Determining a Better Predictor of Bank’s Solvency in Nigeria: Risk-Based Capital or Risk-Independent Capital?

This study empirically attempts to resolve the trade-off of the potential of risk-based capital and risk-independent capital in predicting bank solvency when measured by bank’s z-score. Using bank-level data of Nigerian deposit money banks listed on the Nigerian Stock Exchange between 2012 and 2016 and a long list of seven different measures of capital adequacy, the results reveal the superiority of risk-independent capital in a majority of random-effects models of panel data regression. Specifically and in comparison, equity-to-assets ratio is found to be superior to other indicators of capital adequacy using each model’s adjusted R-square. When equity-to assets ratio is paired with each of other capital ratios, the results support the superiority of the model with equity-to-assets and non-performing assets coverage ratios (which are both risk-independent capital measures) having higher adjusted R-square. Some significant results are also found for other bank-specific factors. These findings have policy implications on the regulation of banks in Nigeria most especially regarding co-opting non-regulatory measures of capital into regulatory regime. The investors and depositors are also provided with alternative means of analysing bank’s financial condition to ensure their interests are not lost unaware because of the linkage of the z-score to bank’s default risk

Bank-Specific Variables and Banks’ Financial Soundness: Empirical Evidence from Nigeria

This study examines the explanatory power of capital adequacy, asset quality, management soundness, earnings quality, liquidity and sensitivity to market risk (CAMELS) framework as well as a number of other variables on the financial soundness (measured by regulatory capital adequacy ratios) of banks in Nigeria. The findings, using ordinary least squared (OLS) regression subsequent to the establishment of no panel effects among the sampled banks, reveal the significant explanatory potentials of these bank-specific variables though some give a reversal of their prior expectations. Apart from reawakening the investors’ and depositors’ interest, the findings further have policy implications on the regulation and operation of these financial institutions. The study breaks new grounds in the measurement of capital adequacy using gross revenue ratio and leverage ratio, asset quality using income statement impairment charges for loan losses, and in the inclusion of the sensitivity to market risk most especially in the Nigerian context

Prospect for accounting academics: examining the effect of undergraduate students’ career decision / Ahmad Bukola Uthman , Mubaraq Sanni and Abdulai Agbaje Salami.

The future of accounting education rests on the development of accounting academics. In the social space of competing job opportunities for both graduate and professional accountants, this paper considers how the interest of prospective accounting graduates in Nigerian universities could reshape the widely reported shortage of accounting academics. Viewing through the lens of the Circumscription Theory, it examines how career choices of undergraduate accounting students affect the prospect of accounting education. The survey technique was adopted to sample students’ opinions across three universities in their career decisions, the factors that affect such decisions and their key referents. The respondents were divided based on their preference for academic jobs and the Mann-whitney U test was conducted to examine the differences in factors that affect their preferences. The study revealed that financial rewards account for students’ preference for non-academic jobs. Hence, only 10% of the respondents showed an intention to pursue a career in the academia. Other factors such as job leisure, ambitiousness and career prestige are also responsible for students’ preference for non-academic jobs. The results of the study confirmed the prediction of the Circumscription Theory. It is therefore recommended that academic jobs should be made attractive for accounting graduates by improving the financial rewards of academic staff generally. More so, attention should be further directed towards factors such as job leisure, holiday travels, prestige and easy achievement of ambitions since students get swayed from academic jobs because of those factors

Bank Capital, Operating Efficiency, and Corporate Performance in Nigeria

This study examines the impact of bank capital and operating efficiency on the Nigerian deposit money bank financial performance with a view to resolving risk-based and non-risk-based capitals’ dichotomy existing in the bank literature. Using bank-specific data obtained from the annual reports and accounts of 15 banks listed on the Nigerian Stock Exchange between 2012 and 2015, the panel data regression analyses revealed the superiority of standard capital ratio of equity-to-total-assets, a non-risk-based capital, over other measures. While all measures, both risk-based and non-risk-based capitals, showed significantly positive effects on bank performance as measured by return-on-asset, mixed results were obtained from other indicators: return-on-equity and net-interest-margin. Overall, only equity-to-total-assets influenced all adopted performance indicators positively. It was also found that operating efficiency measured by cost-to-income ratio had negative impact on bank performance, but on the average it appeared too high. Thus, incorporating the standard capital ratio of equity-to-total assets into regulatory regime by the banks’ regulator is recommended to ensure its relevance is not overshadowed

Bank Capital, Operating Efficiency, and Corporate Performance in Nigeria

This study examines the impact of bank capital and operating efficiency on the Nigerian deposit money bank financial performance with a view to resolving risk-based and non-risk-based capitals’ dichotomy existing in the bank literature. Using bank-specific data obtained from the annual reports and accounts of 15 banks listed on the Nigerian Stock Exchange between 2012 and 2015, the panel data regression analyses revealed the superiority of standard capital ratio of equity-to-total-assets, a non-risk-based capital, over other measures. While all measures, both risk-based and non-risk-based capitals, showed significantly positive effects on bank performance as measured by return-on-asset, mixed results were obtained from other indicators: return-on-equity and net-interest-margin. Overall, only equity-to-total-assets influenced all adopted performance indicators positively. It was also found that operating efficiency measured by cost-to-income ratio had negative impact on bank performance, but on the average it appeared too high. Thus, incorporating the standard capital ratio of equity-to-total assets into regulatory regime by the banks’ regulator is recommended to ensure its relevance is not overshadowed

Determinants of Bank Performance in Nigeria: Do they Behave Differently with Risk-Adjusted Returns?

