University of Ghana http://ugspace.ug.edu.gh UNIVERSITY OF GHANA AUDIT REPORT LAG, INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) AND CORPORATE GOVERNANCE IN GHANA PRINCE AKAHOHO SEGBEFIA THIS THESIS IS SUBMITTED TO THE UNIVERSITY OF GHANA, LEGON, IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF MASTER OF PHILOSOPHY IN BUSINESS ADMINISTRATION (ACCOUNTING) DEGREE JULY 2016 University of Ghana http://ugspace.ug.edu.gh DECLARATION I, Prince Akahoho Segbefia, hereby declare that this thesis is an independent account of my research conducted under the supervision of Dr. I. Bedi and Dr. F. Aboagye-Otchere of the Department of Accounting, University of Ghana Business School. I attest that, this thesis has not been presented either in whole or in part for any award in any other institution and full acknowledgements have been given to all references cited and ideas taken from the works of other people. I therefore accept full responsibility for any error that may be included in this report. ………………………… PRINCE AKAHOHO SEGBEFIA (10255107) (STUDENT) i University of Ghana http://ugspace.ug.edu.gh CERTIFICATION We hereby certify that this thesis was supervised in accordance with procedures laid down by the University of Ghana. …………………………………… …………………………… DR. IBRAHIM BEDI DATE (SUPERVISOR) …………………………………… …………………………… DR. F. KWAKU ABOAGYE-OTCHERE DATE (SUPERVISOR) ii University of Ghana http://ugspace.ug.edu.gh DEDICATION To the glory of God, my lovely family, friends and all my love ones iii University of Ghana http://ugspace.ug.edu.gh ACKNOWLEDGEMENT My heartfelt gratitude is to my supervisors, Dr. I. Bedi and Dr. F. Kwaku Aboagye-Otchere for their time, expertise, assistance, submissions and critiques from the commencement of the study to the successful completion of it. I am also grateful to all other lecturers and staff of the Department of Accounting, University of Ghana Business School, for their diverse help and mutual aid. I also appreciate the cooperation and support from my colleagues; Alice and Courage and the following people; Kwadwo, Augustine, Sally, Anack and auntie Esther. I also extend appreciation to the following personalities also for their immerse contribution and constant check for updates on the progress of my thesis: Nana Osei Afrifa (CEO of E-Han Ltd), Elsie Enam Lekettey, Victor Krom and David Asare Bediako. To my parents – Margarette Nimo and Elmars Akahoho Segbefia; my brothers – David and Eyram; my sisters – Sandra, Josephine, Priscilla and Kekeli; and all my uncles, aunties, cousins, nephews and nieces I say thank you for your moral support, patience and prayer throughout my academic journey. I also express my appreciation to the following individuals; Lydia, Samuel, Henrietta, Richard, Jennifer, Marshal, Theohilus and Darke for their numerous support and help to the successful completion of my thesis. To all my friends and love ones I say a special thank you for your invaluable love and may God richly bless you all. iv University of Ghana http://ugspace.ug.edu.gh ABSTRACT This study evaluates the influence of mandatory adoption of IFRS and corporate governance (CG) mechanisms such as board size, audit committee effectiveness, board independence and ownership structure on audit report lag (ARL). Additionally, it examines the lagged effect of these CG mechanisms on ARL. The study employs a sample of firms listed on the Ghana Stock Exchange from 2003 – 2014 which resulted in 168 firm-year observations. The panel-corrected standard errors regression method was adopted due to its ability to correct for heteroskedasticity and autocorrelation. The result shows an increase in ARL after IFRS mandate with a pooled mean of 109 days. However, there was no significant difference between ARL pre and post IFRS mandate. This implies that the mandatory adoption of IFRS has no significant influence on ARL. On CG mechanisms, the results indicate that board size has a negative relationship with ARL, board independence has positive relationship with ARL while ownership structure and audit committee effectiveness have insignificant relationships with ARL. All lagged CG mechanisms have insignificant relationship with ARL but for lagged board independence which has a positive relationship with ARL. This implies that on average CG mechanism have instantaneous influence on ARL except board independence which has a further increasing effect on ARL in the subsequent year. Insights from this study should inform policymakers such as SEC-Ghana and GSE, whose prior policies have focused on driving a more independent board amongst listed firms, on the effect of the possible delay in the release of audited annual report which is triggered by such policies. v University of Ghana http://ugspace.ug.edu.gh Contents DECLARATION ............................................................................................................................... i