Category Archives: Latest Publications

October 30, 2022
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Effect of Capital Flight on Economic Growth in Nigeria

Tags : Capital Flight Economic growth External reserve

Category : Latest Publications

EFFECT OF CAPITAL FLIGHT ON ECONOMIC GROWTH IN NIGERIA

Oranefo, Patricia C.

Department of Accountancy

Nnamdi Azikiwe University, Awka

Mail: rollandchi@yahoo.com

Abstract

This study examined the effect of external reserves on economic growth in Nigeria. The study employed a descriptive and time series research design, which is very important in determining the relationship between time-series variables. Data were on capital flight and economic growth from inception to the 2020 period in the Central Bank of Nigeria Statistical Bulletin. The Descriptive Statistics and Least Squares regression technique were adopted to analyze the variables. The results show that external reserve has a negative and insignificant effect on gross domestic product. It has the expected theoretical sign as debt servicing acts as a drag on economic growth because it diverts the availability of public funds for investments purposes to payments of debt. In light of the study’s findings, the study also recommended that reserves be encouraged at this time because they are important for macroeconomic stability and must be addressed in order to improve Nigeria’s economic growth.

Keywords: Capital Flight, External reserve, Economic growth

INTRODUCTION

As politicians, corporations, and foreign investors massively move funds out of the country, the Nigerian economy is losing a lot of money. According to a survey of public payments made by the Central Bank of Nigeria (CBN), $22.1 billion left the country over the course of five weeks, or an average of $4.5 billion per week. Foreign exchange outflows increased to $5.35 billion for the week ending November 30, 2014, compared to approximately $3.083 billion for the week ending July 31, 2014 (CBN Statistical Bulletin 2014). The naira exchange rate, which had been stable prior to the 2015 elections, is said to have fallen as a result of capital flight. Although the Central Bank of Nigeria (CBN) has said that currency speculators who buy and hold currency to sell at a later date at a higher rate in order to make money are to blame for the collapse of the naira, Nigerians themselves are to blame for the movement of funds out of the country by purchasing dollars with their naira and moving them offshore. Nigeria’s foreign reserves are said to have been depleted as a result of capital flight, weakening the naira.

At $5.4 billion in 1999, Nigeria’s foreign exchange reserves increased dramatically to $51.3 billion at the end of 2007 and $53.0 billion in 2008.However, the reserves fell further from $38.138 billion at the end of April 2014 to $33.04 billion in February 2015 due to the 2008 crash in the international price of crude oil and the global financial crisis that followed (World Bank, 2015).

With these brief records, one can then speculate on the actual quantity that traveled from Nigeria’s shores to developed nations via legal and illegal routes. Since Nigeria’s economy relies more heavily on foreign direct investment (FDI) than on domestic investment, the prevalence of capital flight is even more concerning. Researchers are now looking into the effects of capital flight on the domestic economy as a result of this fact. Even though there is a lot of literature on the ongoing debate about the connection between capital flight and domestic investment, little has been written about doing an analysis of a specific country like Nigeria.

The term “foreign direct investment” (FDI) refers to investments made by individuals or corporations in a nation other than the investor’s home nation for the purpose of starting a business or purchasing an asset there. According to John (2016), foreign direct investment is viewed as the transfer of capital and technology from a developed or developing nation to another. According to Farrel (2008), “foreign direct investment” refers to a company’s use of technology, capital, management, and entrepreneurial skills to operate in a foreign market and provide goods and services. Nigeria is the third economy in Africa to welcome FDI, following Ethiopia and Egypt. The United States, the United Kingdom, China, the Netherlands, and France are among the nations that invest in Nigeria. According to UNCTAD (2018), political instability, widespread corruption, a lack of transparency, and subpar infrastructure may have contributed to a 21 percent decline in Nigeria’s FDI flows in 2017. However, this study tends to re-examine the impact of external reserves on economic growth in Nigeria.

LITERATURE REVIEW

The process of maximizing a nation’s external resources to meet its economic needs is known as foreign reserves management. The management of foreign reserves is the sole responsibility of the Central Bank in Nigeria. Monetary gold, a reserve position at the International Monetary Fund (IMF), the holding of special drawing rights (SDRs), and foreign exchange, which are convertible currencies of other nations, are all components of foreign reserves (CBN, 1997).According to Aluko (2007), the Nigerian economy has recently benefited significantly from external reserves. It has increased the amount of money in circulation, which has had a positive effect on economic activity because more money could be invested in productive endeavors. In turn, employment was created, output increased, and consumption increased. The people’s standard of living significantly improved as a result of their multiplier effects on the economy and effective financial resource management. In addition, there was an increase in the manufacturing sector’s contribution to GDP, which had been decreasing. Obaseki (2007) made the observation in a related study that the applications of external reserves cannot be overstated. The majority of external obligations must be settled in foreign currency. As a result, reserves grow in importance as a means of financing external imbalances. Intervention in the foreign exchange market, protection against unanticipated volatility, and preservation of natural wealth for future generations are additional uses for external reserves.

