ENVIRONMENTAL REPORTING AND FINANCIAL PERFORMANCE OF OIL FIRMS IN NIGERIA

ENVIRONMENTAL REPORTING AND FINANCIAL PERFORMANCE OF OIL FIRMS IN NIGERIA

This research proposal is aimed at examining the relationship between environmental reporting and THE financial performance of oil firms in Nigeria.

GET OTHER RELATED RESEARCH MATERIALS HERE

CHAPTER ONE

INTRODUCTION

1.1     Background to the Study

Financial performance can be described as the level of achievement or performance of a business, expressed in terms of overall profits or losses, return on investment, return on equity, earning per share, value-added usually shown in the financial statement of an organization in order to enable the decision-makers to assess the various financial, managerial decisions and actions taken within the period under consideration.

Evaluating the financial performance of a business allows decision-makers to judge the results of business strategies and activities in objective monetary terms. Wikipidia (2018) defined financial performance as the act of performing a financial activity, the degree to which financial objectives are being accomplished and the process of measuring the results of a firm’s policies and operations in monetary terms. It is used to measure a firm’s overall financial health over a given period of time and can also use to compare similar firms across the same industry.

Musa, Peter, and Bukar (2015) companies are expected to prepare annual reports which disclose both qualitative and quanti8tative information about their operations and performance (economical, financial, social or otherwise) to be presented to their stakeholders (owners, shareholder, government, employee, etc). The information content requirements of these stakeholders are diverse and as such firms must not only disclose information about their financial performance but prepare other reports as Environmental Accounting Reports Sustainability Report, Human Resources Accounting Report, good Corporate Governance Report, etc. Environmental accounting is the identification, measurement, and allocation of the environmental cost, the integration of this environmental cost into business decisions and subsequent communication of the information to a company’s stakeholders (Musa et al, 2015).

Most environmental degradation and emissions are anthropogenic, an advent traceable to the industrial revolution of the late 18th century where economic activities in many communities moved from agriculture to manufacturing. Production shifted from its traditional locations to the home and the small workshops to factories.

However, in the long run, the industrial revolution has brought Economic improvement for most people in industrialized societies. Many enjoy greater prosperity and improved health. The industrialization has brought factory pollutants and greater land use, which have harmed the natural environment (Mastrandrea and Schneider, 2008).

Recently, there have been increased hue and cry about climate change in the world, as it has been highly inimical to our existence; ocean levels keep rising, global warning keeps threatening; yet, natural resources like the forest, saving as a natural processor that regulates an appealing diminished. According to Uwaegbulam (2011), major parties have been loggerheads for years and warning as climate disasters are becoming alarming. Thus, the primary way companies can contribute to solutions is to reduce carbon dioxide and other greenhouse gas emissions in their own operations. 0f late, environmental pollution becomes so acute and the stakeholder’s awareness of the issue becomes so serious that environmental accounting has become a strong branch of accounting. There are positive indicators of environmental accounting pra in companies and business, organizations in developing countries, yet the practices of environmental accounting is not serious enough, as there are no specific or specialized activities in companies or factories to apply for it. Rather, the practice is carried out in an improvised and random manner. Thus, such reporting or disclosure is not mandatory but voluntary with no specific style or format With the passage of time, more guidelines are coming in a customized format that may lead us to reach a common format for recognizing environmental-related data and reporting through financial statements, staff such disclosure is guided by the social responsibility and commitment on the part of the entities that work as strong agents for polluting the environment (Preamnilc et al, 2007)

The increase in global environmental awareness and the campaign for sustainable economic development is reducing the attention of Finns in developing countries towards environmental sensitivity. The quest for sustainability has caused an emergence of many global institutions enunciating varying norms that guide human interaction with the environment. These standards are influencing business cooperation to understand that their strategic position in society has the power to influence behavior and alter the state of the physical, social and economic environment.

Within the developing nation, the understanding is somewhat different mainly because of weak government regulations and lack of organized pressure groups and consumer awareness to influence corporate behavior. Hence, many corporations in developing nations such as Nigeria behave in a manner that suggests they can achieve corporate goals if the environment and social responsibilities are tampered upon.

