practices and policies (Bhasin, 2013; eral, the Nigerian banks’ annual reports tend to be more volu- Samaha et al., 2012), which is in line with global best prac- minous than the annual reports from their South African tice. Still, there is room for improvement: The overall disclo- counterparts. Some of the Nigerian banks’ annual reports sure score for Nigerian and South African banks is 72.9% were more than 300 pages, while those of South Africa were and 62.7%, respectively. between 180 to 260 pages. Surprisingly, one would have It is possible for developing countries to improve their expected that South African banks would have better corpo- levels of corporate governance disclosure over time, and rate governance disclosure scores than that of Nigerian while the average percentage score for corporate governance Banks; South African banks tend to be multinational banks disclosure for Nigerian and South African banks appears with a global spread, are more sophisticated, and have vast high, this is not the case when individual bank corporate gov- branch networks across the globe when compared with the ernance disclosure scores are examined, for instance, a Nigerian banks which are all indigenous banks. South Nigerian bank, Zenith’s overall corporate governance disclo- African banks tend to disclose less information in three core sure scores 58.8%, while a South African bank, Rand’s over- areas: board structure and director profile, financial and cor- all corporate governance scores 47%. This simply implies porate information, and corporate social responsibility dis- that while, on average, corporate governance scores for closure. A genuine reason for the difference in the levels of Nigerian and South African banks appear high, individual disclosure between Nigerian banks and South African banks bank scores may differ. In reality, that means some banks is as a result of mandatory corporate governance disclosure would have better corporate governance scores than others. requirements demanded of Nigerian banks by the regulatory authorities. In addition, we find in the overall level of disclo- Board Structure and Directors Profile sure, there is a 4% margin between FBN and Standard Bank, but the margin increases significantly between FBN and The King and the CBN corporate governance code recom- African Bank at 13%, and FBN and Capitec Bank at 17%. mend the separation of the role of the chairman and the CEO. However, the average disclosure score for Nigerian banks Both roles are considered too powerful to be given to a lone and South African banks is quite high (72.9% and 60%) individual to execute. This is considered good corporate gov- when compared with developing countries such as Brazil, ernance practice, as outlined in the CBN’s Corporate 32.65% (Patel, Balic, & Bwakira, 2002); Bangladesh, 43.5% Governance Code and the King report, and all Nigerian and (Akhtaruddin, 2005); and Ghana, 52% (Tsamenyi et al., South African banks in the study have complied with this 2007). A plausible explanation could be that corporate gover- guideline requiring them to separate the roles of the chair- nance practices in developing countries have had some man and the CEO. In addition to regulatory requirements, the 10 SAGE Open Table 4. Board Structure and Directors Profile. Table 5. Financial Information and Corporate Information. Nigerian South African South Nigeria Africa Number of directors 5/5 5/5 Summary of financial data for at least 2 years 5/5 5/5 Duties of board of directors 4/5 1/5 Share price information 4/5 3/5 Number of meetings 4/5 2/5 Retained profits 5/5 5/5 Chairman identified 5/5 5/5 Bank loans 5/5 5/5 CEO identified 5/5 5/5 Foreign currency fluctuation during the year 2/5 5/5 Minimum qualifications of directors 4/5 5/5 General information about the economy 5/5 3/5 Name 5/5 5/5 Corporate mission statement 5/5 1/5 Residence 0/5 0/5 Business environment (economics, politics) 5/5 3/5 Qualification and occupation 4/5 5/5 Statement disclosure relating to competitive 1/5 0/5 Number of years on board 2/5 4/5 position in industry Photos of members 5/5 2/5 Corporate contribution to national economy 5/5 3/5 Biography of members 3/5 4/5 Significant issues during the year 5/5 3/5 Percentage of disclosure 92% 86% Percentage of disclosure 85.4 65.4 Nigerian and South African banks have disclosed more Corporate Social Responsibility information in terms of qualifications of directors, photo- graphs of directors, and the number of years they have served Disclosure on the board. The King report encourages South African companies to report