The government, according to Benigno and Fornaro (2012), induces a real exchange rate depreciation and a reallocation of production toward the tradable sector, which boosts growth, by accumulating foreign reserves. Central banks must switch from holding their external reserves in the conventional gold reserve assets to a basket of foreign currencies and securities in order to implement currency diversification. The majority of nations’ monetary authorities are influenced by historical, economic, and political fundamentals when determining the basket of foreign currencies to hold. Although Central Banks’ investment in foreign currencies and securities is a general economic objective of currency composition of reserves to maximize returns on financial resources, the monetary authorities frequently minimize profitability and focus on their liquidity requirements, particularly when they are experiencing balance of payments disequilibrium (Nwafor, 2017). At the time the Central Bank of Nigeria (CBN) was established, legislation made it relatively difficult to diversify the reserve assets away from gold (10%) and pounds sterling (90%) until the CBN Act was changed in 1962, the dollar assets did not even count as part of the official reserve holdings. Thusly, in the 1960s, outside of the country, most real resources were held in pounds consequently adjusting to the plan of authentic Trade Framework (Nwafor 2017).

From 1959 to 1970, assets in US dollars made up 12.5 percent of the external reserve, while the pound sterling averaged 78.4 percent. The country’s foreign reserves are currently held by the central bank in major currencies like: the Euro, the US dollar, the Japanese yen, the British pound, the Swiss Franc, and the currencies of other trading partners. However, due to the fact that Nigeria’s crude oil exports are invoiced in the US dollar and the majority of its obligations, such as external debt service, foreign exchange intervention, and other service obligations, are also denominated in the US dollar, over 90% of Nigeria’s foreign reserves are denominated in the US dollar (Nda, 2006).

EMPIRICAL REVIEW

In the year 2020, Orji, Ogbuabor, Kama, and Anthony-Orji looked into how capital flight affected Nigeria’s economic growth. In doing the examination, information from CBN factual release was utilized for the period 1981 to 2017. The study used the Autoregressive Distributed Lag (ARDL) bounds test method. According to the study, both short-term and long-term economic growth are significantly hampered by capital flight. Money supply, credit to the private sector, and domestic investment are additional variables that have been found to have a significant impact on economic growth. From 1981 to 2015, Anetor (2019) investigated the macroeconomic factors that led to capital flight from Sub-Saharan African (SSA) nations. The autoregressive distributed lag (ARDL) model was used in conjunction with secondary data from the World Bank Development Indicators (WDI) to identify the macroeconomic factors that influence capital flight from the SSA region. The study’s findings demonstrated a significant negative relationship between economic expansion and capital flight in both the long and short term. Between 1990 and 2017, Makwe and Oboro (2019) looked at how capital flight affected Nigeria’s economic growth. Cointegration analysis was used to analyze the data for both the short run and the long run, and ADF tests were used to test for the time series’ stationarity. Time series data covering these study periods were used. The ordinary least square (OLS) econometrics approach was utilized by the researchers for the purpose of data analysis. The results of the T-test showed that the proxies of capital flight and the gross domestic product, which is a proxy for economic growth, had a strong relationship. The work by Adedayo and Ayodele (2016) provides an empirical analysis of the impact that capital flight has on the economy of Nigeria. Secondary data from the National Bureau of Statistics and the Central Bank of Nigeria’s Statistical Bulletin of various issues were used in the study. The sample period from 1980 to 2014 is the subject of the empirical measurement. The adopted variables, which include Gross Domestic Product, Capital Flight, and Exchange Rate, were subjected to a comprehensive analysis using the Ordinary Least Square (OLS), Augmented Dickey-Fuller unit root test, and Co-integration test. The findings demonstrated that the variables have a significant positive influence. This suggests that, during the time period under consideration, the Nigerian economy will benefit from an increase in the exchange rate as a result of an increase in capital flight into the economy. Using data from 1981 to 2015, Lawal, Kazi, Adeoti, Osuma, Akinmulegun, and Ilo (2017) used the Autoregressive Distributed Lag (ARDL) model to examine the impact of capital flight and its determinants on the Nigerian economy. Current account balance, capital flight, foreign direct investments, foreign reserve, inflation rate, external debt, and real gross domestic product were among the variables. The finding suggests that Nigeria’s economic expansion is hindered by capital flight. Wujung and Mbella (2016) looked into the connection between capital flight and Cameroon’s economic growth from 1970 to 2013. They found evidence supporting a negative significant relationship between capital flight and economic development in Cameroon over the study period using the Fully Modified Least Squares (FMOLS) method. Exports and external debt are two additional variables that have a significant negative impact on economic development. The real interest rate, on the other hand, was found to be positively correlated with economic growth. Between 1980 and 2012, Olawale and Ifedayo (2015) looked at how capital flight affected Nigeria’s economic growth. Co-integration, Ordinary Least Square (OLS), and Error Correction Mechanism (ECM) were the primary estimation methods utilized in the study. During the study year, findings showed that capital flight, foreign reserve, external debt, foreign direct investment, and current account balance all cointegrate with GDP in Nigeria. Additionally, it was discovered that the economy was adversely affected by capital flight. Over the course of 30 years, from 1981 to 2010, Olugbenga and Alamu (2013) conducted an in-depth investigation into the effects of capital flight on Nigeria’s economic expansion. The dynamic relationship between capital flight and economic expansion was examined using the Johansen co-integration test. The outcomes demonstrate that the variables have a long-term co-integration. In addition, the notion that capital flight has a negative effect on economic expansion is only true in the short term. In addition, it was discovered that capital flight has a positive and significant long-term impact on Nigerian economic growth. The research was carried out in China by Lan, Wu, and Zhang (2010) using the ARDL bounds testing procedure and annual data that spanned the years 1992 to 2007.They discovered that capital flow would be affected by changes in the domestic economy and political environment. These included economic policy shifts and political instability like social unrest.