In the Niger Delta region, the insecurity of life and properties of oil-producing companies is a classical example of insufficient inadequacy of economic performance and efficiency for organizational survival and growth. Of course, as it is known, Nigeria as a developing country, derives the majority of its income from the oil and gas industry, an industry that is heavily reliant on environmental resources and consequently degrades and pollutes the environment, (Owolabi, 2009).

Oil Pollution from spills, oil well blow-outs, oil ballast discharges and improperly disposed of drilling mud and from petroleum prospecting and other production waste house resulted in problems such as the loss of the aesthetic values of natural beaches due to unsightly oil slick; damage to marine wildlife, decrease in fishery resources, etc. It is on this background that a number of companies and other organizations are solidifying their environmental approach and developing as environmental conservation effort continues to increase, Environmental accounting data is not only used by companies and other organization internally but is also made public through environment report.

The concept of environmental reporting was introduced in the early 1990s and since then, it has rapidly gained acceptance as the means of communicating and demonstrating a company’s commitment to improving corporate environmental performance to its stakeholders (ACCA, 2004). According to the KPMG and UNEP Report (2006), environmental accounting provides a common framework for organizations to identify and account for past, present and future environmental costs in order to support management decision making, control, and public disclosure. Nonetheless, it is important to consider, if environment accounting practices generate benefits to sustain the venture. That is to say, whether environmental accounting practices, improve corporate performance, which according to Jensen (2000), is the prior objective of any firm. Thus, it is on this that, this study is carried out to address the said problem.

1.2 Statement of the Problem:

Studies investigating why companies disclose environmental information in their annual report have found that the reasons for disclosures relate to demands by corporate stakeholders, environmental groups, regulations, and improving corporate productivity and competitiveness (Suttpan and Stanton, 2012).

Kolk, Waihain, and Wateringen (2001) argue that many studies of environmental disclosure in annual or environmental reports have focused on companies in developed countries such as the USA, UK, Canada, New Zealand, Japan, Australia, etc. However, Nigeria, a nation with a weighty pressure on its environment for economic survival only has already scanty F work of environmental disclosures documented. Environmental concerns such as environmental protection, energy savings, fair business practices, etc are not given priority in annual reports. Asechernie (1996), stresses that the practical absence of data relating to actions for social and environmental concerns in Nigeria is not in line with the trend in the USA, Canada, etc where companies are required to report on the effect of compliance with laws governing corporate social environmental conduct.

This study adopts the perspective, that investment in environmental accounting is associated positively with corporate financial performance. Hence, environmental reporting helps build name recognition (Goodwill), customer loyalty market positions (Fombrun and Shaney, 1990) (Rosen, Sandier and Shani 1999). The perspective of this study is consistent with recent research documenting a positive relationship between environmental reporting or accounting and corporate financial performance Waddlock and Graves (1997), Roman, Hayibor and Aigle (1999), Qrlitzky (2001), Ruf, Muralidhor, Brow, Janney, Paul (2001), Simpson and Kohers (2002), Tsoutsoura (2004). If environmental accounting disclosure is been practice by some Nigeria Companies; the question arises, on the impact such disclosure has on their corporate performance? In order words is there any economic benefit associated with environmental accounting disclosure in Nigeria? The problem of this study, therefore, is to empirically ascertain, if environment accounting or reporting by companies in the Nigerian oil sector, has any impact on their financial performance.

1.3 Aim /Objectives of the Study

The study is to examine the relationship between environmental reporting and financial performance of oil firms in Nigeria.

The specific objectives of the study are to:

1. to determine the effect of Employee Health and Safety (EHS) on Return on Asset (ROA) of oil firms in Nigeria
2. evaluate the effect of the cost of employee training on firms’ profitability (using ROCE).
3. examine the cost of providing social amenities I contribution to ROE of oil firms in Nigeria.

