INSTITUTIONAL COMPLEXITY AND VOLUNTARY DISCLOSURE PRACTICES OF LISTED FIRMS IN NIGERIA

ABSTRACT


INTRODUCTION
Government introduced the Nigerian Code of Transparency through corporate disclosure is Corporate Governance in 2003 (hereafter the regarded as one of the essential pillars of code). The code requires that companies corporate governance principles (Qu & Leung, should in addition to the disclosure 2006; OECD, 2003). Therefore, in a bid to requirements of capital market provide more improve transparency, listed firms are seen to information beyond the minimum mandatory be providing information in such areas as r e q u i r e m e n t . H o w e v e r, S E C m a k e s strategic forecast, the company's relationship compliance with the code voluntary (comply with key stakeholders, environmental and or expalain). This makes one wonders whether ethical issues which are considered voluntary such voluntary adoption of code works for a from capital market perspective (Schuster & developing country like Nigeria given the fact O 'Connel, 2006). Though these information that adherence to codes by public firms in are voluntary, they are critical for Nigeria is weak according to World Bank understanding sustainability of current Report on Observation of Standards and Codes earnings, proper functioning of capital markets (ROSC) (World Bank, 2011;. This and encourage better flow of Foreign Direct underscores the need to understand the Investments (FDIs) into a country (Qu, Leung complementary role of institutional factors in & Cooper, 2013;Qu & Leung, 2006). This is fostering transparency through voluntary particularly essential in the context of disclosure in Nigeria. developing countries like Nigeria with weak observance of code of corporate governance There are several reasons for the choice of leading to lack of transparency in corporate Nigeria for this study. First Nigeria is one of the disclosure (World Bank, 2011). In the Nigerian largest economy in Africa besides South Africa context, disclosure practice of publicly listed and Egypt. According to Euler Hermes companies in the country has been adjudged to economic research reports (2017), the country be weak and inadequate overtime (Damagum & Chima, 2013;World Bank, 2011;2004).
has the dominant economy in the West Africa sub region and the continent's largest economy In an effort to promote transparency in in 2015 with a total population of 178.51 corporate disclosure, therefore, publicly listed million and a GDP of 568.51USD as at the firms are confronted with different set of same time period. However, one of the guidelines from various regulatory agencies weaknesses of the Nigerian economy is over such as the Securitites and exchange commission, consumers protection agency, reliance on the export of crude oil which environmental protection agencies and accounts for over 90% of export revenue standards organizations. Morever, there are making the economy susceptible to volatility two professional accountancy bodies in the in global energy prices (Euler, 2017). country issuing separate auditing guidelines Therefore, the need to promote other sectors of and norms of accounting practices to their the Nigerian economy besides oil and gas members. The existence of multiple regulatory as well as professional accountancy bodies sector is a pressing one. But the challenge is suggests complex operating environment in that the country has a long history of economic which firms operate. Adhering to these mismanagement and corruption in both public guidelines means that disclosure practices of and private sector organizations which has firms operating on the stock market will tend to affected perception of doing business in the be isomorphic i.e. similar in form and country (Euler, 2017 (Scott, 2008) and isomorphism which refers to voluntary disclosure and corporate governance a c o n s t r a i n i n g p r o c e s s t h a t m a k e s variables as well as firm specific organizations adopt similar institutional characteristics such as board size, leadership practice (DiMaggio & Powell, 1983). These structure, audit committee size, board constraining processes stem from external independence, ownership structure, auditor environmental factors such as regulations. influences stem from professionalization, that knowledge by empirically testing the is, the collective struggle of members of an relationship between isomorphic influences occupation to define their conditions and and voluntary disclosure utilizing data from methods of work (DiMaggio & Powell, 1983). When firms conform to such professional Nigeria, a developing country. ethics, they are likely to disclose information The study is guided by institutional theory on ethical social and environmental issues which suggests that firms constantly aim to which are voluntary in nature. maintain and increase legitimacy through suggests that, when firms are uncertain about Coercive influences and voluntary the effect of disclosing certain information to disclosure the market, they tend to copy how industry Prior scholars have documented evidence of leaders or peers handle such information in the link between coercive isomorphism and past. As such, , comparable firms operating in voluntary disclosure. For example Pfarrer et the same industry are more likely to al (2005) investigated formal and informal benchmark and imitate industry leaders in their instituional influences on voluntary disclosure voluntary disclosure practice through a process of deviant behaviour in the United States of of mimetic isomorphism (DiMaggio & America. Their findings suggest that voluntary Powell, 1983). An empirical study by Setyirini disclosure is associated with industry peer and Ishak (2012) suggests that under pressure but coercive pressure such as uncertainty listed firms in Indonesia mimic regulatory sanction are not associated with other firms resulting to increase in the extent of voluntary disclosure. However, Qu et al (2012) social and environmental disclosure. found that, firms in China respond to the Additionally, Pfarrer et al (2005) found that the coercive pressure exerted on them by the effect of industry peers and network members Chinese Security Regulatory Commission, by on the likelihood of restating varies with the increasing their voluntary disclosure practices.
status of the restating firm. Therefore, looking in the same vein, Setyorini and Ishak (2012) at the uncertainties surrounding listed firms in found that government regulation is associated Nigeria occasioned by frequent changes in with social and environmental disclosure in regulatory requirements, we hypothesize thus: Indonesia. In this study, it is expected that listed firms in Nigeria will respond to the H : There is a positive relationship between 2 regulatory pressure exerted on them by the mimetic Influences and voluntary disclosure Secrities and Exchange Commission (SEC), practices of listed firms in Nigeria. consumers protection agency, environmental protection agency as well as the Financial Normative influences and voluntary Reportinfg Council (FRC) of Nigeria by increasing the extent of information disclosure. voluntarily disclosed in annual reports. Hence Normative isomorphism deals with pressure to we hypothesize thus: conform to a set of norms, shared values and rules developed by a professional or H : There is a positive relationship between occupational group. Empirically, Ball and 1 coercive isomorpism and voluntary disclosure Craig (2010) examined the capacity of practice of listed firms in Nigeria.
professional bodies in providing an understanding of organizational response to social and environmental issues. They