METHODOLOGY

The study employed a descriptive and time series research design, which is a very important in determining the relationship between time-series variables. The population of the study consist of all data on capital flight and economic growth from inception to the 2020 period in the Central Bank of Nigeria Statistical Bulletin. Data are quarterly data from 1981 to 2020 from Central Bank of Nigeria Statistical Bulletin.

Method of Data Analysis

The Descriptive statistics and Least Squares regression technique were adopted to analyze the relationship between the variables. Preliminary tests to know the normality and stationarity of the data are conducted through Jarque- Bera, Skewness, Kurtosis tests, and the unit root test. The test for the Jarque-Bera, Skewness and Kurtosis tests is to find out whether that the data are normal. This is because it includes macroeconomic variables that determine the economic growth in Nigeria.

Model Specification

In order to achieve the broad objective of this study, the model of John (2016) was adapted.

In his study of the effect of foreign direct investment on economic growth in

Nigeria, the model was specified as:

NEG = CF …………………………………………………..……………… i

Where

NEG = Nigeria Economy Growth

CF = Capital Flight

NEG is measured by GDP and CF is measured by EXR,. Further, equation i is expanded below to capture the objectives of the study;

GDP = f (EXR) ……………………………………………..………………..ii

The econometric form of the functional model is specified as:

GDP = μ₀+ μ₁EXR + εt

Where

GDP = Gross Domestic Product

EXR = External reserves

μ₀= Constant

μ₁= Shift Parameters

ε = error term

t = time series.

ANALYSIS OF RESULT

Table 1. Descriptive Statistics

	GDP	EXR
Mean	34690.67	17959.32
Maximum	71387.83	53000.36
Minimum	13779.26	224.4
Std. Dev.	20237.78	17479.61
Skewness	0.673787	0.622229
Kurtosis	1.880848	1.787424
Jarque-Bera	4.986242	4.905902
Probability	0.082652	0.086039
Observations	39	39

Source: Researcher’s compilation (2022).

GDP had a mean of $34690.67 billion, a standard deviation of 20237.78 billion, and maximum and minimum values of 71387.83 billion and 13779.26 billion, respectively. The large standard deviation suggests significant GDP variations over time, and the variable appears positively skewed (0.673).The Jacque-bera statistics’ p-value of 0.083 indicates that the series is normally distributed and that outliers are unlikely to occur. With a standard deviation of 17479.61, the EXR mean was 17959.32bn.Positively skewed (0.62), the maximum and minimum values were 53000.36 and 224.4000, respectively. The Jacque-bera statistics’ p-value of 0.086 indicates that the series is normally distributed and that outliers are unlikely to occur.

Test of Hypothesis

H₀₁: There is no significant relationship between external reserve and the growth of the Nigerian economy

Table 2: Co-integrating Regression

Variable
c	(CCR)	(DOLS)	(FMOLS)
	5537.481	5164.172	5756.477
	-3084.7	-3066.93	-3194.69
EXR	{0.0821}	{0.10955}	{0.0810}
	-1.037	-1.33157	-1.0188
R2 Adjusted	-2.815	0.977	0.922
	-15.394	0.956	0.91

Source: Researchers compilation (2022).

