THE EFFECT OF ETHICAL PRACTICES ON THE FINANCIAL REPORTING OF DEPOSIT MONEY BANKS IN NIGERIA
The study examined effect of ethical practices on the financial reporting of deposit money banks in Nigeria. The study employed the survey design and the purposive sampling technique to select 450 banks staffs. A well-constructed questionnaire, which was adjudged valid and reliable, was used for collection of data from the respondents. The data obtained through the administration of the questionnaires was analyzed using the Pearson correlation analysis.
The study revealed that; there is positive and significant relationship between loyalty has significant effect on the financial reporting. A positive and significant relationship exists between law abiding and financial reporting. A positive and significant relationship exists between fairness and financial reporting. A positive and significant relationship exists between accountability and honesty and financial reporting. And lastly, A positive and significant relationship exists between integrity and reputation and financial reporting.
The study concluded that; ethical practices has significant effect on the financial reporting of deposit money banks in Nigeria. The study further recommends that; Nigeria banks should work more on there integrity and reputation on the financial reporting. Accountability and honesty should be taking serious by Nigeria banks. Nigeria banks should fair in all there dealings because these will reflect on the financial reporting. Nigeria banks should be law abiding on there Financial reporting to avoid suspension, penalties and fine against them, to customers.
1.1 Background of the Study
The Nigerian banking sector is part of Nigerian financial system which refers to the totality of the regulatory and participating institutions, including financial markets and instruments, involved in the process of financial intermediation. The major objectives of investing in the banking sector are to provide financial services to the economy and earn compensatory returns on capital employed. The evolution of banking in Nigeria has been brought to fore in order to study deep into the history of banking and bring out the challenges that led to the various crisis the industry has been passing through within the past few years. In some times past, the banking industry was affected as a result of the belief of shareholders, stakeholders, managers and others where unethical practices were portrayed (Adekunle and Asaolu, 2013).
Banks are established for the purpose of provided various financial services to the general public. Their intermediation role through financial reporting, credit facility and information is a catalyst for business activities in an economy. Consequently, banks credit for productive endeavours provides the public and real sector with necessary financial resources needed to accelerate the nation’s growth and economic sustainability. Their credit function enhances the ability of investors to exploit desired profitable ventures (Kargi, 2011).
The main drive of ethical practice and ethical values is the upholding of professionalism and good practice. Ethical practice in the business world according to Micewski and Troy (2006) is not holistic, but is a context that considers any phenomenon that influences ones behaviour. In most organisations in the world, the largest ethical practice in the accounting process is accountability, integrity and how an employee can abide to existing rules and regulation in the organisation (Gomez, 2002). The breach of ethical rules in the practice of corporate financial reporting is not fair to users and such action can jeopardize the main objective of the financial reports (Gowthorpe and Amat, 2005). Brinkmann (2002) defined ethics as a discipline in which matter of right and wrong, good and evil, virtue and vice are methodically examined. Ethics looks at human behaviour, moral principles and the attempt to distinguish good from bad. When trying to identify common issues being dealt with within the business environment, professional bodies’ codes of ethics is the right place to look. These codes represent what one considers as reflection of business ethics. Codes of ethics should mainly address the particularities of high risk activities and are built on the collective conscience of a profession as a proof for the group’s acknowledgment of the moral dimension. According to Smith and Smith (2003), ethical practice provide the foundation on which a civilized society exists. For the financial institutions, the retention of public confidence through the enthronement of good corporate governance remains of almost importance given the role of the industry in the mobilization of fund, the allocation of credit to the deficit sectors of the economy, the payment and settlement system and the implementation of monetary policy.
1.2 Statement of the Problem
There is no gainsaying that the present economy deserves a sound, stable and better banking performance following the causative factors, such as unethical and unprofessional practices, poor management quality among others which contributed to low level of bank performance and sometimes lead to failure of bank. Banks and other financial intermediaries play the important role of channeling funds from savers to borrowers. The traditional role of a bank is lending and loans make up the bulk of their assets. Bank failures in Nigeria and other emerging economies have been attributed to different practices on the ethical ground. Ethical practices are rules of behaviour exhibited by managers, shareholders, workers and stakeholders to decide what is right and wrong in the normal course of business to the growth and financial stability of an organisation and to promote the financial markets integrity and economic efficiency of the business (Ogbona and Ebimobowei, 2012). This practice is important for producing quality and reliable financial reports to investors, potential investors and all stakeholders. An ethical dilemma has, overtime bedeviled the Nigerian banking industry couple with poor system in the organisation. Inaccurate/poor reporting of financial performance to shareholders, the government and the public have eroded the level of confidence of these stakeholders (Chen and Pan, 2012). The lack of proper accountability and transparency in the production of financial returns has also eroded the confidence of investors and the public - leading to lack of accountability, independence, fairness and transparency. There is sufficient empirical evidence that poor financial reporting manifested in banks is as a result of neglect of good ethical considerations which led to lack of transparency, poor accountability, fraud, insider abuse, high levels of credit risk, poor quality loans, limited and or inadequate capitalization, operational inefficiencies, higher incidences of non-performing loans, higher levels of liquidity risk, and so on which in the overall affected financial reporting system (Kargi, 2011). Although, these are mentioned as constraints affecting banks’ financial statement, they are based on a few studies and non-elaborate methods to generate sufficient and valid conclusions. This study therefore becomes an extension of the few studies undertaken with a view to generating more and further information based on empirical evidence on deposit money banks, however, this study sought to examine the effect of ethical practices on the financial reporting of deposit money banks in Nigeria.
