The effect of corporate governance compliance on board diversity, audit committee and voluntary disclosure of the Nigerian listed companies

Abstract

Issues related to board diversity and audit committee characteristics have attracted significant interest from capital market regulators, legislators, and academics in recent years due to persistent corporate financial failures in the world. Consequently, inadequate disclosures by firms due to the ineffectiveness of corporate governance attributes like board and audit committee characteristics have been accepted as the major reasons behind most of the corporate financial failures. However, the outcomes of previous empirical researches examining this relationship have been inconclusive and inconsistent. This study examines the effect of corporate governance compliance on the relationship between board diversity, audit committee, and voluntary disclosure reporting in the Nigerian listed companies using an agency theory as the key theory. It aims to combine the advantage from obtaining perception towards voluntary disclosure from a semi-structured interview with a quantitative data analysis resulting from a self-constructed disclosure index adapted from prior studies. Results from the qualitative analysis were used to confirm the results and enhance in-depth understanding and interpretation of the results from quantitative analysis. Hence, an explanatory sequential mix-method research design is employed. The study collected quantitative data from the annual reports of 71 sampled companies listed on the Nigerian Stock Exchange for seven years i.e., 2011-2017. The study used statistical techniques include descriptive and inferential panel statistics like system GMM estimator approach and correlation analysis. Primary data was entered into the Statistical Package NVivo, for coding and data management purpose. This study used a content analysis technique for primary data. The empirical findings revealed that the interaction of corporate governance code compliance with overall audit committee diversity has a significant positive impact on the firms’ voluntary disclosure. In other words, the audit committee influence voluntary disclosure of Nigerian listed companies while CG compliance do act as a moderator to the relationship. Significantly, the results indicated that the ethnic diversity (as the components of board diversity), audit committee independence and financial expertise of audit committee member are the other important determinants of voluntary disclosure enhanced by the interaction effect. The interview findings have shown synonymous results with the quantitative findings. This study provides a strong practical implication for policymakers, business firms, future research, and larger society by indicating empirically that corporations with higher compliance to CG codes and diversified board and effective audit committee are more transparent about their financial and CG practices, and thereby providing useful information on voluntary disclosure. Accordingly, this is one of the few attempts, which provides empirical results using a superior and contemporary tool of analysis (i.e. dynamic panel models). However, this is the first attempt that explicitly measured the effect of CG compliance on board diversity, audit committee and voluntary disclosure in corporate governance studies, especially in the developing economy like Nigeria. Finally, this study offers a direction for future research and useful recommendations.