Mimetic Influences and Voluntary
concluded that adherence to professional Disclosure ethics and norms by firms has a significant Institutitional theory (Dimaggio & Powell, influence on their corporate social 1983) asserts that in response to uncertainties responsibility reporting practice. Likewise, arising from their institutional environment, Zhou (2012) investigated the role of external firms benchmark others who have handle such auditors in promoting corporate reporting in issues successfully in the past. Furthermore, China and documnted that, external auditors literature suggests that in a competitive play key role in detecting and reporting market, firms or a whole industry may corporate fraud. This is because, auditors are recognize the need for voluntary disclosure, as professionals with high sense of integrity, a means of addressing information asymmetry objectivity and competence. As such they are problems (Barnett and King 2008). This in a better position to advise and encourage

Sample characteristics
Since the unit of analysis for this study is at management to be transparent through voluntary disclosure. This aligns with the firms' level, it is important to consider the assertion that the external auditor is characteristics of the participating firms. In responsible for obtaining reasonable assurance this regard we considered industrial category, that the financial statements are free from firm size (measured as number of employees) material misstatement, whether caused by and firm's age (measured as years of operations fraud or error. Therefore it is anticipated that on the Nigerian market). In terms of industrial professional advice from external auditors and category, the financial sector (32.6%). This is adherrence to professional code of practice by probably due to the high response rate from members of Institute of Chatered Accountants this sector. In terms of firms' size, most of the of Nigeria and Association of National firms have employees size ranging between Accountants of Nigeria the extent of 151 and 200 (25%) with the least having information voluntarily disclosed by listed employees below 50 (12.0%). This is a firms in Nigeria will increase. Similarly, reflection of the fact that most firms Amran and Haniffa (2010) (2014), area while 29.2% are marketing officers and others. sampling was found suitable for the study due In terms of professional qualification, the to the clustered nature of the population with accounting professional qualification over 80% concentration in Lagos. Unit of dominates with 49.2%. This is an indication analysis is at firms' level while the unit of that most of the respondents have adequate enquiry includes heads of units and managers.
knowledge of the subject matter under A total of 195 valid responses were obtained.
investigation. The frequency distribution of These responses were aggregated at firms' the respondent's educational qualification level using a firm identity as a breaking variable. This gives a total of 92 firms that indicates that most of the respondents (58.5%) participated in the survey.
have either a bachelor's degree or its equivalent IJMSR Vol. 3 No. 1 the weighed approach may introduce a bias (higher national diploma) with few 5% having towards a particular user orientation, while the ordinary national diploma/ certificate of un-weighed approach dwells on the education constitute. This suggests that most of assumption that all items are equally important the respondents have the ability to read and which might not be true (Barako et al., 2006). This research use the un-weighted approach to understand the questions and provide an avoid any bias arising from weighing such as appropriate response making a particular disclosure more important 3.3 Operationalisation and measurement of than the other even though it is not without its variables own limitation. Each item was scored (1) if The dependent variable in this study is disclosed in the annual reports and (0) if voluntary disclosure while the predictor otherwise in line with Akhtaruddin and Rouf (2012). This is based on the assumption that all variables is isomorphic influences and the items are equally important and since different mediating variable is organizational culture.
