SOCIAL ACCOUNTING AND FINANCIAL PERFORMANCE OF LISTED(OR QUOTED) MANUFACTURING FIRMS IN LAGOS STATE OF NIGERIA
- Project Research
- 1-5 Chapters
- Quantitative
- Regression
- Abstract : Available
- Table of Content: Available
- Reference Style: APA
- Recommended for : Student Researchers
- NGN 3000
Background to the study
Social accounting is the branch of accounting that assists a business in being accountable to all of its stakeholders in all of its operations and activities. Social accounting practices are concerned with the gathering and dissemination of data - financial, quantitative, and/or qualitative - about an organization's interactions with society (Gray, Collison and Bebbington, 1998). Employment, training, and advancement of disabled people, health and safety, as well as employee welfare at work, are all examples of Social Accounting practices. Others include community development projects, employee involvement in decision making, company policy and performance, and so on [Company and Allied Matters Acts (CAMA, 2004)].
Berle, A. A., and Means, C. G. introduced Social Accounting Practices in 1930 at Harvard University in the United States of America (USA) during the Great Depression of 1929-1939, which resulted in the failure of many businesses. Following that, in 1970, Social Accounting became an issue in the United Kingdom (Bastian, Laura, and Staffan, 2014), but today, accounting for the social impact of business activities is a global practice based on the Global Reporting Initiative (GRI) and International Standards Organization (ISO) frameworks. The ISO standards that are published are frequently translated and adopted as national standards by ISO members.
Because companies have a great deal of flexibility within the Social Accounting framework, company leaders see Social Accounting Practices as more than a collection of initiatives motivated by business benefit, but as a means of generating competitive advantage that may enhance economic benefits. They go through the process in various ways and report on it in various ways to meet their needs and requirements (Nkaiwalei, 2011). However, the problems that a company faces The focus of Social Accounting Practices varies by company, size, sector, and geographical region.
Financial performance can be defined as the level of achievement or performance of a business, expressed in terms of overall profits or losses, return on investment, return on equity, earnings per share, and value added, and is typically shown in an organization's financial statement to allow decision makers to assess the various financial, managerial decisions and actions taken during the period under consideration.
Evaluating a company's financial performance enables decision-makers to assess the outcomes of business strategies and activities in monetary terms. Wikipidia (2021) defined financial performance as the act of performing financial activity, the extent to which financial objectives are met, and the process of measuring the monetary results of a firm's policies and operations. It is used to assess a company's overall financial health over time and to compare similar companies in the same industry.
Companies are expected to prepare annual reports that disclose both qualitative and quantitative information about their operations and performance (economical, financial, social, or otherwise) to be presented to their stakeholders, according to Musa, Peter, and Bukar (2019). (owners, shareholder, government, employee etc). These stakeholders' information content requirements are diverse, and as a result, firms must not only disclose information about their financial performance, but also prepare other reports such as social accounting reports, sustainability reports, human resources accounting reports, good corporate governance reports, and so on.
Social accounting is the identification, measurement, and allocation of environmental costs, as well as their incorporation into business decisions and subsequent communication to a company's stakeholders (Musa et al, 2015). Berdugo and Mefor (2012) define social accounting as a toll that generates environmental information to help management make pricing, overhead, and capital budgeting decisions, as well as external use, disclosing environmental information that is of interest to the public and the financial community. Previous research in Nigeria has revealed that social accounting disclosure is voluntary as a result of the lack of either local or international standards to guide disclosure. Firms only disclose information in order to comply with industrial practices, pressure from environmental activists and advocates, firm policy, size and level of profitability, and so on.
Umeoduagu, John-Akamelu, and Ezeagba (2017) The awareness of the environment and man's ability to cause damage began in the 1950s and has recently increased in demand, prompting many people to ask questions. Questions such as "How long will it take for a mined area to recover?" and "How can we quantify the industrial impact on our environment?"
In 1972, a world conference was held in Stockholm, where heads of state from all over the world met for the first time to consider the state of the world as a whole, giving birth to the UN Environmental Program (UNEP), a special UN agency tasked with dealing with environmental issues. The United Nations established the World Commission on Environment and Development (WCED), also known as the Brunt Land Commission, in the mid-1980s. In 1987, the Commission issued a report titled Our Common Future, which proposed the concept of sustainable development. This concept gained worldwide acceptance, leading to the 1992 convening of the United Nations Conference on Environment and Development (UNCED) in Rio de Janeiro, Brazil, known as the "Earth Summit." The heads of various states signed four agreed-upon documents at this conference, including AGENDA 21. The document includes a checklist of dos and don'ts for environmental protection over the next century. This conference has specifically acknowledged the role of corporate entities in overall environmental management (Enahoro, 2009).
According to Wikipidia (2021), environmentalists agreed that acquiring pollution prevention or clean technology could be more cost effective and beneficial for businesses than pollution lean-up. It has also been observed that there is a shift in environmental regulations from a command and control approach to a market-driven form in which pollution prevention alternatives are replacing pollution leaning approaches. As a result, determining the most effective pollution prevention strategy may necessitate additional management decisions. Such decisions may include capital expenditure selection and, in the opinion of shied (Heller & Beloff and 1995).
