Matthias Nnadi

The Effect of Board Size and Composition on the Efficiency of UK Banks

Abstract We examine a sample of 17 banking institutions operating in the UK between 2001 and 2006 to provide empirical evidence on the association between the efficiency of UK banks and board structure, namely board size and composition. Our approach is to use data envelopment analysis to estimate several measures of the efficiency of banks, and then to use panel data regressions for investigating the impact of board structure on efficiency. After controlling for bank size and capital strength, we find some evidence of a positive association between board size and efficiency, although this is not robust across all our specifications. Board composition, by contrast, has a robustly significant and positive impact on all measures of efficiency.

The Effect of Taxes on Dividend Policy of Banks in Nigeria

The study explores the impact of taxes on the dividend policy particularly in banks in Nigeria. The study was set out to examine the relationship of profit, dividend and taxes especially in the banking sector. The research underscores the theoretical assumptions of the MM such as impairment of capital, the desire to send favourable signals to investors, the desire to conform to the industrys dividend payout among factors influencing dividend policy of banks. The analyses of the study show a significant correlation between taxes and dividend structure of the banks and also suggest that profit is a major variable in the formation of dividend policy of the organisations. This is supported by the hypothesis, which showed significant effect of profit on dividend and a positive correlation between profit, tax and dividend. The finding corroborates the postulations of some financial theorists and recommends capital gains in lieu of dividend for high taxpayers and that an adoption of a dividend policy by banks particularly in Nigeria should be strictly considered based on the unique circumstances of the bank and not necessarily based on age long traditional factors often formulated by academics.

Multivariate Analyses of Factors Affecting Dividend Policy of Acquired European Banks

Dividends, particularly of acquired banks are influenced by several structural adjustments especially after mergers. The paper evaluates the various factors affecting dividend of both acquired and non-acquired banks. Using data from 120 large mergers and acquisitions in Europe, the study finds that while the levels of liquidity, risk, composition of the financial structure are pertinent factors in the dividend policy of banks, the price earning (PE) ratio is specifically fundamental to non-acquired banks. The significance of the variable in the non-acquired banks indicates that growth in bank investments and future projects exert more aggressive impact on banks that are not acquired or less likely to merge. This finding is novel as previous studies on dividend policy do not make this distinction.

Accounting analyses of momentum and contrarian strategies in emerging markets

Abstract We analyse the momentum and contrarian effects of stock markets in Brazil, Russia, India, China and South Africa (BRICS) using accounting data. The five markets show different characteristics with the Indian market having the strongest momentum effect. Stock markets in China and Brazil show significant short-term contrarian profit and intermediate to long-term momentum profit while South Africa shows short-term momentum effect and intermediate to long-term contrarian effect. The Russian stock market reveals largely insignificant momentum portfolio returns. We also find evidence that the contrarian profits in South Africa and China are caused by relatively high loser returns while positive momentum profit in India results from relatively high winner returns.

Economics and Political Implications of International Financial Reporting Standards

Economics and Political Implications of International Financial Reporting Standards focuses on the consequences and determinants of the adoption of the International Financial Reporting Standard (IFRS), which has remained a top issue in International Accounting. This timely publication brings to the forefront issues related to the political and economic influences and impacts of IFRS in addition to providing a platform for further research in this area.

Does Regulatory Environment affect Earnings Management in Transitional Economies? An Empirical Examination of the Financial Reporting Quality of Cross-Listed Firms of China and Hong Kong