CERTIFICATION ............................................................................................................................ ii DEDICATION ................................................................................................................................. iii ACKNOWLEDGEMENT ............................................................................................................... iv ABSTRACT ...................................................................................................................................... v LIST OF FIGURES ......................................................................................................................... xi LIST OF TABLES .......................................................................................................................... xii LIST OF ABBREVIATIONS ........................................................................................................ xiii CHAPTER ONE: INTRODUCTION ............................................................................................... 1 1.0 INTRODUCTION .............................................................................................................. 1 1.2 PROBLEM STATEMENT ................................................................................................ 3 1.3 RESEARCH OBJECTIVES .............................................................................................. 6 1.4 STATEMENT OF HYPOTHESIS..................................................................................... 6 1.5 SUMMARY OF METHODOLOGY ................................................................................. 7 1.5.1 Population and Sample Size ............................................................................................. 7 1.5.2 Data Collection ................................................................................................................. 7 1.5.3 Model Specification .......................................................................................................... 8 1.6 SIGNIFICANCE OF THE STUDY ................................................................................... 9 1.7 SCOPE AND LIMITATION OF RESEARCH ............................................................... 10 vi University of Ghana http://ugspace.ug.edu.gh 1.8 CHAPTER DISPOSITION .............................................................................................. 11 CHAPTER TWO: LITERATURE REVIEW ................................................................................. 12 2.0 INTRODUCTION ............................................................................................................ 12 2.1 AUDIT REPORT LAG (ARL) ........................................................................................ 12 2.1.1 Definition of Audit Report Lag ...................................................................................... 13 2.2 THE CONCEPT OF ARL AND INVESTMENT DECISION ........................................ 14 2.3 EMPIRICAL STUDIES ON AUDIT REPORT LAG ..................................................... 16 2.4 FINANCIAL REPORTING FRAMEWORK IN GHANA ............................................. 21 2.4.1 The Registrar General's Department (RGD) ............................................................. 21 2.4.2 The Companies Act 1963 (Act 179) ......................................................................... 21 2.4.3 Mandatory Adoption of IFRS in Ghana.................................................................... 22 2.5 CORPORATE GOVERNANCE...................................................................................... 23 2.5.1 Definition of Corporate Governance ........................................................................ 24 2.5.2 Corporate Governance in Ghana ............................................................................... 25 2.6 FACTORS AFFECTING AUDIT REPORT LAG .......................................................... 26 2.6.1 Change in Accounting Regulation (IFRS mandate) ....................................................... 27 2.6.2 Corporate Governance Characteristics ..................................................................... 28 2.6.3 Lagged Corporate Governance Characteristics ........................................................ 36 2.6.4 Firm Characteristics .................................................................................................. 37 2.7 THEORETICAL FRAMEWORK ................................................................................... 41 vii University of Ghana http://ugspace.ug.edu.gh 2.7.1 Agency Theory.......................................................................................................... 41 2.7.2 Resource Dependency theory ................................................................................... 