Environmental issues for economic and cost accounting have also been contentious, despite the fact that the topic has been identified for discussion for the past four decades. This is due to the lack of agreement on common criteria for determining the value of non-marketed, non-monetized resources and impact externalities. Corporate organizations previously ranked business considerations based on financial performance. Companies have also classified all indirect expenditures as overhead, with no regard for the environment. Traditional accounting has not recognized social accounting for the use of materials, water, energy, and other natural resources. Furthermore, traditional accounting has not allowed for such practice, particularly accounting for the impact of externalities.
According to Daferigha, E (2010), environmental depletion and degradation were recognized until a few well-meaning people in developed countries realized that having great corporate profits and material well-being was not enough. If they come at the expense of the large-scale ecosystem from which we are fed, it is clear that degradation, pollution, and accelerated destruction of the ecosystem, as well as the depletion of non-renewable environment biodiversity, will soon become very dangerous to human survival. According to Deferigha (2010), "what were once localized environmental impacts that were easily rectified have now become widespread effects that may very well turn out to be irreversible."
The bottom line of these debates may or may not be related to industry's critical role in determining how well a country achieves its macroeconomic goals. According to Kenny (2019), the manufacturing sector is regarded as a particularly important sector in an economy due to its ability to generate broad and efficient backward and forward connections among other sectors, whereas Kayode (2000) referred to the manufacturing sector as the engine room of any economy (Utile et al., 2017). The acceptance of shareholder happiness as the primary goal of the corporation, on the other hand, has caused the traditional economic business model to be reliant on making money, either through dividend payments from profits or capital increases in share prices (Larrinaga- Gonzale et al., 2002). As a result, additional stakeholders who bear the brunt of the negative externality associated with the chain of activities involved in the conversion of input to output receive little or no attention.
As a result, the majority of Nigerian manufacturing firms are frequently confronted with societal issues (Agbiogwu et al., 2016). This is due to host communities' dissatisfaction with basic social amenities such as good roads, electricity, safe drinking water, healthcare services, educational facilities, limited employment opportunities, and exploitation of workers with subsistence-level living conditions, poor working conditions, and low pay.
Litigations, agitations, kidnappings, disturbances, killings, youth restiveness, violence, pervasive insecurity ravaging the land, and the unintended end of most manufacturing companies in Nigeria are some of the unintended consequences of not only governments' but also the actions and inactions of the majority of these artificial persons. Capitalist tendencies are also concerning, as they have resulted in a significant socioeconomic divide between the rich and the poor among Nigerians. Although it has always existed and will continue to exist in some form or another, it has grown significantly in recent years. If this is not addressed, it will result in unrealized human potential and a sustained decline in social mobility. The end result is destitution. According to the World Poverty Clock (2020), 40.1 percent of Nigerians are poor, with 105 million people living on less than $1.90 per day.
The concept of economic activity reporting has been expanded to include social welfare activities in which businesses are held accountable not only to their shareholders but also to all stakeholders. Companies are sometimes hesitant to increase their investment in social activities due to the associated costs, which include the costs of collating, preparing required information, and disseminating information. Furthermore, the costs associated with SAP can be so high that proper appreciation necessitates reporting on the expected benefits as well. However, the value of SAP is difficult to quantify in monetary terms. It is unclear whether Social Accounting practices have an impact on the profitability of Nigerian businesses. As a result, the purpose of this research is to determine the relationship between Social Accounting practices as measured by Reported Health Related Cost (HRC) and profitability as measured by Return on Equity (ROE) of the companies studied.
1.2 Statement of the problem
The interest in recording and analyzing the impact of companies' activities on the environment has recently grown. This has resulted in an increase in demand from various stakeholders for the evaluation and measurement of a company's environmental impact, as well as the voluntary or mandatory disclosure of such information. Social accounting is an important tool for understanding the economic role of the natural environment. It also provides data highlighting the contribution of natural resources to economic well-being as well as the costs imposed by pollution, exploration, and resource degradation. In Nigeria, social accounting is still in its early stages, and there are several challenges to environmental accounting and reporting.
Some of the issues are an appropriate approach, ignorance, a lack of guidelines, and a lack of awareness of environmental costing principles and methodology. Because the current requirement for reporting on environmental issues is voluntary, most corporate financial statements show that the disclosed information completely excludes environmental issues. Where they are reported, they are at best insufficient. Environmental disclosures are now critical for an informed public and financial stakeholders. The difficulty of assessing environmental degradation is a significant challenge. This is especially important for Nigeria's manufacturing sector, which has a significant environmental impact.
Food and beverage manufacturing firms in Nigeria are recognized as contributing to heavy environmental degradation, energy consumption, and the use of natural resources that have systematically depleted the environment. This increases the study's relevance. The purpose of this study was to investigate the impact of social accounting on the financial performance of publicly traded manufacturing firms in Nigeria. In particular, how does it affect net profit margin, earnings per share, and dividend per share?
Given these circumstances, the research looked at the impact of social accounting on the financial performance of Nigerian manufacturing firms.
1.3 Objective of the study
The main objective of this study is to examine social accounting and financial performance of listed(or quoted) Manufacturing Firms In Lagos State Of Nigeria
i. To ascertain the extent to which social accounting by Manufacturing Firms affects return on assets of the companies.
ii. Social accounting does not have any significant effect on financial performance of quoted manufacturing firms in Nigeria
iii. To examine the relationship between social accounting cost and net profit margin of Manufacturing Firms
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