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EFFECT OF CORPORATE SOCIAL
RESPONSIBILITY ON ACCOUNTING CONSERVATISM IN NIGERIAN BANKING INDUSTRY
ABSTRACT
The purpose
of the study is to examine the impact of corporate social responsibility (CSR)
on accounting conservatism in the Nigerian banking sector. There has been
ongoing debate on the role of CSR in organizational activities. However, there
is lack of consensus on the usefulness of CSR among privately-owned
establishments. The study employed the quantitative research design, precisely
the experimental research design. The major findings of the study revealed CSR
surrogated as societal expenditure, employee relations expenditure and
environmental management expenditure had positive but negligible impact on
accounting conservatism in selected deposit money banks in Nigeria. A million
naira increase in societal expenditure, employees relation and environmental
management expenditure would increase conservatism approximately by 0.01%, 1.1%
and 0.04% respectively. To this end, the study concludes that that although
corporate social responsibility promotes conservatism in the Nigerian banking
sector, but is impact is not robust.
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Accounting
conservatism or the principle of caution, is one of the influential constraints
on accounting information because it is required to recognize the lowest level
of assets and revenues as well as higher values for expenses and losses, that
is non-profit expectation, but all losses (Basu, 2004; Saad & Hanan, 2015).
Despite the criticisms leveled against accounting conservatism as it connotes
pessimism that relates to the distortion of accounting information and make it
non-correct interpretable, and thus its impact of its suitability, reliability
and comparability. However, this did not debar conservatism to be considered as
one of the most important accounting concepts that plays a vital role in
accounting practices and is of great interest to accountants and auditors.
The issue of
corporate social responsibility in Nigerian banking industry has become a
matter of concern since the disclosure of expenditure incurred by banks is
usually published at the front page of their annual financial statements
(Omodero & Ogbonnaya, 2017). Corporate social responsibility have received
so much attention that researchers are interested to know its effects on
corporate performance, financial performance, operational performance,
managerial efficiency and accounting conservatism. Over years, the proper
disclosure of social costs incurred by Nigerians banks is impressive because
stakeholders and other end-users of accounting information are need of it, in
order to make key decisions. This implies that Nigerian banks have always been
disclosing their social expenditure to the general public. There is a need for
the banking sector to improve on what they already doing since their existence
is not only for their shareholders but for all stakeholders. There is no
universally acceptable definition of corporate social responsibility in
literature. However, scholars and authors have proposed different definitions
which align within the contextual framework of corporate social responsibility
within their local communities in particular and their country in general.
Corporate
social responsibility is equally known as corporate responsibility, corporate
citizenship, social enterprise, sustainability, corporate governance,
sustainable development, corporate ethics and triple-bottom line in literature
(Bassen, Holzen & Schlange, 2008). Siegel (2007) defines corporate social
responsibility as doing all those activities which are not mandated by law of
those countries in which they are running their business and which are not for
the primary benefit of the business but for the benefit of the society.
Furthermore, Shehu (2015) maintains that corporate social responsibility
implies that organizations in the course of discharging their daily business
activities should take cognizance of the effect of their activities on the
members of the society in which the organization is residing and the
environmental sustainability of their actions. The essence of corporate social
responsibility is to ensure that organizations go beyond their normal business
boundaries of maximizing profits for shareholders but strive to care for the
host communities in which they are operating (Schoemaker & Jonker, 2010).
The
historical background of corporate social responsibility is traceable to the
discovery of oil in commercial quantities in Oloibiri in 1956 (Gunu, 2008;
Shehu, 2011). The discovery of oil brought an intense conflict between the
companies and the society. While the society is complaining of environmental
degradation that brought about hardships and miserable living, the companies
are reluctant to admit that they are the cause. The conflict of interest
between companies and the society led to the advent and enforcement of
corporate social responsibility. Various legislations were designed to regulate
the activities of organizations in Nigeria with the basic objective of
compelling them to take cognizance of public interest in their operations.
There are
various views as regard corporate social responsibility in literature. Scholars
such as Bassen, Holzen and Schlange (2008) opines that the concern of
businesses should be profit making and any activity to deter that should be put
away because there are no legal and democratic justifications to pursue such
activities. Conversely, scholars like Eweje (2008) argue that organizations are
responsible for all their stakeholders and should take responsibility to solve
social and environmental problems of their host communities.
Today,
management of organizations believes that their activities should go beyond
profit making. Thus, managers should try as much as possible to incorporate the
interest of their employees, associates, customers, shareholders and the
general public at large in decision-making process which will definitely brings
about an acceptable level of conservatism. This view supports the position that
the implementation of corporate social responsibility brings about difficulty
to measure its real effect on accounting performance measures of organizations.
To this end, the study attempts to examine the effect of corporate social
responsibility on accounting conservatism in banking industry in Nigeria.
