EFFECT OF CORPORATE SOCIAL RESPONSIBILITY ON ACCOUNTING CONSERVATISM IN NIGERIAN BANKING INDUSTRY

1.0 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:

1. To assess the effect of societal expenditure on accounting conservatism in Nigerian banking industry.
2. To investigate the effect of employee relations expenditure on accounting conservatism in Nigerian banking industry.
3. 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 Limitations of the Study

During the course of this study, many things militated against its completion, some of which are:

1. Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
2. Establishment Policies: Establishment policies posed a serious limitation as most staffs are not ready to release information needed for this project work. There were lots of information needed from the staffs of this institution to enhance the study which took them time to release or they did not release at all for security purposes, hence the scope was reduced.

1.9 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.