1.3 Objectives of the Study
The general objective of this study is to examine the effect of ethical practices on the financial reporting of deposit money banks in Nigeria.
The specific objectives are to;
- examine the effect of integrity and reputation on the financial reporting of deposit money banks in Nigeria.
- examine the effect of accountability and honesty on the financial reporting of deposit money banks in Nigeria.
- assess the effect of fairness on the financial reporting of deposit money banks in Nigeria.
- determine the effect of Law abiding on the Financial reporting of deposit money banks in Nigeria.
- establish the effect of loyalty on the financial reporting of deposit money banks in Nigeria.
1.4 Research Questions
- What is the effect of integrity and reputation on financial reporting of deposit money banks in Nigeria?
- How do accountability and honesty affect the financial reporting of deposit money banks in Nigeria?
- Does fairness have effect on financial reporting of deposit money banks in Nigeria?
- How does law abiding affects the financial reporting of deposit money banks in Nigeria?
- What is the effect staff loyalty on financial reporting of deposit money banks in Nigeria?
1.6 Significance of the Study
Good ethical practice provides fundamental information of financial statement to a wide range of use to policy makers in both public and private sectors of the economy banks inclusive – shareholders, management, government, creditors and society at large. This study would be vital input to the effectiveness and efficiency of managers towards their required attention to ethical practices. More specifically, a dynamic and competing financial institution environment calls for improved observations, measurement and transparent disclosure of operations, this study help reduce expected consequences that would lead to institutional failure when considering the multiplier effect of financial institutional failure on the real sector of the economy. This would be beneficial to developing country like Nigeria. Thus, the study would create a governance system that will promote ethical value, professionalism and transparent application of best practices desirable in the financial institutions. This empirical study is also germane to the researcher since it is a partial requirement for the award of an academic certificate which would enable the researcher contributes his or her quota into the academic world.
1.7 Scope of the Study
This study centers on the effect of ethical practices on the financial reporting of deposit money banks in Nigeria. Therefore, the study would focus on the whole deposit money banks in Nigeria and drawing data from the CBN bulletin.
1.8 Operationalization of Variables
The dependent variable is operationalized into one variable which is financial reporting while the independent variable (Ethical Practices) is operationalized into 5 variables which are intergrity and reputation, accountability and honesty, fairness, law abiding and loyalty. Therefore;
FR = f (IR, AH, FA, LA and LO)…………………………………..(1)
FR = Financial Reporting
IR = Integrity and Reputation
AH = Accountability and Honesty
FA = Fairness
LA = Law abiding
LO = Loyalty
Y = β0+ β1X1+ β2X2+ β3X3 + β4X4+ β5X5 +ε ………………………… (2)
β0 = intercept
β1, β2, β3, β4 = coefficients
ε = error term
Y= Financial Reporting which is the dependent variable will be measured using secondary data i.e CBN Statistical bulletin, 2017 Publication (Central Bank financial report for deposit money banks) - to determine and report the performance of deposit money banks in Nigeria.
X1 = Integrity and Reputation, this is a qualitative variable which will be measured using the questionnaire instrument to address the state of wholesomeness and straightness of staff (workers, managers, stakeholder and shareholders) of deposit money banks in Nigeria.
X2 = Accountability and Honesty, this will be measured using questionnaire to discover how answerable or liable staff (workers, managers, stakeholder and shareholders) are to their organisations (deposit money banks in Nigeria).
X3 = Fairness, this will be measured using questionnaire to determine the characters of the workers in terms of being equitable or just towards financial dealing and other events in deposit money banks in Nigeria.
X4 = Law abiding, this will be measured using questionnaire to determine if staff (workers, managers, stakeholder and shareholders) of deposit money banks in Nigeria keep and maintain rules, laws and regulation of their establishments.
X5 = Loyalty, this will be measured using questionnaire to determine the faithfulness of staff (workers, managers, stakeholder and shareholders) of deposit money banks in Nigeria.
1.9 Definition of terms
Ethical Practice: Ethical practices are rules of behaviour exhibited by managers, shareholders, workers and stakeholders to decide what is right and wrong in the normal course of business to the growth and financial stability of an organisation and to promote the financial markets integrity and economic efficiency of the business.
Ethical Behaviour: Ethical behaviour of employee is referred to as what is morally accepted as “good and right” as opposed to what is “bad and wrong” in a particular situation in an organisation.
Management: This is defined as the process of dealing with or controlling things or people, it is the responsibility for control of a company or similar organization.
Integrity: This refers to the quality of being honest, wholesome and having strong moral Principles.
Reputation: This refers to a widespread belief or opinion held about someone having a particular characteristic.
Accountability: This is a state of being accountable, responsible. Required or expected to justify actions or decisions made.
Honesty: This refers to the quality of being honest, free of deceit, truthful and sincere.
Fairness: This refers to a state of being fair. Treating people equally without favoritism.
Law abiding: This refers to the ability and willingness of someone to obey rules or laws in a community or rganization.
Loyalty: This is the quality of being loyal. Giving or showing firm and constant support or allegiance to a person or company.