1.4 Research Questions

The following research questions are stated to guide the study:

1. To what extent does employee health and safety cost (EHS) affect the return on the asset?
2. How does the cost of employee training costs affect the firm’s return on equity?
3. How does the cost of providing social amenities /contributions affect the net profit margin.
4. What is the relationship between the social reporting and financial performance of the firm?

1.5     Hypotheses

1. Null (HO): Employee health and safety cost does not significantly affect the return on asset.
2. Null (H02) employee training costs do not significantly affect the net profit margin.
3. Null (H83): There is no significant between providing social amenities cost and return on equity.

1.6     Significances of the Study

Findings in recent times by great scholars indicates that environmental accounting or reporting in Nigeria has always been on exploratory and descriptive and have richly dwelled on discussing the phenomenon (i.e. it meaning, practice and disclosure, leaving with little or no examination of it’s economic and or financial implication thereby creating a very big gap between the study on environmental reporting and the impact of such disclosures on firms financial performance in Nigeria.

As reported by Jaggi and Zhao, 1996, Owoiabi, 2001, that gap exists between perception of environmental issues and actual performance. For instance, the existence of the gap between the perception of managers and accounting professionals of environmental issues and management and the actual firm’s performance. Again, a study carried out by Owolabi 2009, shows some evidence that 35% of companies sampled, provided some form of environmental disclosure in their annual report over a five year period from 2002-2006.

The study also provides a means for stakeholders to understand, evaluate and give their support to such efforts as environmental accounting continues to take root as part of the social system. Government and government agencies will benefit immensely as the study provides a purposeful thought about the need to develop environmental reporting requirements in the company’s annual reports. Students and other researchers will find the work useful as it provides a wide range of information/opportunities for further study. More so, the study if properly employed could be used as a tool for conflict resolution study if properly employed could be used as a tool for conflict resolution in the oil-producing communities’ thereby enhancing the performance of oil firms generally.

1.7 Scope of the Study

The study examines the link between environmental reporting and financial performance of oil firms in Nigeria. In the course of this, three basic areas were viewed as environmental indicators, viz; Employee health and safety (EHS), cost of employee training (CET), and cost of providing social amenities! Contributions (CPSA), and three for financial indicators; Return on assets, Return on capital employed, Return on Equity. The study covers a period of five years (2008-2012). Selected oil firms are the target of the study. Ten quoted oil firms that operate within the Niger Delta region was considered in the study as listed in the Security and Exchange Commission (SEC), Rivers State branch along lkwere Road, Port Harcourt that include in their yearly report; environmental cost concern; they are NLNG, Agip, Total, Mobil, Elf, Oando, Saipem, Conoil, Enis, Seismic.

The cost of environmental reporting is assessed against expenditure for firms and penalties to ascertain the extent of which environmental reporting is able to reduce conflict between, the firm and it’s an operating environment, thereby enhancing financial performance. Again the oil firms in this sector were selected because it is characterized by a lot of environmental issues, also, most of the firms in this sector are multinationals and have long embedded themselves in environmental accounting practices.

1.8 Definition of terms

This aspect of the study gives a conceptual meaning of the related terms of the subject matter, thereby making it easy for conceptualization and the fear of ambiguity.

Report: To give an account of events) or something. A written document describing the findings of an event or group of events that occur.

Environment: This means everything that affects one’s daily life that is around him. The environment also means relating to the surrounding in which a person or animal lives.

Financia1: Means relating to or involving money.

Performance: A performance is the acting of a play. In order words, it an act, process, manner of carrying out the function.

Oil: Is a smooth substance, a thick, sticky liquid used as a fuel and for lubricating machine. Oil is found underground. It is an inflammable liquid insoluble in water.

Firms: This is a business or organization that provides goods and services.

Study: Simply refers to the acquisition of knowledge through books.

Selected: Means considered to be among the best of its kind. Put differently, is to choose for excellence or suitability.

Region: Refers to a geographical area or division, having definable boundaries or characteristics

1.9 Limitation of the study:

Series of limitations were abounding to the peace and successful research of this study. First lack of sufficient funds to sort materials required. Secondly, time limitation. As a result of these and others, the researcher lacks the interest and zeal to produce a well rich comprehensive research.