stakeholders pay attention to different information. The study employed disclosure Voluntary Disclosure was operationalized as index employed by Akhtarudin and Rouf any information disclosed in annual reports (2012): dj that is not specifically required by accounting Dscore = n standards or company law based on the position of (FASB, 2001). These include Where: Dscore = the aggregate disclosure score. m a n a g e m e n t ' s s t r a t e g i c f o r e c a s t , dj = 1 if the jth item is disclosed or 0 if not environmental impact assessment, and disclosed relationship with stakeholders and ethical n = the maximum score each company can issues disclosures. The study employed the use obtain. of index approach to measure the Voluntary disclosure in line with prior studies on After each company's disclosure score was voluntary disclosure (Akhtaruddin & Rouf, determined using the disclosure index above, 2012). Before determining the index for each scores were percentage and placed on a scale as company in the sample, a disclosure checklist follows: 1-20% = 1, 21-40% =2, 41-60% =3, was prepared to enable us select items of 61-80% =4 and 81-100% =5. The aim is to information in annual reports that are not maintain a uniform scale for all variables since mandatorily required by Companies and Allied the independent variables were measure on an Matters Act 2004, or International Financial interval scale. The questionnaires were pre-Reporting Standards (IFRSs). The disclosure coded before distribution to match data from checklist for this study covers 25 items in such both primary and secondary source for each areas as strategic information; forward looking company. Isomorphic influences were operationalized and social and ethical information disclosures along three dimensions: coercive, mimetic and in line with previous researchers (Damagum & normative. Coercive was conceptualised as the Chima, 2013). degree to which firms adhere to guidelines provided by regulatory bodies such as the The issue in prior disclosure studies is whether Nigerian Consumer Protection Agency, The to score disclosure items based on weighted or un-weighted method. It has been argued that Nigerian Standards Organization, Financial Reporting Council of Nigeria and Federal Mak, 2003).

Data collection Inland Revenue Service. This was measured by
The data for the study were collected from both adopting and modifying scales by Molleda primary and secondary sources. The (2005). Responses were indicated on a 5-point Questionnaire was used to obtain the data for Likert scale ranging from 1 (strongly non independent (coercive, mimetic and normative adherence) to 5 (very high adherence).
influences) and the control variable (industrial Mimetic was conceptualised to reflect the category). While the data for dependent degree to which firms benchmark industry variable (voluntary disclosure) were extracted leaders, competitors, industrial best practices, from the annual reports of the firms. latest technology in the industry and peers in Specifically, the data for the independent and their organizational practices and disclosure.
control variables were collected between This was measured by adopting and modifying September and December, 2016 alongside scales by Molleda (2005) and Guler et al, with the financial statements of 2015 for the (2002). Responses were indicated on a 5-point dependent variable. we were unable to use the Likert scale ranging from 1 (strongly non financial data of 2016 due to the retrospective influence) to 5 (very high influence).
nature of financial reports. Normative was operationalised as the extent to which firms adhere to professional code of 4.0 DATA ANALYSIS practice issued by professional bodies and The data, was first cleaned to deal with missing industrial associations. It was measured by values and outliers before analysis following adopting and modifying scales by Molleda recommendations of Field (2009). We run (2005). The responses were indicated on a 5 Little's MCAR test to find out if data missing point likert scale ranging from 1) strongly completely at random. The result indicate that disagree to 2) strongly agree with statement data was missing completely at random (Chiitems such as: "Our industrial association square=6.001, DF=5, sig=0.306), and were emphasizes adherence to professionalism, We therefore replaced using linear interpolation as believe in the principle of objectivity in this recommended by Field (2009). Also, few company, our staff are encouraged to adhere to outliers were identified in the dataset using the professional codes of ethics set up by their z-score and were assigned the next lower or respective professional bodies.
higher values in line with Field (2009). The data was analysed using Structural Equation

