IMPACT OF BOARD INDEPENDENCE ON BOARD SIZE OF CORPORATE CASH HOLDINGS (EVIDENCE FROM NIGERIA OIL AND GAS ACCOUNTING)

Project Abstract

<p>                   <b>ABSTRACT</b></p><p> This study examined whether the Board Characteristics have any impact on Earnings Management among the international Oil and Gas Corporation in the world. The Board Characteristics such as (board independence, board size, board diversity, and CEO duality). This study applied a quantitative research approach, secondary data, a sample of 71 corporations were selected from Top 250 corporations for one year (2016). The findings of this study indicated that the board independence has a significant impact on the reduction of earnings management. In contrast, the board size does not have any impact on the reduction of earnings management, due the larger the board size less efficient on monitoring of the board, when there are more members on the board it is more difficult for the board members to monitor the management, While gender diversity has a significant impact on the reduction of earnings management, Finally, The CEO Duality has a significant impact on the increase of earnings management, which means the separating the functions of CEO and Chair of the Board may enhance the Board of Directors' monitoring and control ability, and improve Directors' information processing capacities <br></p>

Project Overview

<p> </p><p><strong>1.1 &nbsp; BACKGROUND TO THE STUDY</strong></p><p>This study is examining the impact of board independence on board size of corporate cash holdings with focus on the Nigerian oil and gas accounting. However, independence and size of corporate boards of directors play a central role in the corporate governance of modern companies, and hence understanding this relationship between board independence and board size is very important to the general concept of organizational governance (Chen &amp;Mahajan, 2010). Much of the public debate on board size has centered on pressure for smaller board size. It is argued that although larger board size initially facilitates key board functions, there comes a point when larger boards suffer from coordination and communication problems and hence board effectiveness (and firm performance) declines (Jensen, 2003). The empirical evidence appears to support this view, with a majority of studies documenting a significantly negative relation between board size and business performance. If larger board size indeed “causes” worse performance, then larger boards would represent inefficient governance that could possibly be improved by a “one size fits all” approach to board size. For instance, influential scholars have argued that board size should be no greater than 8 or 9 (Jensen, 2003) for all firms. There are several contentions among the scholars concerning the relationship between board size and board independence.</p><p>However, this interpretation is by no means universally held. A number of recent papers (Gill and Sha, 2012; Opler, 1999)) show that board size is determined by firm specific variables, such as board independence, profitability and firm size. Since firm performance has a negative impact on board size, previous studies have been heavily criticized for not adequately establishing board independence (Wintoki, 2007). To address this, Wintoki (2007) employs a generalized method of moments estimator that allows board size to adjust to previous level of independence, and finds no relationship between board size and board independence.</p><p>Additionally, since board size is determined by firm specific characteristics, the impactof board independence on board sizemay differ according to these characteristics. Consistent with this, Coles et al. (2008) find that the impact of boardindependence on firm member size is positive for large firms, and hence large board size may be an optimal value maximizing outcome for such firms.</p><p>The relationship between board independence and board size may differ not just by firm specific characteristics but also by national institutional characteristics. In countries with different institutional backgrounds, the functions of boards are different, and therefore the expected board size going by the level of independence may be expected to differ (Adetifa, 2005).</p><p>Therefore examination of other countries is useful in more fully understanding the relation between board independence and board size. The few non-Nigeria empirical studies to date employ either relatively small or cross-sectional samples, and consequently, we have relatively little large sample non-Nigeria evidence (Adetifa, 2005).</p><p>The potential problems of large boards will depend on the specific functions and effectiveness and independence of boards and this will differ according to the institutional and legal environment. However, it has been argued that organizational boards play a much weaker monitoring role when its independence is at stake(Guest 2008). The prescribed advisory and monitoring functions of boards are very crucial to organizational growth (Kuan, Li &amp; Chu, 2011). However, there are several reasons why the monitoring function will be carried out less independently and less effectively in developing countries like Nigeria. Firstly, Nigeriaboard members are rarely held legally accountable for failing to fulfill their legal duty of care and loyalty, and consequently they regard their role as being primarily that of advising rather than monitoring. This has been severally tied to the low level of independence by several researchers.</p><p><strong>1.2 &nbsp; STATEMENT OF THE PROBLEM</strong></p><p>Board independence and size are major structures that determine the success of any corporate cash holdings because it stands as a measure of the impact of board structure on cash holdings, hence, this study will examine the relationship between board independence and board size of a corporate cash holdings.</p><p>Moreover, smaller independent board’s low managerial effectiveness reduces information asymmetry which leads to lower cash holdings (Ozkan and Ozkan, 2004). This has also raised the curiosity of the researcher in finding out the relationship between board independence and board size. Although, Brenes (2011) suggest that external board monitoring can provide better Shareholder protection and improve family business performance in a cash holdings. Opler (1999) and Kuna, Li, and Chu (2011) suggest a positive relation between board independence and board size of cash holdings. All these findings has created the need to carry out a study of the impact of board independence on board size of corporate cash holding in Nigeria, and with a more comprehensive approach.</p><p><strong>1.3 &nbsp; OBJECTIVES OF THE STUDY</strong></p><p>The following are the objectives of this study:</p><ol><li>To examine the impact of board independence on board size of corporate cash holdings in the Nigeria oil and gas accounting.</li><li>To analyze the factors deciding the independence of corporate board in the Nigeria oil and gas accounting.</li><li>To analyze the factors determining the board size in the Nigeria oil and gas accounting.</li></ol><p><strong>1.4 &nbsp; RESEARCH QUESTIONS</strong></p><ol><li>What is the impact of board independence on board size of corporate cash holdings in the Nigeria oil and gas accounting?</li><li>What are the factors deciding the independence of corporate board in the Nigeria oil and gas accounting?</li><li>What are the factors determining the board size in the Nigeria oil and gas accounting?</li></ol><p><strong>1.5 &nbsp; HYPOTHESIS</strong></p><p>HO: There is no significant relationship between board independence and board size of corporate cash holdings in the Nigeria oil and gas accounting</p><p><strong>1.6 &nbsp; SIGNIFICANCE OF THE STUDY</strong></p><p>The following are the significance of this study:</p><ol><li>The results of this study will be useful for auditors and the accountants alike, business managers, business policy makers and the general public at large because it will enlighten on the relationship between board independence and board size of corporate cash holdings.</li><li>This research will be a contribution to the body of literature in the area of the impact of board independence on board size of corporate cash holdings in the Nigeria oil and gas accounting, thereby constituting the empirical literature for future research in the subject area.</li></ol> <br><p></p>