1.2 Statement of Problem
Amongst the
external factors that affects conservatism practices are the operational
interruption caused by hosting communities of organizations. This is due to the concern of the community
over actual and prospective negative effects that organizations brought to the
community. The effect ranges from environmental degradation to societal
conflicts as a result of the activities of these organizations. In an effort to overcome the existing
conflicts between organizations and their hosting environments, the idea of
corporate social responsibility was advocated. While that can be considered as
a welcome development that an avenue for conflict resolution exists, it creates
concern over the implementation and the quantification of the benefits to both
the community and the organizations.
Although,
series of arguments based on researches are found in literature as to the
relevancy or irrelevancy of corporate social responsibility to the host
community, there is no unanimous agreement on the subject matter due to the
peculiarities of settings and the variations of methodology adopted by past
studies (Kim, Hatfield & Carlos, 2012, Cheng & Kang, 2016; Cooper
&Wagman, 2009; Aras, Aybals & Kutlu, 2010; Karsalari, Agahee &
Ghasemi, 2017). Some studies such as Cheng & Kang (2016) and Karsalari,
Agahee & Ghasemi, (2017) argue that corporate social responsibility enhance
profitability, social and environmental stability as well as conservatism
practices. Others such as Aras, Aybals and Kutlu, (2010) and Kim, Hatfield and
Carlos (2012) contend that it is a waste and represents the diversion of
organization’s resources to activities that has no profit potentials. The
adoption of corporate social responsibility practices by an organization is
inconclusive in literature. Proponents maintain that CSR promotes the
organizational performance while critics allude that CSR is injurious to an
organization because it diverts the attention of an organization from the
primary motives such an organization is established to less important issues.
To this end,
the study evaluates the effect of corporate social responsibility on accounting
conservatism in the Nigeria with reference to the banking industry.
1.3 Objectives of the Study
The main
objective of the study is to examine the impact of corporate social
responsibility on accounting conservatism in the Nigerian banking industry. The
specific objectives of the study are:
To assess the effect of societal
expenditure on accounting conservatism in Nigerian banking industry.
To investigate the effect of employee
relations expenditure on accounting conservatism in Nigerian banking industry.
To explore the effect of environmental
management expenditure on accounting conservatism in the Nigerian banking
industry.
1.4 Research Questions
The
questions of interest in the study include:
How does societal expenditure affect
accounting conservatism in the Nigerian banking industry?
To what extent has employee relations
expenditure impacts accounting conservatism in the Nigerian banking industry?
How does environmental management
expenditure affect accounting conservatism in the Nigerian banking industry?
1.5 Research Hypotheses
The
operational hypotheses guiding the study are stated as follows:
H01:
Societal expenditure has no significant effect on accounting conservatism
in banking industry in Nigeria.
H01:
Employee relations expenditure has no significant effect on accounting
conservatism in banking industry in Nigeria.
H01:
Environmental management expenditure has no significant effect on accounting
conservatism in banking industry in Nigeria.
1.6 Significance of the Study
The study is
significant in many respects. Firstly, the study serves as a pioneering effort
in evaluating the effect of corporate social responsibility on accounting
conservatism in Nigeria. This would assist banks to shape their policy on
corporate social responsibility as it reveals the extent to which it affects
their net assets and net income.
Secondly, it
assists the regulatory agencies in the financial sector to settle conflicts and
disputes between banks and their host communities. This could be possible by
proposing an acceptable benchmark as to what should be expended for corporate
social responsibility to host communities.
Thirdly, the
study serves as a reference point to those who might want to research further
on the subject matter. It would enable them have more insight on the subject
matter.
1.7 Scope of the Study
The study
examines the effect of corporate social responsibility on accounting
conservatism in Nigeria with priority on banking industry. The study covers a six-year period ranging
between 2011 and 2016. As regard the variables of measurement, accounting conservatism
is represented by book value of shares to market value of shares while
corporate social responsibility is captured by societal expenditure, employee
relations expenditure and environmental management expenditure.
1.8 Definition of Key Terms
Corporate
Social Responsibility: This refers to an organization’s sense of responsibility
towards the community and environment (both ecological and social) in which it
operates. Companies express their citizenship through their waste and pollution
reduction processes, by organizing educational and social programs or by
earning adequate returns on the employed resources.
Accounting
Conservatism: This is a principle in accounting of recognizing expenses and
liabilities as soon as possible when there is uncertainty about the outcome,
but to only recognize revenue and assets when they are assured of being
received. Under this principle, if there is uncertainty about incurring a loss,
the loss should be recorded while if there is uncertainty about recording a
gain, the gain should not be recorded.
Societal
Expenditure: This refers to expenditure incurred on community or society
development. It indicates the cost of company performance to the organization.
Employee
Relations Expenditure: This refers to expenditure incurred on staff welfare and
material wellbeing.
Environmental
Management Expenditure: This indicates expenditure incurred on environmental
development. It is equally refers to the cost of managing the environment.
Banking
Industry: This is a network of financial institutions licensed by the
government to supply banking services. The main services offered includes
holding of financial assets for others, investing those financial assets as
leverage to create more wealth, extending credit against and managing the risks
associated with holding various forms of wealth.
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