However, there is evidence to suggest that Nigerian banks on corporate social responsibility, but this is not the case in tend to disclose a bit more information about the board struc- Nigeria as none of the regulatory agencies require that compa- ture and directors profile than their South African counter- nies should report on corporate social responsibility. However, parts. With regard to disclosure on board structure and there is an awareness of the importance of integrating corporate director profile, Nigerian banks score 92% while South social responsibility disclosure as part of the banks’ environ- African banks score 86%. The slight differences in scores mental, social, and ethical risk strategies (Carroll & Shabana, were as a result of the following in Table 4: Only one South 2010; Kotler & Lee, 2006; Porter & Kramer:, 2002; Tencati, African bank disclosed information regarding duties of the Perrini, & Pogutz, 2004; Weber, 2008). Both Nigerian and directors of the board, and two of the banks had photographs South African banks seem to recognize that nonfinancial risks of members of the board. can pose significant threats to their business activities and so have decided to design effective strategies to tackle nonfinan- cial risks that may threaten the continuity of the business. South Financial and Corporate Information African banks tend to be more systematic in the reporting of The findings of the research reveal that Nigerian and corporate social responsibility; they abide by regulations of the South African banks follow international and domestic King report and also apply international standards such as the guidelines in disclosing their financial and corporate global reporting initiative in their corporate governance volun- information as well as the operating results. The UN, the tary disclosure. Sadly, with regard to corporate social responsi- King III report, and the CBN Corporate Governance Code bility disclosure for Nigerian banks, disclosure appears to be a all request that corporate entities disclose their financial compiling and collation of information at the end of the year. and corporate information so that shareholders and stake- Certainly, this should not be so; nonfinancial disclosure should holders can understand the nature and present state of be linked to the overall business strategy of the organization. affairs of the business. Furthermore, in corporate social responsibility disclosure, In Table 5, the financial and corporate information disclo- many of the Nigerian banks in the study have not taken the time sure reveals that Nigerian banks scored 85.4% while South to adopt any international guideline in their reporting. African banks scored 65.4%, a 20% point difference. In the Consequently, there is no uniformity in the way the corporate areas of summary of financial data, disclosure of retained governance voluntary disclosure is done (see Table 6). profits, and bank loans, Nigerian and South African banks tend to be at par, in terms of the levels of disclosure. However, Board Independence and Board Nigerian banks tend to disclose a bit more information in the Committee areas of general information about the economy, corporate mission statement, business environment, and contribution Board independence is an integral element of corporate gov- to national economy. ernance practices. Research maintains that an independent Isukul and Chizea 11 Table 6. Corporate Social Responsibility Disclosures. Table 8. Remuneration of Board. South South Nigeria Africa Nigeria Africa Statement on corporate social responsibility 4/5 2/5 CEO salary 3/5 5/5 Statement on environmental policy 3/5 2/5 Number of shares owned by CEO 3/5 5/5 Environmental projects/activities taken 4/5 2/5 Explanation of CEO stock requirement 0/5 0/5 Information on community involvement/ 5/5 1/5 Loans to CEO 0/5 0/5 participation Directors’ salary 3/5 5/5 Percentage of disclosure 80% 35% Number of shares owned by directors 3/5 4/5 Explanation of directors’ stock requirements 0/5 1/5 Loans to directors 0/5 0/5 Table 7. Board Independence and Board Committee. Percentage of disclosure 30% 50% South Nigeria Africa South African banks’ score of 50%. For Nigerian and South Separate section outlining board independence 1/5 2/5 African banks, none of the five banks disclosed any issues Separation of the role of chairman and CEO 4/5 5/5 relating to loans to CEO, explanation of CEO stock require- Capable of determining independence of board 1/5 5/5 ments, and loans to directors. On the whole, South African remuneration review banks disclose more