Chapter Five highlighted the main objective of this study which entails testing of the developed hypotheses. This section concentrates on examining the t-statistics results of the regression analysis. In Chapter One, research question one addressed the prevalence of RAM practices by examining the three types of RAM using the three models of RAM covered in this study. Therefore, no hypothesis was developed for research question one. Research question 2 addresses hypotheses H1A to H1F, which focuses predominantly on the attributes of the audit committee members. Research question 3 addresses hypotheses H2A and H2B focusing on SEC codes of 2003 and 2011.
Tables 6.8 – 6.18 show the analysis of the test results of hypotheses H1A to H1F
Considering the relationships between the audit committee attributes and the RAM, it is evident that all the attributes are inter-related and jointly significant. However, the t-test revealed that not all the attributes of the audit committee are individually negatively significant in constraining RAM practices.
Hypothesis 1A (H1A): Audit committee independence has a negative significant effect on RAM in Nigerian listed companies.
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Audit committee independence is measured by a dichotomous variable which records
“0” if at least one member is an executive director and “1” if otherwise. It represents the absence of executive directors in thecommittee membership. Table 6.12 reveals that the coefficient is statistically significant at the one per cent level. Based on the parameter estimates in the models, audit committee independence has a negative significant effect on RAM. The coefficient of audit committee independence is -0.0977. This result implies that there is an inverse relationship between audit committee independence and RAM. As the level of independence available to audit committee increases, RAM practices among the listed firms will also decrease. The result emphasises the importance of the independence of audit committee members in ensuring quality financial reporting. Therefore, the hypothesis is accepted.
Hypothesis 1B (H1B): Audit committee financial literacy has a negative significant effect on the manipulations of real activities in Nigerian listed companies.
A dichotomous variable measures audit committee financial literacy; if at least one member is an expert in accounting/finance “1” and ‘0’ if otherwise. Table 6.12 reveals that the coefficient is positive and not statistically significant. Based on the parameter estimates in the models, audit committee financial literacy has no significant effect on RAM. Therefore, the stated hypothesis of a negative significant effect on manipulations of real activities in Nigerian listed companies is rejected.
Hypothesis 1C (H1C): Audit committee female directorships have negative significant effects on RAM in Nigerian listed companies.
The audit committee female directorship is the total number of female directors on the committee. Table 6.12 reveals that the coefficient is (-0.0607) negative, and statistically significant at one per cent level. Given the parameter estimates in the model, the audit committee female directorship has a negative significant effect on RAM. Therefore, the developed hypothesis of a negative significant effect of audit female directorships on manipulations of real activities in Nigerian listed companies is accepted.
Hypothesis 1D (H1D): The audit committee meeting frequency has a negative significant effect on the manipulations of real activities in Nigerian listed companies.
Audit committee meeting frequency is the number of meetings held in a year by the audit committee of a firm. From Table 6.12, the coefficient is (-0.0616) negatively significant at one per cent level. The implication of this is that the audit committee meeting frequency has a negative significant effect on RAM. Therefore, the developed
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hypothesis of a negative significant effect on manipulations of real activities in Nigerian listed companies is accepted.
Hypothesis 1E (H1E): The audit committee multiple directorships have a negative significant effect on RAM in Nigerian listed companies.
Audit committee multiple directorships is the number of director seats occupied on other board or audit committee of other firms. In Table 6.12, it is evident that the coefficient is positively insignificant statistically. Given the parameter estimates in the model, audit committee multiple directorships have an insignificant effect on RAM.
Therefore, the stated hypothesis of a negative significant effect of audit committee multiple directorships on manipulations of real activities in Nigerian listed companies is rejected.
Hypothesis 1F (H1F): Audit committee size has a negative significant effect on the manipulation of real activities in Nigerian listed companies.
The audit committee size is another attribute found to be having an insignificant negative effect on RAM. The entire membership of the committee is the proxy for measuring audit committee size, that is, the total number of members in the committee.
From Table 6.12, based on the parameter estimates in the model, the size of an audit committee has an insignificant effect on RAM. Therefore, the stated hypothesis of a negative significant effect on manipulations of real activities in Nigerian listed companies is rejected.
Hypothesis 2A (H2A): The introduction of the code of corporate governance by the Nigeria SEC in 2003 has a negative significant effect on RAM in Nigerian listed companies.
The introduction of the 2003 SEC code of corporate governance indicator, that is the ICCGV, describes the adherence of the companies to the 2003 SEC Code of Corporate Governance. From Table 6.16, the coefficient is negatively insignificant. The implication of this from the results is that the introduction of the SEC Code of Corporate Governance in 2003 has no significant effect on RAM in Nigerian listed firms. Therefore, the stated hypothesis of a negative significant effect on manipulations of real activities in Nigerian listed companies is rejected.
Hypothesis 2B (H2B): The review of the code of corporate governance in 2011 has a negative significant effect on RAM in Nigerian listed companies.
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The other code of corporate governance indicator, that is, the CCCGV describes the impact of the review of the SEC (2003) code in 2011. From Table 6.16, its coefficient is also negatively insignificant. The implication of this, from the empirical results, is that the review of the 2003 Code of Corporate Governance in 2011 by SEC has an insignificant effect on RAM in Nigerian listed firms. Therefore, the stated hypothesis of a negative significant effect on manipulations of real activities in Nigerian listed companies is rejected.
Table 6.17 Summary of hypotheses’ results
No. Hypothesis A priori
statement
Result sign
Result statement H1A Audit committee independence has a negative effect on
RAM in Nigerian listed companies. -SG - SG
H1B Audit committee financial literacy has a negative effect on the manipulations of real activities in Nigerian listed companies.
-SG + NSG
H1C Audit committee female directorship has a negative effect on
RAM in Nigerian listed companies. -SG - SG
H1D Audit committee meeting frequency has a negative effect on the manipulations of real activities in Nigerian listed companies.
-SG - SG
H1E Audit committee multiple directorships has a negative effect
on RAM in Nigerian listed companies. -SG + NSG
H1F Audit committee size has a negative effect on the
manipulation of real activities in Nigerian listed companies. -SG - NSG H2A The introduction of the code of corporate governance by the
Nigeria SEC in 2003 has a negative effect on RAM in Nigerian listed companies.
-SG - NSG
H2B The review of the code of corporate governance in 2011 has
a negative effect on RAM in Nigerian listed companies. -SG - NSG -SG = Negatively significant; SG = Significant; NSG = Not Significant; NA = Not Applicable.