43 2.8 THEORETICAL FRAMEWORK ................................................................................... 45 2.9 CONCEPTUAL FRAMEWORK .................................................................................... 46 2.10 CONCLUSION ................................................................................................................ 46 CHAPTER THREE: METHODOLOGY ....................................................................................... 47 3.1 INTRODUCTION ............................................................................................................ 47 3.2 RESEARCH PHILOSOPHY ........................................................................................... 47 3.3 ONTOLOGY AND EPISTEMOLOGY ........................................................................... 48 3.4 RESEARCH DESIGN ..................................................................................................... 49 3.5 RESEARCH POPULATION ........................................................................................... 50 3.6 RESEARCH SAMPLE .................................................................................................... 50 3.7 DATA COLLECTION INSTRUMENTS ........................................................................ 52 3.7.1 Time Period ............................................................................................................... 52 3.8 DEFINITION AND MEASUREMENT OF VARIABLES............................................. 52 3.8.1 Dependent Variables ................................................................................................. 53 3.8.2 Independent variables ............................................................................................... 53 3.8.3 Control variables ....................................................................................................... 59 3.9 MODEL SPECIFICATION ............................................................................................. 63 3.10 DATA ANALYSIS AND PRESENTATION ................................................................. 64 viii University of Ghana http://ugspace.ug.edu.gh 3.11 METHOD OF ESTIMATION ......................................................................................... 64 CHAPTER FOUR: DATA ANALYSIS AND DISCUSSION OF FINDINGS ............................. 66 4.1 INTRODUCTION ............................................................................................................ 66 4.2 DESCRIPTIVE STATISTICS ......................................................................................... 66 4.3 DESCRIPTIVE STATISTICS OF THE DEPENDENT VARIABLE (ARL) ................. 66 4.4 DESCRIPTIVE STATISTICS OF THE INDEPENDENT VARIABLES ........................... 69 4.5 DESCRIPTIVE STATISTICS OF THE CONTROL VARIABLES .................................... 74 4.5 TEST OF NORMALITY ................................................................................................. 77 4.5.1 Shapiro-Wilk test of normality ....................................................................................... 77 4.5 STATISTICAL TEST OF ARL PRE AND POST IFRS MANDATE. ................................ 77 4.5 CORRELATION ANALYSIS ......................................................................................... 78 4.6 MULTIPLE REGRESSION ASSUMPTION VERIFICATION ..................................... 85 4.6.1 Heteroscedasticity and Autocorrelation Check ......................................................... 86 4.6.2 Sample Size Check ......................................................................................................... 86 4.6.3 Normality Check for Independent and Control Variables. ....................................... 86 4.7 EMPIRICAL RESULT OF THE PCSEs REGRESSION ............................................... 87 4.7.1 PCSEs Regression Model- ARL, IFRS Mandate and Corporate Governance ......... 88 4.7.2 PCSEs Regression Model – ARL, IFRS mandate and Lagged Corporate Governance Variables .................................................................................................................................. 90 4.8 DISCUSSION OF FINDINGS FROM REGRESSION .................................................. 91 ix University of Ghana http://ugspace.ug.edu.gh 4.8.1 ARL and IFRS Mandate ........................................................................................... 92 4.8.2 ARL and Corporate Governance Variables post IFRS mandate .............................. 92 4.8.3 ARL and Control Variables ...................................................................................... 93 4.8.4 ARL and Lagged Corporate Governance Variables post IFRS mandate ................. 95 CHAPTER FIVE: SUMMARY, CONCLUSIONS AND RECOMMENDATIONS .................... 