information relating to remuneration of Capable of determining independence of audit 5/5 5/5 board than Nigerian Banks. committee Capable of determining independence of 4/5 4/5 conduct review or risk committee Corporate Governance Voluntary Number of committees 5/5 5/5 Disclosure of Nigerian and South Duties of committees 3/5 4/5 Number of meetings 5/5 3/5 African Banks Number of members 5/5 3/5 A more informative sign or indicator of a bank’s corporate Identify chairmen 4/5 2/5 governance disclosure is the level of voluntary corporate Percentage of disclosure 74 76 governance disclosure (Mensah, 2002; Oluwagbemiga, 2014; Samaha & Dahawy, 2010; Tsamenyi et al., 2007). Voluntary corporate governance disclosure is simply board enhances corporate governance practices as boards of explained as information that banks provide that they are not directors who do not have pecuniary and material interests obligated to disclose or divulge under any form of regula- invested in the corporation tend to give more independent tion. In determining which items of the coding sheet were valuations and are less swayed to protect managerial inter- mandatory and which items were voluntary, a review of the ests to the detriment of shareholders. The UN, the King III disclosure requirements of the Nigerian Stock Exchange, report, and the CBN Corporate Governance Code all stress Corporate Governance Code for Nigerian Banks, Corporate the importance of an independent board of directors. In dis- Matters Allied Act, King Report, South African Stock closure relating to board independence and board committee, Exchange, United Nations Corporate Governance Code, and Nigerian banks and South African banks tend to have similar Organization for Economic Co-Operation and Development levels of disclosure as the Nigerian banks’ score of 74% is (OECD) Governance Code was taken. 2% lower than South African banks’ score of 76%. Out of 51 items that were listed on the coding sheet, 20 of Still, when a meticulous examination of board indepen- the items were found to be completely voluntary. The list of dence and board committee in Table 7 is undertaken, the these voluntary corporate governance items with the fre- findings reveal that in relation to sections dealing with out- quency of their governance disclosure is displayed in Table lining board independence and determining independence of 9. In comparing the levels of disclosure, a comparative anal- board remuneration, Nigerian banks perform worse than ysis was done between Nigerian and South African banks. In their South African banks’ counterparts. In Table 8, corporate general, the results show that Nigerian and South African governance disclosure relating to remuneration of board of banks have poor levels of voluntary corporate governance Nigerian and South African banks, the tables reveal low lev- disclosure, with South African banks faring a bit better with els of disclosure for Nigerian and South African banks on a score of 38.9% while Nigerian banks scored 28.4%. More both issues. In fact, corporate governance disclosure on South African banks had disclosure of online information, remuneration of the board of directors appears to be the least online annual reports, number of years on board, and online disclosed for Nigerian and South African banks, with links to corporate governance webpages than their Nigerian Nigerian banks scoring 30%, that is 20% lower than the banks’ counterparts. However, there are some issues in 12 SAGE Open Table 9. Governance Information Disclosed Voluntarily. Furthermore, corporate governance disclosure in Nigerian and South African banks appears to be heading South toward greater stakeholder inclusivity, again reflecting a Voluntary information disclosed Nigeria Africa deeper shift from the prevailing shareholder and agency Residence 0/5 0/5 theory framework and toward a stakeholder-oriented Occupation 4/5 5/5 framework. Here, corporate governance disclosure is tar- Number of years on board 2/5 4/5 geted at disclosing information to a wide variety of users Capable of determining independence of 1/5 5/5 of corporate annual reports as well as internal and external board remuneration review stakeholders. Nevertheless, with regard to disclosure of Capable of determining independence of 4/5 4/5 nonfinancial information, by which we mean disclosure conduct review or risk committee relating to social, environmental, and ethical reporting or Photos of members 5/5 2/5 corporate social responsibility as the names imply, it Biography of members 3/5 4/5 appears there is significant room for