In small sample sizes, these methods can produce accurate estimates and provide a check for results’ robustness. There are many reasons why CCR, DOLS, and FMOLS are superior to OLS; let me list the most important ones:1) The t-statistic obtained without stationary 0r I(0) terms is only approximately normal, despite the extremely consistent OLS estimates. OLS estimates may suffer from serial correlation and heteroskedasticity because the omitted dynamics are captured by the residual, so inference using the normal tables will not be valid—even asymptotically—despite the fact that OLS is super-consistent in the presence of “a large finite sample bias.” (2) As a result, the OLS estimates’ “t” statistics are useless. (3) DOLS and FMOLS deal with endogeneity by adding leads and lags (DOLS).White heteroskedastic standard errors are also utilized. FMOLS uses a nonparametric method to accomplish the same thing.

The outcomes for the impact of EXR on Gross domestic product is negative and immaterial across every one of the assessments; FMOLS (-1.0188, p=0.2978), CCR (-1.037, p=0.320), and DOLS (-1.332, p=0.3762).The expected theoretical sign for the variable EXR is that debt servicing slows economic expansion because it diverts public funds intended for investments to debt payments. The direction of the relationship is in line with the debt overhang hypothesis, which states that debt servicing can lead to a situation in which debt obstructs economic growth, particularly in developing economies.

Across all estimations, the effect of EDS on RGDP is negative and insignificant; FMOLS (-1.0188, p=0.2978), CCR (-1.0360, p=0.320), and DOLS (-1.332, p=0.3762).The expected theoretical sign for the variable EXR is that debt servicing slows economic expansion because it diverts public funds intended for investments to debt payments. As a result, the null hypothesis that there is no significant connection between Nigeria’s expanding economy and its external reserve is accepted.

CONCLUSION AND RECOMMENDATION

Across all estimations, the effects of EDS on RGDP are negative and insignificant. The expected theoretical sign for the variable EDS is that debt servicing slows economic expansion because it diverts public funds intended for investments to debt payments. In light of the study’s findings, the study also recommended that reserves be encouraged at this time because they are important for macroeconomic stability and must be addressed in order to improve Nigeria’s economic growth.

References

Adedayo O. C. & Ayodele S.O. (2016). An Empirical Analysis of the Impact of Capital Flight on Nigeria Economy. International Journal of Academic Research in Economics and Management Sciences. 5(2); 1-4. http://dx.doi.org/10.6007/IJAREMS/v5-i2/2168

Aluko, J.J. (2007). The Monetization of Nigeria’s Foreign Exchange Inflows. CBN Bullion, 31(2)

Anetor F.O. (2019). Macroeconomic Determinants of Capital Flight: Evidence from the SubSaharan African Countries. International Journal of Management, Economics and Social Sciences. 8(1), 40–57.

Benigno G. & Fornaro L. (2012). Reserve accumulation, growth and financial crises. CEP Discussion Papers dp1161, Centre for Economic Performance, LSE, August

CBN Statistical Bulletin. (2017). Retrieved from http://www.cenbank.org/out/publications/statbulletin/rd/2010/stabull-2017.pdf

Farrell, R. (2008) Japanese Investment in the World Economy: A Study of Strategic Themes in the Internationalisation of Japanese Industry. Edward Elgar, Britain. https://doi.org/10.4337/9781848442825

John, E.I. (2016) Effect of Foreign Direct Investment on Economic Growth in Nigeria. European Business & Management, 2, 40-46.

Lan, Y., Wu, Y., & Zhang, C. (2010). Capital flight from China: Further evidence. Journal of International Finance and Economics, 10(2), 13-31.

Lawal, A. I, Kazi, P. K., Adeoti, O. J., Osuma, G. O., Akinmulegun, S., & Ilo, B. (2017). Capital Flight and the Economic Growth: Evidence from Nigeria. Binus Business Review, 8(2), 125-132. http://dx.doi.org/10.21512/bbr.v8i2.2090

Makwe E.U. & Oboro O.G. (2019). Capital flight and economic growth in Nigeria. International Journal of Business and Management Review. 7(8); 47-76

Nwafor M.C. (2017). External Reserves: Panacea for Economic Growth in Nigeria. European Journal of Business and Management. 9(33), 36-47

Obaseki, P.J. (2007). Foreign Exchange Management in Nigeria. Past, Present and Future. CBN Economic and Financial Review, 29(1) 125-132

Olawale O. & Ifedayo O.M. (2015). Impacts Of Capital Flight On Economic Growth In Nigeria. International Educative Research Foundation and Publisher. 3(8); 10-46

Olugbenga A.A. & Alamu O.A. (2013). Does Capital Flight Have a Force to Bear on Nigerian Economic Growth? International Journal of Developing Societies. 2(2), 80-86. DOI: 10.11634/216817831302422

Orji A., Ogbuabor J.E., Kama K. & Anthony-Orji O. (2020). Capital Flight and Economic

Growth in Nigeria: A New Evidence from ARDL Approach. Asian Development Policy Review. 8(3); 171-184

World Bank. (1985) Case study: Mexico. In D. R. Lessard & J. Williamson, (Ed.), Capital flight and third World debt. Washington, D. C.: Institute for International Economics.