Controls for Endogeneity Bias
Model with the aid of Partial least Squares Endogeneity bias in research arises when the PLS. Specifically, SmartPLS3 students' researcher fails to control for variable (s) version was used. According to Hair, Hult, which have been shown in previous studies to Ringle and sarstedt (2013) greater than the acceptable threshold of 0.5, We therefore focused on assessing reliability indicating convergent validity is confirmed of the independent variables. This was done (Henseler et al., 2016) as indicated in table 1.  Suggesting that they do not face much threat from shareholders adherence to regulatory provisions makes and other stakeholders who may react firms to provide social, ethical and negatively to their actions. environmental information in their annual reports to meet the information needs of all Thirdly, normative isomorphism and voluntary stakeholders. This is so because, these firms disclosure are found to be positively need the support of government agencies.
associated. The result is in agreement with Ball Therefore, they seek to gain legitimacy by and Craig (2010) documented that, adherence complying to regulatory provisions and to professional ethics and norms by firms has a communicate such compliance through significant influence on their corporate social voluntary disclosures. responsibility reporting practice. It is also in line with the prescription of institutional The finding is in line with Qu et al. (2012) who theory. This is so because the accounting documented that coercive pressure associated profession emphasis that professional with increase in voluntary disclosure by accountants should be objective in their Chinese listed firms. The result also supports discharge of duty. Objectivity connots the tenets of institutional theory (DeMaggio & t r a n s p a r e n c y t h e r e f o r e p r o f e s s i o n a l Powell, 1983) that firms seek legitimacy by accountants working with companies are likely coplying with external forces exerted on them to use their professional judgement to advise from the environment. It however, contradicts management to disclose any item of Pfarrer et al. (2005) who found that coercive information even in the absence of regulation. influences are not related to voluntary disclosure practices of firms in the USA. This is possibly due to contextual differences.

Secondly mimetic isomorphism and voluntary
Theoretically, the study finds support for the disclosure are not assocaited. This finding assertions of institutional theory (DiMaggio & suggest that mimetic influences such as Powell, 1983). In the case of Nigeria, coercive competition and benchmarking industry and normative mechanisms are found to be leaders are not associated with voluntary significant in explaining voluntary disclosure disclosure. This is true because many firms are practices of listed firms. Suggesting that in uncertain what their competitors will make understanding environmental factors out of such disclosures and therefore are not influencing corporate disclosure in Nigeria, willing to disclose information voluntarily.
scholars should take cognisance of the role of regulation and normative expectations of The implication of this study to managers is society.
that when deliberate policies that encourage voluntary disclosure are put in place, and such Practical implication policies are followed, voluntary disclosure will This study has implication for policy makers be promoted. such as regulatory agencies as well as professional accountancy bodies. If regulatory Limitations of the study bodies such as the Nigerian Financial Despite the contribution of this paper to Reporting council should provide a policy academic debate in providing insights into guidelines for companies to disclose management's perception of stakeholders that information such as ethical issues, matter in voluntary disclosure in the context of environmental impact and social disclosure, a developing country, the study has some managers are likely to comply with such limitations. The use of survey questionnaire to policy. This will in turn promote transparency measure independent variables is subject to through voluntary disclosure. additionally if self-reporting bias (Podsakoff, Mackenzie, the two professional accountancy bodies in Podsakoff & Lee, 2003). However, this was Nigeria continue to encourage adherrence to overcome by measuring the dependent and the professional code of practice by their members independent variables from different sources. working in these companies, voluntary Also, the study is cross-sectional in nature disclosure prace will be enhanced. Morever, if which may not capture changes in the external auditors should ensure that they perception overtime. Further studies may use a advice management to always disclose longitudinal approach to investigate voluntary information which are not mandatorily disclosure. required such as policy on corruption, relationship with customers as well as host community, voluntary disclosure will be improved.