improvement in dis- Explanation of CEO stock requirement 0/5 0/5 closure practices. As it stands, social, environmental, and Explanation of director stock requirement 0/5 1/5 ethical reporting or corporate social responsibility appears Number of related directors 0/5 0/5 to be a collation of information at the end of the year. Reasons for relations 0/5 0/5 Certainly, this should not be the case. Nonfinancial infor- Online link to corporate governance 3/5 5/5 webpage mation disclosure should be linked to the overall business Number of affiliates 0/5 0/5 strategy of the organization. Many Nigerian banks in the Reason of affiliation 0/5 0/5 study failed to link nonfinancial disclosure to their overall Past committee experience 0/5 0/5 business strategy. Nonfinancial disclosure appeared to be Separate section outlining board 1/5 2/5 done for the sake of disclosure, without any thought of independence criteria how to align nonfinancial disclosure with their business Online histogram of organization 0/5 0/5 strategy. As it stands, most of the banks in question have Minimum qualification for directors 4/5 5/5 not taken the time to adopt any international standard or Number of directors who can sit on and 0/5 0/5 guidelines in the disclosure of nonfinancial information. outside the board Consequently, directors and managers who are saddled Percentage of disclosure 28.4% 38.9% with the responsibility of corporate governance disclosure in developing countries need to think carefully about cor- porate governance disclosure. Corporate governance dis- voluntary corporate governance disclosure where Nigerian closure should not be taken for granted nor should it be and South African banks record poor levels of voluntary dis- done in a haphazard manner. A lot of thought and meticu- closure and they include residence of directors, explanation lous deliberation should go into deciding what should be of CEO stock requirements, past committee experience, and disclosed and also aligning what is disclosed with the number of directors who can sit on and outside the board. overall business strategy of the firm. Corporate gover- nance disclosure matters, and better disclosure practices Summary and Conclusion have immense benefits for the firm such as attracting investors and enhancing firms’ capacity to attract loans at The findings of this research are inconsistent with previous lower interest rates. corporate governance research on Nigeria and South Africa (Fire & Meth, 1986; Wallace, 1988). Previous research had While this research has examined corporate gover- found low levels of disclosure for South African and nance disclosure in Nigerian and South African banks, Nigerian companies listed on the stock exchange. One sen- there is still the need to conduct further research on corpo- sible explanation would be that the previous research rate governance in developing countries. It would be papers are more than two decades old; a lot of significant interesting to have a longitudinal research on corporate changes have happened over the period that would have governance in developing countries like Nigeria and enhanced disclosure practices such as the introduction of South Africa to examine how corporate governance dis- corporate governance codes intended to improve the levels closure has evolved. Another direction that necessitates of transparency and disclosure. The emergence of informa- further research would be the examination of corporate tion communication technology and availability of Internet governance disclosure in other industries, as the banking technology are responsible for enhancing corporate gover- sector represents just one among several. This would help nance disclosure as business organizations can place elec- ascertain whether the level of corporate governance dis- tronic copies of their annual reports online as well as other closure in the banks is similar to that of other industries or relevant corporate governance information not included in if it is different, and if different, what those differences the annual report. may be. Isukul and Chizea 13 Appendix Corporate Governance Disclosure Coding Sheet. Coding sheet Bank name UBA GTB ZEN FBN ACS RAND AFN NED CAP STD Information on website 1. Online information 2. Online proxy circular and notice of annual meeting 3. Online annual report 4. Online histogram of organization 5. Online link to corporate governance webpage 6. Online link to corporate social responsibility web page Subtotal Board 7. Number of directors 8. Duties of board of directors 9. Number of meetings 10. Chairman