World Bank. (2015). World development indicators 2015. Washington, D.C.: World Bank.

Wujung V.A., Mbella M.E. (2016). Capital Flight and Economic Development: The Experience of Cameroon. Economics. 5(5); 64-72. doi: 10.11648/j.eco.20160505.11

Environmental Accounting and Caliber of Financial Reporting of Nigerian Quoted Firms

Tags : Environmental accounting Financial reporting Service companies

Category : Latest Publications

ENVIRONMENTAL ACCOUNTING AND CALIBER OF FINANCIAL REPORTING OF NIGERIAN QUOTED FIRMS

Oranefo, Patricia C.

Department of Accountancy

Nnamdi Azikiwe University, Awka

Mail: rollandchi@yahoo.com

Abstract

This study therefore examined the environmental accounting and the caliber of financial reporting of Nigerian quoted firms. The study employed survey research design. The entire number of service companies listed on the Nigerian Stock Exchange (NSE) made up the population of this study. Data were generated through questionnaires distributed to respondents. Pearson’s Chi-square method was employed to test the hypothesis. The result shows that capitalizing environmental resource expenses including those for hiring, choosing, training, education, welfare, contributing to a pension fund and subsistence allowance allows for better accounting of these costs. As a result, they must be capitalized and reported as assets. When this is done, listed service businesses in Nigeria can be more accurately valued, and their financial reports can more reliably convey important financial data for use by different report users. Based on the result, it was recommended that backup plans for dealing with unusual and unintentional discharges as well as programs for reducing waste should be required of businesses.

Keywords: Environmental accounting, Financial reporting and Service companies

Introduction

Environmental accounting covers the identification, measurement, and allocation of environmental expenses, as well as their integration into corporate operations and dissemination to stakeholders. Since it incorporates transparency into its societal actions, it is a comprehensive strategy for ensuring excellent corporate governance. Because of some people’s rude attitudes and lack of respect for environmental accounting, performance falls short of expectations. This is because environmental accounting makes it possible for the company to keep track of all the money it spends on the environment. This helps the company figure out how to cut those costs (known as environmental expenses) and make more money for the business. Additionally, environmental accounting assists in demonstrating a company’s environmental stewardship to the outside world (Ahmad & Courtis, 2022).

In order for societies to transition from manufacturing-based to information-based and eventually to knowledge-based societies, certain processes and procedures—like those pertaining to management, accounting, and finance—must be unfrozen. In today’s knowledge society, all economic activity revolves around environmental accounting. The creation and application of knowledge are the primary drivers of wealth creation in a knowledge economy (United Kingdom Department of Trade & Industry, 2019). Therefore, knowledge workers rather than machines are the primary resource in knowledge-based economies. As a result, without stressing the significance of environmental accounting, it will be impossible to report the financial performance and position of knowledge-based enterprises (also known as service-based companies).

Due to the fact that the term “financial accounting” is frequently used in relation to monetary terms (Bartolomeo, et al., 2020), the distinction between regulatory and environmental accounting dates back to a time when regulatory agencies introduced external accounting.2020).It is clear that environmental accounting can be used not only at the organizational level, but also at the plant, company, regional, and national levels. In order to inform their stakeholders, businesses currently voluntarily account for physical and financial information (Bartolomeo et al.,2020).

The remarkable expansion and financial impact that the banking sector, the technology and communication industry, and other service-oriented businesses have had on the Nigerian economy over the past ten years demonstrates the significance of the service sector. Over the past ten years, activity at the Nigerian Stock Exchange (NSE) has been dominated by the service sector, particularly the banking sector (NSE Fact Book, 2020).During that time, investors expressed a significant amount of interest in the shares of the service sector and made substantial investments in that sector. Investors and other stakeholders in this scenario heavily rely on the service companies’ published financial reports when making investment decisions. They expect service providers to provide sufficient data to present a true and accurate picture of their business practices, which may be crucial to all parties involved.

When a listed service company publishes its financial performance and position for a particular time, it is anticipated that all significant and pertinent information will be included. If these businesses fail to disclose their key asset (environmental accounting), the adequacy and significance of their financial information disclosure is questioned. Therefore, the intangible assets that corporations do not record, primarily environmental resources, frequently play a significant role in the difference between their shares’ book value and market value (Abubakar, 2020; Lev, 2021).