98 5.1 INTRODUCTION ............................................................................................................ 98 5.2 SUMMARY OF FINDINGS ........................................................................................... 98 5.2.1 ARL and Change in Accounting Regulation (IFRS mandate).................................. 98 5.2.2 ARL and Corporate Governance Variables post IFRS mandate .............................. 99 5.2.3 ARL and Control Variables .................................................................................... 100 5.2.4 ARL and Lagged Corporate Governance Variables post IFRS mandate ............... 100 5.2.5 ARL and Control Variables .................................................................................... 100 5.3 CONCLUSION .............................................................................................................. 101 5.4 CONTRIBUTION TO LITERATURE .......................................................................... 102 5.5 RECOMMENDATIONS ............................................................................................... 103 REFERENCES .......................................................................................................................... 105 x University of Ghana http://ugspace.ug.edu.gh LIST OF FIGURES Figure 2. 1: Theoretical Framework ............................................................................................... 45 Figure 2. 2: Conceptual Framework ............................................................................................... 46 Figure 4. 1: Trends of Mean ARL of Firms .................................................................................... 68 Figure 4. 2: Descriptive Statistics of the Control Variables Pre and Post IFRS Mandate .............. 76 xi University of Ghana http://ugspace.ug.edu.gh LIST OF TABLES Table 3. 1 Distribution of Sample Firms ........................................................................................ 51 Table 3. 2 Component of Audit Committee Effectiveness Index ................................................... 59 Table 3. 3 Operational Definitions of Variables ............................................................................. 62 Table 4. 1: Summary Statistics of ARL on Aggregate and year by year ........................................ 67 Table 4. 2: Descriptive Statistics for Pre and Post IFRS mandate .................................................. 68 Table 4. 3: Corporate Governance Characteristics ......................................................................... 69 Table 4. 4: Summary Statistics of the Independent Variables Pre IFRS Mandate ......................... 69 Table 4. 5: Summary Statistics of the Independent Variables Post IFRS Mandate ........................ 69 Table 4. 6: Summary Statistics of Lagged Corporate Governance Characteristics ........................ 72 Table 4. 7: Summary Statistics of the Lagged Independent Variables Pre IFRS Mandate ............ 73 Table 4. 8: Summary Statistics of the Lagged Independent Variables Post IFRS Mandate ........... 73 Table 4. 9: Descriptive Statistics of Control Variables................................................................... 74 Table 4. 10: Shapiro-Wilk W test for normality of ARL ................................................................ 77 Table 4. 11: Wilcoxon Rank-Sum (Mann-Whitney) test of Mean ARL for Pre and Post IFRS Mandate........................................................................................................................................... 78 Table 4. 12: Pearson’s Correlation Matrix of Audit Report Lag and All Independent and Control Variables. ........................................................................................................................................ 80 Table 4. 13: Variance Inflation Factor (VIF) Independent and Control Variables ......................... 85 Table 4. 14: Shapiro-Wilk W Test for Normal Data ...................................................................... 87 Table 4. 15: PCSEs Regression Model 1 Results ........................................................................... 90 Table 4. 16: PCSEs Regression Model 2 Results ........................................................................... 