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Feb 23, 2012

IR Papers: Nigerian annual reports seen as 'unreliable'

A roundup of academic research from the world of IR studies

Nigerians don’t trust annual reports: a recent survey finds 60 percent of equity investor respondents perceive them as unreliable. Even fewer find financial reports consistent or objective, and 40 percent don’t understand them.

‘This could be one of the reasons for the current low performance of the Nigerian Stock Exchange,’ according to study author Terzungwe Nyor, a faculty member in the department of economics and management sciences at the Nigerian Defence Academy.

Financial scandals rocked the Nigerian stock market in 2011 when a number of major banks went bankrupt soon after being vetted by auditors.

Following a massive sell-off in banking shares, the stock index fell almost 18 percent while volume dwindled and liquidity evaporated.

Partly in response, the securities and exchange regulator has laid out plans to attract new issuers and increase the market’s depth.

As Nyor notes, if Nigerians have no confidence in financial statements, that means they don’t believe the opinion of auditors.

‘These perceptions are created by the corruption in this country,’ he says. ‘This general distrust has led to people having no confidence in anything. If government continues the fight against corruption, confidence can be restored.’

For their part, Nyor says companies have attempted to win back Nigerians’ trust by hiring internationally recognized audit firms. Good luck with that.

Hit the road, Jacques

Roadshows pay off. So do investor days. Analyst meetings, not so much. Those are some of the results of a study that compares various IR activities of NYSE Euronext 100 companies with measures of shareholder value.

‘If you need to argue for a budget, you need to explain what activities will create long-term value,’ says Lauret van der Put, a master’s graduate of Maastricht University.

‘My research is inconclusive as to IR’s overall influence on shareholder value, but it hints at which activities to focus on. Roadshows, for example, may be expensive and time-consuming, but appear to eventually pay off.’

World o’ research

-Newly appointed S&P 500 chief executives boost personal political contributions by an average of $4,000 in a given election cycle, according to a University of Ottawa study.  

-The Italian financial market does not reward socially responsible listed companies. Researchers in Rome say this phenomenon is particularly evident when investors consider environmental strategies. Blaming the peculiarities of Italian capitalism, they write: ‘Italian investors perceive these practices as avoidable expenses [and assign] a lower stock price.’

-Prompt adoption of IFRS may help jump-start the US economy, according to New Jersey academics. ‘In the preparation of financial statements using IFRS, the results presented usually portray higher figures,’ they write in Accounting & Taxation. ‘This would help to present more favorable valuations and promote growth with improved financial reporting.’