The failure of banks in Nigeria has hitherto become a recurring phenomenon. Worried by the syndrome, this paper examines the determinants of bank performance in Nigeria taking into cognizance the duality of financial measures of bank performance. From an analysis of 115 bank-year observations of a sample of 17 Nigerian deposit money banks and macroeconomic data for the period 2012-2018 using Arellano-Bover one-step system GMM estimation approach, differences in the explanatory potential of these factors between the models with risk-neutral and risk-adjusted measures of performance as dependent variables are empirically established. This suggests that there is a higher probability of investors, depositors and other stakeholders being indecisive when analyzing the performance of banks. However, relying on the assumptions of risk-return hypothesis and level of risk embedded in banks’ operations could warrant them opting for determinants of risk-adjusted returns in their decision making. This study is exceptional in the bank performance literature for its long list of measures and drivers of bank performance

Impact of Auditor Industry Specialization on the Audit Quality of Listed Non-financial Firms in Nigeria

Audit quality improvement depends on several factors documented in the literature. Auditors are able to attract patronage if clients perceive their services to produce quality outcomes. Auditors therefore garner experience and acumen in the activities of specific clients’ industries in order to attract the largest market share and improve their portfolio of clients in certain industries as a result, they attain the status of ‘specialization’ in the audit of such industries.. In spite of this ‘specialization’, indices of dwindling audit quality continues to surface in the corporate entities occasioned by untimely takeovers and abrupt mergers. Therefore, this study examines the nexus between audit industry specialization and audit quality in the listed non-financial firms in Nigeria Data were drawn from financial reports of 40 listed firms in Nigeria covering periods between 2005 and 2019 and the total observation stood at 517. Data analysis was carried out with the use of longitudinal econometric models. Evidence from the study support the rejection of the null hypothesis (t=-1.72, p<0.10 & t=-1.74, p<0.10) for the two models thereby supporting the proposition that audit quality improved significantly improved as a result of audit industry specialization. It specifically isolates the oil and gas as well as service industries for significant improvement in audit quality as a result of industry specialization of auditors while pointing to the possibility of improving the agricultural and consumer service industries due to their negative but insignificant coefficients. The study recommends that regulatory authorities should disaggregate regulatory functions among industries to be able to better understand the interplay of audit industry specialization and thus make policies that inform better audit quality

Signalling Behaviour and Bank Provisioning Policies in Nigeria: The Conditional Effect of the IFRS Adoption and Solvency Risk

Purpose of the article: Based on the propositions of the signalling hypothesis and prospect theory, this study examined the extent of attempt by Nigerian deposit money banks (DMBs) to solve the issue of adverse selection via signalling their financial prospects using loan loss provisions (LLPs). The empirical test was subject to the DMBs’ riskiness and changes in the accounting rule given failure of a number DMBs and the adoption of the International Financial Reporting Standards (IFRSs) respectively in Nigeria in the recent past. Methodology: Bank-level unbalanced panel datasets of a sample 16 DMBs, which are related to the variables of the study, were hand-extracted from their annual reports and account between 2007 and 2017. The analysis was conducted using the Prais-Winsten regression correlated with panel corrected standard errors (PCSE-PW) owing to the presence of heteroscedastic and autocorrelated residuals in the study’s regression models. Scientific aim: The study examined the relationship between LLPs and one-year-ahead changes in earnings before taxes and LLPs to establish whether Nigerian DMBs signal their financial strength via LLPs. Findings: The study largely found that Nigerian DMBs, regardless of accounting regime and risk of insolvency, do not use LLPs to signal their financial strength. However, where the evidence of signalling via LLPs was evident the coefficient of earnings signalling was insignificant, where it was significant signalling was achievable via discretionary LLPs (DLLP) rather than actual LLPs (TLLP) suggesting manipulative provisioning in the use of LLPs to signal. Conclusions: The study’s findings included empirical communication alerts to the regulators and Nigerian DMBs on the need for improvement in earnings signalling, as the present scenario may be interpreted as a sign of a non-going concern by analytical stakeholders. Limits of research: The generalisation of the study’s findings may be limited by the focus on one regime (IAS 39) of IFRS loan loss reporting but mitigated by the partial implementation of the second regime (IFRS 9) for the first four years in the country