When this company only mentions the value of its corporate buildings, furniture, and technological devices without mentioning the value of its environmental resources, should the financial statements be considered to be true and fair? The probability of a negative response is higher. A significant number of intangibles are also indicated by the size of the disparity between the company’s book value and market value. This study therefore examines the environmental accounting and the caliber of financial reporting of Nigerian quoted firms.

Literature Review

Environmental Accounting

The early days of environmental accounting were marked by uncertainty. According to studies from that time period, the first studies in the field of environmental accounting began in 1970 and were more descriptive. Between 1970 and 1980, environmental accounting went through four stages (Vasile & Man, 2020).There have been conversations about the job of bookkeeping in revealing data about natural drives from 1981 to 1994.During this time, researchers have become more interested in this topic, and environmental accounting is starting to get more attention from managers and even accountants. Additionally, research on social accounting has suffered as a result of an increase in environmental accounting researchers (around 267) (Vasile & Man, 2020).

Between 1995 and 2001, environmental accounting entered its mature phase. An environmental audit is currently being carried out, and environmental information is now beginning to be taken into consideration. Theoretically and practically, environmental accounting was also discussed, particularly in developed nations. Environmental reports are still the primary subfield that researchers have focused on, but the number of studies from this time period is beginning to significantly increase. The adoption of environmental management standards, which have been dubbed the “cornerstone” of environmental accounting (Vasile & Man, 2020), has sparked interest in this subfield. Rules for environmental accounting and reporting environmental data have also been published since 2002.

Financial Reporting

According to Nzekwu (2019), the supply of key quantitative representations of individual corporations that support a wide range of contractual relationships and enhance the information environment as a whole is referred to as corporate financial reporting. He added that the nature of monetary revealing of an element influence on the company’s income as well as impacting the expense of capital on which the incomes are limited. It can also help investors and managers find and analyze investment opportunities. This definition focused on how an entity provides information and how that information affects the reporting entity’s cash flow.

From a different point of view, corporate financial reporting is thought to be an important and effective way to spread financial information. According to Salawu (2019), corporate financial reporting is the public reporting of a company’s operating and financial data through annual reports and accounts. It is a process that has many benefits for the people who use the reports, who use them more often to make decisions. However, Beuselinck and Manigart (2017) identified a number of major issues with corporate financial reporting, including the use of out dated technology, the use of out dated technology, a lack of timely information, increased printing costs, and limited copies available to a select market. Accounting records are the primary source of information for the preparation of annual financial statements and for the effective operation of an organization’s affairs, making up an organization’s financial reporting (Barth, Landsman, Lang, & Williams, 2016;Lee, 2016).As a result, it’s critical that they serve their intended functions accurately. According to Mainnes & Wahlen (2016), the accounting and information systems that are used to prepare financial reports need to provide a foundation for the generation of management information that is required for the organization’s effective and efficient day-to-day operation. This information needs to be consistent and compatible with the information that is included in the financial statements. Members’ responsibilities to the organization and its stakeholders are fundamentally supported by the records and reports they generate.

Empirical Review

Field (2021), who has written a lot about the economics of natural resources, looked at the benefit-cost analysis method by discounting environmental project and activity input and output values based on the future. The regulatory Evaluation Impact Assessment (EIA) study on the environment has largely served as the method for measuring benefit-cost analysis. Using T-test statistics, Pearson product-moment correlation, and regression analysis, Enahoro (2019) discovered that environmental accounting disclosure differs between Nigerian quoted companies. Bassey, Sunday and Okon (2016) then again utilized Pearson’s item second relationship examination of oil and gas organizations in the Niger Delta district of Nigeria. They observed a positive correlation between the company’s profitability and environmental costs. According to Epstein (2016), the costs of environmental degradation include emissions into the air, water, and land. It also includes quantities of solid water that must be disposed of, possibly through land spreading or incineration, as well as aspects of untreated domestic waste outflows into rivers and coastal oceans. Airborne S02 emissions from power plants caused by stack-gas scrubbing, which results in a highly concentrated sludge, and degradation, such as illegal dumping along the sides of roads or in remote areas at night, are examples of pollution.

METHODOLOGY

Research Design

With a large sample size of 102 quoted service companies in Nigeria and approximately 9100 respondents, this study combined descriptive and survey research methods. Questionnaires are typically regarded as a more objective research strategy that can produce generalizable results when the sample size is large.

This study’s population consisted of all service businesses listed on the Nigerian Stock Exchange (NSE).The review populace is classified into NSE areas and is believed to be limited. On the NSE, there are 35 different industries, 13 of which are housing service-oriented businesses. The information about the service-oriented industries as well as the number of businesses in each industry is presented in Table 1.

The questionnaire was used in this study to test a particular hypothesis by utilizing the Pearson’s Chi-square method and questions 7 through 15.