identified 11. CEO identified 12. Minimum qualifications of directors Subtotal Profile of director 13. Name 14. Residence 15. Qualification and occupation 16. Number of years on board 17. Photos of members 18. Biography of members Subtotal Remuneration of board 19. CEO salary 20. Number of shares owned by CEO 21. Explanation of CEO stock requirement 22. Loans to CEO 23. Directors’ salary 24. Number of shares owned by directors 25. Explanation of directors’ stock requirements 26. Loans to directors Subtotal Board independence 27. Separate section outlining board independence 28. Separation of the role of chairman and CEO 29. Capable of determining independence of board remuneration review 30. Capable of determining independence of audit committee 31. Capable of determining independence of conduct review or risk committee Subtotal Financial information 32. Summary of financial data for at least 2 years 33. Share price information 34. Retained profits 35. Bank loans 36. Foreign currency fluctuation during the year Subtotal (continued) 14 SAGE Open Appendix (continued) Coding sheet Bank name UBA GTB ZEN FBN ACS RAND AFN NED CAP STD Corporate information 37. General information about the economy 38. Corporate mission statement 39. Business environment (economics, politics) 40. Statement disclosure relating to competitive position in industry 41. Corporate contribution to national economy 42. Significant issues during the year Subtotal Committees 43. Number of committees 44. Duties of committees 45. Number of meetings 46. Number of members 47. Identify chairmen Subtotal Corporate social responsibility disclosure 48. Statement on corporate social responsibility 49. Statement on environmental policy 50. Environmental projects/activities taken 51. Information on community involvement/participation Subtotal Total score Percentage of disclosure Note. UBA = United Bank for Africa; GTB = Guaranty Trust Bank; ZEN = Zenith Bank; FBN = First Bank of Nigeria; ACS = Access Bank; RAND = FirstRand; AFN = African Bank; NED = Nedbank; CAP = Capitec Bank; STD = Standard Bank. Declaration of Conflicting Interests Adekoya, A. A. (2011). Corporate governance reforms in Nigeria: Challenges and suggested solutions. Journal of Business The author(s) declared no potential conflicts of interest with respect Systems, Governance and Ethics, 6(1), 38-50. to the research, authorship, and/or publication of this article. Adelepo, I. (2011). Voluntary disclosure practices among listed companies in Nigeria. Advances in Accounting, 27, 338-345. Funding Adhikari, A., & Tondkar, R. H. (1992). Environmental factors The author(s) received no financial support for the research, author- influencing accounting disclosure requirements of global stock ship, and/or publication of this article. exchanges. 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Encyclopedia of social theory (pp. 408-414). Thousand Oaks, CA: Sage. Author Biographies Scott, W. R. (2007). Institutions and organizations: Ideas and Araniyar C. Isukul is a lecturer in the Banking and Finance depart- interests (3rd ed.). Thousand Oaks, CA: Sage. ment at the Rivers State University of Science and Technology, Solomon, A. (2010). Corporate governance and accountability. Port Harcourt, Rivers State, Nigeria. He has an MA and DBA both London, England: John Wiley. from the Newcastle Business School of Northumbria University in Strand, R., & Freeman, R. E. (2015). Scandinavian cooperative Newcastle. His principal research interest lies in the area of corpo- advantage: The theory and practice of stakeholder engagement rate governance, corporate governance disclosure, corporate social in Scandinavia. Journal of Business Ethics, 127, 65-85. responsibility, and financial inclusion. Street, D. L., & Gray, S. J. (2001). Observance of international accounting standards: Factors explaining non-compliance. John J. Chizea is a lecturer in the Economics department at Baze Athens: Certified Accountants Educational Trust. University, Abuja, Nigeria. He earned his PhD at the Newcastle Tencati, A., Perrini, F., & Pogutz, S. (2004). New tools to foster Business School of Northumbria University in Newcastle. His corporate socially responsible behavior. Journal of Business research encompasses areas of financial development and governance, Ethics, 53, 173-190. specifically as they relate to economic growth and development.

Journal

SAGE OpenSAGE

Published: Jul 14, 2017

Keywords: corporate governance disclosure; voluntary disclosure; developing countries; Nigeria; South Africa

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