91 xii University of Ghana http://ugspace.ug.edu.gh LIST OF ABBREVIATIONS AGM Annual General Meeting ARL Audit Report Lag ASB Accounting Standards Board ASSC Accounting Standards Steering Committee CAS Chinese Accounting Standards CEO Chief Executive Officer CG Corporate Governance CICA Canadian Institute of Chartered Accountant GAAP Generally Accepted Accounting Principles GNAS Ghana National Accounting Standards GSE Ghana Stock Exchange IAS International Accounting Standards IASB International Accounting Standards Board ICAG Institute for Chartered Accountants Ghana IFRS International Financial Reporting Standards MDAs Ministries, Department and Agencies NEDs Non-Executive Directors xiii University of Ghana http://ugspace.ug.edu.gh NYSE New York Stock Exchange OECD Organization for Economic Corporation Development PCSEs Panel Standard Corrected Errors RGD Registrar General’s Department SMEs Small and Medium sized Enterprise UK United Kingdom USA United States of America xiv University of Ghana http://ugspace.ug.edu.gh CHAPTER ONE INTRODUCTION 1.0 INTRODUCTION Timeliness is one of the most important qualitative characteristics of accounting information and therefore requires that reliable information be made available to users of such accounting information when needed (Sultana et al., 2015). Financial information according to Leventis & Weetman (2004) losses its relevance and usefulness if not fashioned on time. Concentrating on the United States (US) capital market, Beaver (1968) argued that the sale and purchase of financial securities was postponed by investors pending the release of earnings report by firms. Thus, the timely release of accounting information enhances its accuracy. Meanwhile, Bronson et al. (2011) argues that the longer it takes firms to release annual reports, the lesser the level of reliability placed on preliminary earnings of such firms. Previous studies suggest that untimely reporting of financial information dents the quality of earnings reported, surges information asymmetry between managers and shareholders, increases the chances of investors being defrauded, enable investors with insider information to prey on the ‘less-informed’ investors (Sultana et al., 2015; Johnson & O’Keefe, 2015; Dao & Pham, 2014; Onwuchekwa, 2013; Lee and Jahng, 2011; Naimi et al., 2010). In order to solve the double-edged dilemma of reliability and relevance, accounting information is subjected to an audit by an independent qualified external auditor. The audit provides an independent assurance to investors and other stakeholders that management-prepared financial statements are not materially misstated in accordance with generally accepted accounting standards (Scot and Gist, 2013). The time taken by auditors to complete the audit is called the audit 1 University of Ghana http://ugspace.ug.edu.gh report lag (ARL) and it is usually measured as the number of days from the financial year-end date to the date of the signature of audit opinion (Dao & Pham, 2014; Lee & Jahng, 2011; Afify, 2009). The U.S. Securities and Exchange Commission in the bid to increase efficiency in the capital market reduced ARL from 90 days to 60 days (US-SEC, 2005). In relation length of time consumed by the audit process before the audited annual report are released, several authors have examined the role played by corporate governance mechanisms in the reduction of ARL (Afify, 2009; Apadore & Noor, 2013). Corporate governance(CG) has been defined by Abor & Adjasi (2007) as those methods and mechanisms adopted by board of directors to steer the affairs of a business to ultimately maximize shareholders value through enhancing the prosperity of the business while having the interest of other stakeholders in mind. Similarly, Johnson et al., (2000) explains CG as the means of dwelling on legal structures to prevent the exploitation of minority shareholders while focusing on minimizing agency conflict which involves managers. However, corporate governance mechanisms of many firms worldwide have undergone several changes during the past two decades (Sultana et al., 2015). Soltani (2002) emphasize that companies that are distressed financially often receive qualified or modified opinions in the auditor’s report signals weak corporate governance structures which may increase audit report lag. A Report on Observance of Standards and Codes (ROSC, 2004; 2005) on Ghana issued by the World Bank and the Ministry of Finance and Economic Planning suggests that the previous local accounting standards (Ghana National Accounting Standards) was plagued with internal and external audit ineffectiveness which resulted in weak oversight, persistent gaps in enforcement and major backlog of audit reports. The ROSC hence indirectly recommended the adoption of 2 University of Ghana http://ugspace.ug.edu.gh International Financial Reporting Standards (IFRS) as a subtle means to curb the weak corporate governance issues emanating from the local accounting standards. Therefore, upon the mandatory adoption of IFRS in 2007 all listed firms, government businesses, banks and insurance companies, securities brokers, pension funds and public utilities were to prepare their 2007-year end accounts in compliance with the IFRS prior to which year-end accounts were prepared in accordance the Ghana National Accounting Standards (GNAS) and other industry specific regulations (Aboagye-Otchere, 2014). Daske et al (2008) posits that the introduction