23 quoted service providers made up the sample, or 22.55 percent of the total population, according to the calculations. Every person in the population had the same chance of being selected for the sample when proportional and basic random sampling methods were combined.

Questionnaires Administered

Where the number of respondents is quite vast, Yemane (1967) sampling technique was thought to be better suitable (Eric, 2009). It was taken into account and used in this investigation for this reason. Due to the nature of the research, emphasis was placed during the administration of the questionnaire on the executive officers and other management personnel of the companies. Using practicality and value judgment, the number of questionnaires distributed to additional types of respondents was determined.

Data Analysis Methods

The study hypothesis, which was based on rankings of environmental expenditure, was put to the test with the help of the Kendall’s Coefficient of Concordance (KCC) as a tool. The respondent’s agreement with the significance placed on environmental expenditures for capitalization as assets was determined using this method.

Model Requirements for Validation of the Developed Model

EBO (1995) Model was utilized to determine the value significance of the “Salisu environmental accounting Model” on the caliber of financial reporting of listed service firms in Nigeria. Here, we want to test hypothesis 2 by demonstrating empirically the effects of the “Salisu environmental accounting Model” (2). Accordingly, the study developed the following equations to determine the outcomes of multiple regression utilizing the EBO (1995) Model.

AMPi is equal to I plus i1BVPS + i. ………………………………..i

AMPt = t+ t1BVPS + ———————————————————–ii

AMP stands for Average Annual Market Price.

Book Value Per Share is BVPS.

Data Analysis

Basic Descriptive Statistics

In this section, the descriptive statistics, tolerance and Variance Inflation Factor (VIF) are presented and discussed. The objective here is to provide explanations on the basic features of the data used. Table 4.9 below shows the mean, standard deviation, tolerance and VIF values of the variables considered.

Table 1: Descriptive Statistics Results

Variables With HR Value:	BVPS	AMP
Mean Std. Deviation Tolerance VIF	12.0858 8.20164 0.305 3.278	24.9867 15.58926 N/A N/A
Without HR Value: Mean Std. Deviation Tolerance VIF	12.1275 8.20164 0.307 3.260	24.9867 15.58926 N/A N/A

Source: SPSS Regression Results

When the HR value is excluded from their financial reports, the figures in Table 1 show that the average BVPS of the banks under examination is N12.13. However, when the HR value, which was calculated using the “Salisu HRV Model,” is taken into account, the BVPS is N12.09, which represents a 4k drop. Low standard deviation coefficients for each of the independent variables (BVPS) show their importance to the “Salisu HRV Model.”

The tolerance and VIF values are used to evaluate the multicolinearity of the variables taken into consideration.

Table 2: Regression Results Computed from the Data on Table 4.8

Statistical Variables	Without HR Value	With HR Value	Difference
R	0.914	0.922	+0.008
R Square	0.836	0.850	+0.014
Adjusted R Square	0.775	0.794	+0.019
F Statistics	13.594	15.126	+1.532
t – values: BVPS	0.342 0.741	2.146 0.064^**
Significant	0.002^*	0.001^*

Source: SPSS Regression Result

Because estimated R is greater than 0.875, the statistical findings in table 2 above indicate that there is a significant connection between AMP, the dependent variable, and BVPS in both scenarios. The EBO regression model was found to be broadly fit based on the two scenarios’ modified coefficients of determination (R2) values of 83.6 and 85.0 percent, respectively. This suggests that 83.6 percent of the changes in the market share prices of the Nigerian banks chosen for quotation are explained by BVPS, which does not take HR value into account. Similarly, if HR value is incorporated, BVPS account for 85.0 percent of the variances in the selected Nigerian banks’ market share prices. This demonstrated that the variable whose HR value is included in the selected banks’ financial reports has a greater impact on the share price.

CONCLUSION AND RECOMMENDATIONS

Although it employs mathematical modeling techniques, this study is more of a survey. The questionnaire itself was used as the data source for the study. The responses to the questionnaire were analyzed using chi-square, tables, percentages, problems, Kendall’s coefficient of Concordance, respondents’ knowledge of existing models for the use of environmental resources and their shortcomings, and potential approaches for including environmental resource value in a service company’s financial statements. All aspects of environmental accounting, both controversial and noncontroversial, were covered in detail in the surveys, which also required respondents to rank certain well-known expenditures on environmental resources.

In addition to the developed model, this study’s findings demonstrated that quoted service providers in Nigeria receive higher valuations for their environmental resources when all relevant expenditures are capitalized. As a result, accounting for environmental resource expenses, such as hiring, choosing, training, education, welfare, and subsistence allowance, can be improved by capitalizing these costs. They must therefore be reported as assets and capitalized. When this is done, Nigeria’s listed service businesses can be valued more accurately, and their financial reports can reliably provide various report users with important financial data.