Abstract This paper provides evidence on the impact of regulatory environment on financial reporting quality of transitional economies. This study compares the financial reporting quality of Hong Kong firms which are cross-listed in mainland China with those of Hong Kong firms cross-listed in China using specific earnings management metrics (earnings smoothing, timely loss recognition, value relevance and managing towards earnings targets) under pre- and post-IFRS regimes. The financial reporting quality of Chinese A-share companies and Hong Kong listed companies are examined using earnings management measures. Using 2007 as base year, the study used a cumulative of −5 and +5 years of convergence experience which provide a total of 3,000 firm-year observations. In addition to regression analyses, we used the difference-in-difference analysis to check for the impact of regulatory environments on earnings management. Through the lens of contingency theory, our results indicate that the adoption of the new substantially IFRS-convergent accounting standards in China results in better financial reporting quality evidenced by less earning management. The empirical results further shows that accounting data are more value relevant for Hong Kong listed firms, and that firms listed in China are more likely to engage in accrual-based earnings management than in real earnings management activities. We established that different earnings management practices that are seemingly tolerable in one country may not be tolerable in another due to level of differences in the regulatory environments. The findings show that Hong Kong listed companies’ exhibit higher level of financial reporting quality than Chinese listed companies, which implies that the financial reporting quality under IFRS can be significantly different in regions with different institutional, economic and regulatory environments. The results imply that contingent factors such as country’s institutional structures, its extent of regulation and the strength of its investor protection environments impact on financial reporting quality particularly in transitional and emerging economies. As such, these factors need to be given appropriate considerations by financial reporting regulators and policy-makers interested in controlling earnings management practices among their corporations. This study is a high impact study considering that China plays a significant role in today’s globalised economy. This study is unique as it the first, that we are aware of, to compare real earnings activities against accrual-based earnings management in pre- and post-IFRS adoption periods within the Chinese and Hong Kong financial reporting environments, distinguishing between cross-listed and non-cross-listed firms.

The impact of international financial reporting standards on fund performance

The purpose of this paper is to examine the effect of international financial reporting standards (IFRS) on the performance of UK investment closed-end trust funds with domestic equity focus using Carhart’s Four-Factor model.,The paper is based on the Efficient Market Hypothesis, which argues that all available information is already included in the price of assets, and therefore, investors cannot beat the market or generate abnormal returns.,The results show that on average, UK investment trusts neither do generate abnormal returns, nor is their performance persistent. This paper provides empirical evidence to support the efficient market hypotheses and provides proof that the adoption of IFRS has, on average, a decreasing impact on the excess returns generated by UK investment trusts.,The findings of this paper have business policy implications for investment trust in the UK.

Audit quality, family business and corporate governance mechanisms: The case of Morocco

Purpose The purpose of this paper is to investigate the effect of various corporate governance mechanisms such as board structure, ownership structure and debt level on the demand for better external audit quality. Design/methodology/approach Using a sample of 142 non-financial Moroccan companies, the authors examine the impact of the above corporate governance mechanisms on the audit quality of firms. The empirical model is tested with firms which include family businesses as well as listed and non-listed Moroccan companies. Findings The authors find a positive association between the demand for audit quality and the proportion of independent directors. The authors find evidence that the debt level has no impact on the demand for a better external audit; however, that there exists a complementary effect between the control exercised by independent directors and the demand for external audit quality. For ownership structure, the authors find a significant negative relation between the presence of blockholders and institutional investors and the demand for differentiated external audit quality, confirming the substitution hypothesis. Originality/value The paper has practical importance for corporate governance mechanism and audit quality in the developing economies of Africa. The study highlights that most family businesses have efficient corporate governance mechanism and therefore do not need to rely on the big audit firms for quality audit.

Are serial acquirers good targets for acquisition? An accounting perspective

This study uses the positivist agency theory to examine if serial acquirers with consistently negative cumulative abnormal returns over their past acquisitions are more likely to become targets themselves. The study is based on the assumption that firms that make repeated value reducing acquisitions and depress their stock price are more attractive targets than firms that make good returns to their shareholders through acquisitions, and whose share prices increase correspondingly. Our findings show that serial acquirers that are considered bad bidders are more likely to become targets themselves compared to those that are considered good bidders. While this is the case in the USA and Europe, we find limited evidence to show that the same disciplinary tool is applicable in other parts of the world.

The ‘Individualised Accounting Questions’ Technique: Using Excel to Generate Quantitative Exercises for Large Classes with Unique Individual Answers

Abstract The ‘individualised accounting questions’ (IAQ) technique set out in this paper encourages independent active learning. It enables tutors to set individualised accounting questions and construct an answer grid that can be used for any number of students, with numerical values for each students answers based on their student enrolment number. The individualised questions reduce the risk of collusion and thus allow tutors to set accounting coursework assessments that contribute to final grades in a manner that incentivises students to do them in their own time, drawing on teaching materials and helping them to develop competency. The method also allows specific individualised feedback, and has been used successfully by the authors and found to encourage students to work independently.