of IFRS for listed firms in several countries is a vital regulatory change in accounting history. However, Habib (2015) argues that as changes occur in accounting standards, they have a reflective impact on audit risk since external auditors rely on accounting standards as benchmarks to evaluate information quality. It can therefore be deduced that auditors may spend more time in an attempt to reduce audit risk hence the likelihood of increasing audit report lag. 1.2 PROBLEM STATEMENT According to Givoly and Palmon (1982) audit delay has been characterized as one of the key determinant of timeliness in earnings announcement. Knechel & Payne (2001) suggest that reporting delay is related with lower quality information. Financial reporting should be recognized as an integral aspect of the process of accountability where shareholders are informed about the economic event as occurred in the last financial year as promptly as possible. However, as highlighted by Almosa & Alabbas (2008), the length of time taken by the external auditors to execute the audit may likely have an effect on the timely release of financial statement. According to Boyne and Law (1991) the major medium for discharging the accountability of managers is the annual report while Marton and Shrives (1991) added that the main vehicle for disclosing vital 3 University of Ghana http://ugspace.ug.edu.gh financial information to the public is the annual report which implies that its timely release is critical to decision making. The delay in the audit report can make investors lose confidence in the report presented and compound the agency problem. Similarly, delayed disclosure allows a subset of investors (primarily those with unusual detective abilities or wealth) to acquire costly private pre-disclosure information. These “well-informed” investors can then take advantage (trade on) of their private information at the detriment of “less-informed” investors (Bamber et al., 1993). As a result, regulators such as the International Accounting Standard Board (IASB, 2008) have enunciated worry about the timeliness of public information disclosures. For example, the IASB views timeliness as an essential constraint for the financial report lest information loses its relevance (IASB, 2008). The IASB additionally proposes that “an absence of timeliness can raid information of significance it might otherwise have had”. Several studies have been conducted in developed countries or jurisdictions in relation to the determinants of audit report lag with the intention of reducing it in order to give value-relevance to accounting information. (Bonson-Ponte et al., 2008, Al-Ajmi, 2008, Lee et al., 2008, 2009; Krishnan & Yang, 2009; Niami et al., 2010; Lee & Jahng, 2011; Tanyi, 2011; van Hout, 2012; Wei, 2012; Eghliaow, 2013; Dao & Pham, 2014, Habib, 2015). Also, the demise of reputable companies and unending scandals among corporate institutions have created the awareness and subsequently intensified debate on the effectiveness of CG structures as a means of determining ARL (Zhang et al., 2007). Following the importance of audit report timeliness to investors and other stakeholders, the efficacy of CG mechanism in circumventing impending business scandals has turned out to be very important. In developing jurisdictions, Afify (2009) convey that corporate governance has an influence on audit report lag, noting that there exist a negative association between board independence and ARL. Owing to the fact that 4 University of Ghana http://ugspace.ug.edu.gh corporate governance is shaped by legal and regulatory, economic, cultural and political environment and accounting practices (Aboagye-Otchere, 2014), there is the need to better understand the effect of corporate governance on audit report lag among listed firms in Ghana. Due to the aforementioned, coupled with the vicissitudes of empirical studies relating to the timely demand for relevant-reliable financial information as well as the lack or limited studies in the Ghanaian context, it has become relevant to conduct this study. Sultana et al (2015) posits that research examining the influence of a firm’s corporate governance structure has been less forthcoming with overwhelming focus on firm characteristics’ influence on audit report lag. Nonetheless, despite the importance of relevant-reliable information Bedard and Gendron (2010) conclude that empirical analysis of any association between specific corporate governance characteristics like audit committee is virtually overlooked. Similarly, previous studies by Lee and Jahng (2011), Tanyi (2011) and Eghliaow (2013) have established a positive relationship between audit committee and audit report lag. However, these studies measured audit committee as just the presence of an audit committee in an organisation. Sultana et al (2015) expounds that the mere presence of an audit