Sustainability Reporting And Quality Of Corporate Disclosure: Evidence From The Nigerian Banking Sector

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This paper examines sustainability reporting and quality of corporate disclosure in the Nigeria banking sector. This paper addresses the research question by using the big four audit firms (KPMG, PWC, Ernst & Young, Akintola Williams Deloitte) as the respondents for the study to test the research hypothesis. A total sample size of 270 was used for the study. This study uses regression analysis to investigate the impact of sustainability reporting on the quality of corporate disclosure in the Nigerian banking sector. The results show that the adjusted R square, which is the coefficient of determination reveal a relatively high value for all the parameters (KPMG-46.2%, PWC-52.8%, Ernst & Young-61.2%, Akintola Williams Deloitte-57.2%) in explaining the model specification. The empirical findings show that sustainability reporting has a relatively significant impact on the quality of corporate disclosure in the Nigerian banking sector. This paper recommends that adequate measures should be taken to enhance the quality disclosure of relevant financial reporting information especially materiality and uniformity of sustainability reporting in the Nigerian banking sector.

1.1         Introduction

The recent trend towards higher accountability and transparency in financial reporting and communication is reflected in an organization’s efforts towards more comprehensive disclosure of corporate performance (Oluwagbuyi & Adaramola, 2013). These corporate disclosures include the environmental, social and economic dimensions of an entity’s activities; this trend is aimed to add value to the quality of financial disclosure for different firm’s stakeholders.Sustainability reporting is aimed at providing information to holistically assess organizational performance in a multi-stakeholder environment (PWC, 2013).

Sustainability reporting emerged in the mid-90s with the first sustainability disclosures in accordance with the Global Reporting Initiative (GRI) sustainability reporting framework in 1997. The GRI sustainability reporting guidelines explains that sustainability reporting is the practice of firms being accountable to both internal and external stakeholders by measuring and disclosing firms’ performance in relation to the goal of sustainable development.Sustainability reporting is considered as a wider level of transparency and accountability to stakeholders for environmental, social and economic activities of firms. This reporting has been used to measure quality of firm’s sustainable development and strategic management towards sustaining the future (Muhammad 2014).

Sustainability reporting has become relevant because of the response of the public for greater financial accountability, transparency and integrity of financial reporting processes of organizations in recent times. The report of Global Reporting Initiative (2000) identified sustainability reporting as an important corporate disclosure requirement that is capable of improving the economic stability and financial reporting process of any country. Sustainability report improves reporting on environmental, social and economic activities of companies and this will help improve reputation, continuous improvement and create value. Therefore, different countries of the world have incorporated sustainability reporting as part of their corporate governance and financial disclosure guidelines.

The statement of research problem identified in this study are, firstly, the crisis that engulfed the Nigerian banking sector in 2009 was as a result of non-compliance to corporate governance and inadequate disclosure of sustainable issues in the financial results, which later led to the collapse of some banks in Nigeria. Secondly, Nigeria has been ranked 136 out of 176 countries in terms of financial transparency and accountability of corporate disclosure and reporting by Transparency International (2015). There are few accounting literatures (Oluwagbuyi & Adaramola, 2013; Oyewo & Badejo, 2014) on sustainable banking practices or sustainability reporting in the Nigerian banking sector. None of these studies have examined the impact of sustainability reporting on corporate disclosure. Hence, this paper intends to fill the gap by examining whether sustainability reporting has any significant impact on the quality of corporate disclosure in the Nigerian banking sector.

The Central Bank of Nigeria (CBN) in July, 2012 issued a circular and guidelines on sustainable banking principle for banks and other financial institutions in Nigeria. A full sustainable banking report was required from each bank no later than 31 December 2014. This guideline is aimed at improving quality of financial reporting and corporate disclosure in the Nigerian banking sector. The objectives of this study are stated as follows based on CBN sustainable reporting guidelines:

  • To examine the overall impact of sustainability reporting on the quality of corporate disclosure in the Nigerian banking sector.
  • To examine the extent to which sustainability reporting has improved corporate disclosure qualities in terms of transparency, immateriality, objectivity, understand ability and comparability in the Nigerian banking sector.
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