The concept of environmental accounting was thoroughly examined in the research paper. To put it another way, the findings of the study demonstrated how crucial it is for service organizations to value the environment as an asset in their financial reporting and to account for it. Based on the majority of the existing literature, the study came to the conclusion that the cited service providers can gain in a way that is sufficiently justifiable from using the created model to evaluate and report environmental data. The justifications are supported by scientific evidence in the study.

Recommendations

Backup plans for dealing with unusual and unintentional discharges as well as programs for reducing waste should be required of businesses.
The government ought to mandate environmental reporting in annual reports because the majority of businesses rarely document their environmental activities.

REFERENCES

Abubakar, S. (2020). Environmental Accounting: An Assessment of the Valuation Models and Methods. Nigerian Journal of Accounting Research, Vol. 4, No. 2, June, pp. 80-102.

Ahmad, K., & Courtis, J. K. (2022). Association between Corporate Characteristics and Disclosure Levels in Annual Reports: A Meta-Analysis. British Accounting Review, 31, 35–61.

Barth, M., Landsman, W., Lang, M. & Williams, C. (2016). Accounting Quality: International Accounting Standards and US GAAP. Working paper series.

Bassey, E.B; Sunday, O. E & Okon, E. E. (2019). The Impact of Environmental Accounting and Reporting on Organizational Performance of selected Oil and Gas Companies in Nigeria Delta Region of Nigeria. Research Journal of Financial and Accounting, 4(3).

Beuselinck, C. & Manigart, S. (2017). Financial Reporting Quality in Private Equity Backed Companies: The Impact of Ownership Concentration. Small Business Economics, 19, 201-214.

Enahoro. J.A (2019). Design and Bases of Environmental Accounting in Oil and Gas and Manufacturing Sectors in Nigeria. Ph.D Thesis, Covenant University Ota, Nigeria. p.92.

Epstein, M. J. (2016). Making sustainability work: Best practices in managing and measuring corporate Social, environmental, and economic impacts, UK: Greenleaf Publishing Limited

Field, B.C (2021). Natural Resource Economics, An Introduction, Boston, McGraw-Hill

Lee, T. A. (2016). Financial Reporting and Corporate Governance. Chichester, England: John Wiley & Sons.

Lev, B. (2021). Intangibles: Management, Measurement, and Reporting. Washington, D.C.: Brookings Institution Press.

Maines, L. & Wahlen, J. (2016). The Nature of Accounting Information Reliability: Inferences from Archival and Experimental Research. Accounting Horizons, 20(4), 399-425.

Salawu, R. O. (2019). Financial Reporting on the Internet by Quoted Companies in Nigeria. A Paper Presented at a Conference on “Repositioning African Business and Development for the 21st Century”, Ife, Osun State.

United Kingdom Department of Trade and Industry (2019). Corporate Reporting under a Knowledge Economy. London: Jossey-Bass.

Vasile, R. L. & Man, R. C. (2020). Discussion: R.G. Barry Environmental resource Accounting, In The Behavioural Aspects of Accounting Data for Performance Evaluation, Edited by Burns, T.J. Columbus: Ohio State University.

January 2, 2022
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PUBLIC ENTERPRISES AND THE CHALLENGES OF NATIONAL ECONOMIC DEVELOPMENT IN NIGERIA

Category : Latest Publications

PUBLIC ENTERPRISES AND THE CHALLENGES OF NATIONAL ECONOMIC DEVELOPMENT IN NIGERIA

Ejike, Kenneth Agbiriogu (FCA, FCIT, ACCA)

Department of Management

Faculty of Management Sciences

University of Port Harcourt.

kagbiriogu@gmail.com

Prof. B. C. Onuoha

Department of Management

Faculty of Management Sciences

University of Port Harcourt.

benedict.onuoha@uniport.edu.ng

ABSTRACT

Globally, public enterprises are established to act as the pivot to propel economic and social development in areas of need. While the intention is the same in Nigeria, most public enterprises in the country are bedevilled by myriads of problems which constrain their ability to deliver on their core mandate. This has necessitated the need to critically evaluate public enterprises and the challenges of national economic development in Nigeria. A theoretical approach was adopted to explain the idea of public enterprises, economic development, the challenges bedevilling the sector and possible solutions as a result. It was concluded that the inability of public enterprises to deliver in the areas of their core mandate has negatively impacted on the economic development of the nation, leading to the clamour by the public for the transfer of these enterprises to the private sector for management. To this end, it was considered plausible to advocate for a well-monitored and structured public-private partnership to help government-owned businesses thrive and achieve their original purpose for being set up.

Keywords: Public Enterprises, Economic Development, Public-Private Partnership

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