committee does not necessarily reduce audit report lag but rather the level of its independence, audit committee gender, presence of financial expertise on the committee and the size of the committee also matters. Hence, this study incorporates these factors as a composite variable as part of its corporate governance characteristics in order to access its impact on audit report lag among listed firms in Ghana. Furthermore, upon the adoption of IFRS in 2007 which allows valuing of assets and liabilities at their fair values (fair value accounting), managers exercise much more discretion in valuing 5 University of Ghana http://ugspace.ug.edu.gh identical assets and liabilities relying on quoted prices on active markets for the purposes of financial reporting (Habib, 2015). However, in the absence of a liquid market to determine the fair value or the exit value (Dontoh et al., 2012), managers tend to be more subjective leading to an increased amount of disclosure in relation to their market risk. The auditor therefore spends more time in ascertaining the reliability of such estimation of assets and liabilities before they can express the appropriate audit opinion about the financial statement (Habib, 2015). This therefore suggests the need to investigate the influence of a change in accounting regulation on ARL. 1.3 RESEARCH OBJECTIVES This study is intended to evaluate the influence of corporate governance characteristics and a change in accounting regulation have on ARL. Specifically, the following objectives will be achieved in this study: 1. Measure the extent of ARL following the mandatory adoption of IFRS. 2. Examine the influence of Corporate Governance characteristics on ARL. 3. Examine the lagged effect of CG characteristics on ARL post-mandatory IFRS. 1.4 STATEMENT OF HYPOTHESIS To achieve the objectives highlighted above, the following hypotheses were tested. The bases for the development of the hypotheses listed below have been discussed into details in the chapter two of this study. H1: ARL increases post IFRS mandate H2: Audit committee effectiveness is a negatively association with ARL. H3: Board size is significantly associated with ARL. H4: Board independence has a negatively significant association with ARL. 6 University of Ghana http://ugspace.ug.edu.gh H5: Ownership structure has a positive association with ARL. H6: There is a negative association between lagged audit committee effectiveness and ARL H7: There is a significant association between lagged board size and ARL H8: There is a negative association between lagged board independence and ARL. H9: There is a positive association between lagged ownership structure and ARL. 1.5 SUMMARY OF METHODOLOGY This section presents a brief review of the methodology used to carry out this study. Nonetheless, a detailed methodology is elaborated in chapter three of this thesis. It encompasses the population and sample size, data collection and model specification. 1.5.1 Population and Sample Size The population for the study covered all 35 companies that are listed on the GSE. However, for a firm to be included in this study as a sample, the firm should have existed and listed for the entire period of 2003 to 2014 in order to be able to ascertain the trend of timely reporting over the 12- year period. Also, leaving out the mining and financial sectors because of the uniqueness of regulations in these sectors, led to a final sample size of 14 firms and generating 168 firm year observations for the study. 1.5.2 Data Collection Data for the study was gathered from the audited annual reports of the sampled firms listed on the GSE since annual reports seems to be the most predominant vehicle of communication between management and shareholders (Hossain & Taylor, 1998). The dependent variable for this study is ARL while the independent variables consist change in accounting regulation (IFRS mandate), board size, board independence, ownership structure, audit 7 University of Ghana http://ugspace.ug.edu.gh committee effectiveness index. The audit committee effectiveness index is a composite variable made up of audit committee; independence, financial expertise, experience, charter, size, gender diversity, and meeting. The control variables to be used are profitability, leverage, industry type, firm size and auditor type. 1.5.3 Model Specification The objectives of the study where tested using the regression models below adopted from Sultana et al (2015); Model 1 𝐴𝑅𝐿𝑖,𝑡 = 𝛽0 + 𝛽1𝑖𝑓𝑟𝑠𝑡 + 𝛽2𝑏𝑑𝑠𝑖𝑧𝑒𝑖,𝑡 + 𝛽3𝑏𝑑𝑖𝑛𝑑𝑖𝑖,𝑡 + 𝛽4𝑜𝑤𝑛𝑠𝑡𝑟𝑖,𝑡 + 𝛽5𝑎𝑐𝑒𝑓𝑓𝑖,𝑡 + 𝛽6𝑎𝑡𝑦𝑝𝑒𝑖,𝑡 + 𝛽7𝑙𝑒𝑣𝑖,𝑡 + 𝛽8𝑝𝑟𝑜𝑓𝑖,𝑡 + 𝛽9𝑐𝑠𝑖𝑧𝑒𝑖,𝑡 + 𝛽10𝑖𝑡𝑦𝑝𝑒𝑖,𝑡 + ƞ𝑖 + 𝜀𝑖,𝑡………….. (1) Model 2 𝐴𝑅𝐿𝑖,𝑡 = 𝛽0 + 𝛽1𝑖𝑓𝑟𝑠𝑡 + 𝛽2𝑏𝑑𝑠𝑖𝑧𝑒𝑖,𝑡−1 + 𝛽3𝑏𝑑𝑖𝑛𝑑𝑖𝑖,𝑡−1 + 𝛽4𝑜𝑤𝑛𝑠𝑡𝑟𝑖,𝑡−1 + 𝛽5𝑎𝑐𝑒𝑓𝑓𝑖,𝑡−1 + 𝛽6𝑎𝑡𝑦𝑝𝑒𝑖,𝑡 + 𝛽7𝑙𝑒𝑣𝑖,𝑡 + 𝛽8𝑝𝑟𝑜𝑓𝑖,𝑡 + 𝛽9𝑐𝑠𝑖𝑧𝑒𝑖,𝑡 + 𝛽10𝑖𝑡𝑦𝑝𝑒𝑖,𝑡 + ƞ𝑖 + 𝜀𝑖,𝑡…………… (2) Where: ARL = Audit Report Lag ifrs = change in accounting regulation (IFRS mandate) bdsize = board size bdindi = board independence ownstr = ownership structure 8 University of Ghana http://ugspace.ug.edu.gh aceff = audit committee effectiveness index atype = choice of Big4 audit firm lev = leverage prof = profitability csize = firm size itype = industry type 1.6 SIGNIFICANCE OF THE STUDY In terms of literature, the previous accounting regime was cloaked with several weaknesses which were sought to be addressed with the change in accounting regulation; one of which was the poor quality of financial information leading to a delay in the release of financial statement. With the change in accounting regulation as a means to addressing such problems, this study adds to the knowledge of research by empirically documenting the influence that the mandatory adoption of IFRS has on ARL of firm in an emerging economy like Ghana which is characterized with an inefficient regulatory environment. Also, with respect to policy, Leventis et al (2005) posit that regulators need to understand the determinants of audit report lag before they can effectively implement rules to reduce it. Hence, this study provides such information backed by empirical evidence in the context of the Ghanaian institutional environment for the purpose of setting achievable regulations to reduce audit report lag. 9 University of Ghana http://ugspace.ug.edu.gh More so, concerning practical significance, the study will provide guidelines to listed firms on the factors to focus on in order to reduce their ARL. By this, firms will be able to identify and improve those key corporate governance characteristics such as audit committee effectiveness and board independence that affect their ARL in order to give stakeholders the assurance of reliable and relevant information by fashioning them in time. 1.7 SCOPE AND LIMITATION OF RESEARCH Although the findings of this study will be generalized in relation to firms in Ghana, the empirical focus was on listed firms on the Ghana Stock Exchange (GSE) leaving out banks, insurance firms securities brokers, pension funds and mining firms. Also the adoption of IFRS in this study deals with mandatory adoption hence the voluntary period of IFRS adoption among some firms is not considered. Firms amongst the listed firms were categorized under manufacturing, pharmaceutical, mining and exploratory, oil and gas, food and beverages, printing and IT and petroleum and energy sector. Firms that may have operations cutting across two or more industries were restricted to one for the purpose of this study. Hence findings may differ if the categorization of firms operating in multiple industries was taken into consideration. Also, like most prior studies (Habib, 2015; Sultana et al., 2015; Niami et al., 2010; Afify, 2009; Lee et al., 2008; Ahmed, 2003; Ashton et al., 1989), this study probes how long (in number of days) it takes firms in Ghana to release the audited financial statement. Thus, public announcements of earnings and web-based audited annual reports publications, which consist of other timely informational sources, were not considered. 10 University of Ghana http://ugspace.ug.edu.gh 1.8 CHAPTER DISPOSITION In addition to the chapter one which introduces the study through discussing the problem statement, objectives of the study from which hypotheses were drawn, significance and limitation of the study, there are four more chapters to this thesis. Chapter two is the literature review, which highlights the concept of the corporate governance and regulatory framework for financial reporting in Ghana. It also throws light on the theories underpinning the work. Chapter three sets out the research methodology issues and provides justifications for the chosen research strategy. In chapter four, an analysis and interpretation of the data collected in view of the study objectives are presented. It also reports the significance of the relationship established among the dependent, independent and control variables through the testing of the hypotheses proposed. The last chapter presents the summary of the main findings, conclusions reached based on the findings and recommendations of the research. 11 University of Ghana http://ugspace.ug.edu.gh CHAPTER TWO LITERATURE REVIEW 2.0 INTRODUCTION This chapter reviews existing literature related to the objectives of the study. In view of this, literature is discussed along the following themes: audit report lag, financial reporting framework in Ghana, corporate governance and change in accounting regulation (IFRS mandate). The first part of the chapter examines the literature relating to audit report lag. This is followed by a review of empirical studies on audit report lag, framework for financial reporting in Ghana, corporate governance in Ghana and factors affecting ARL. The chapter ends with a theoretical and conceptual framework based on the various literature reviewed. 2.1 AUDIT REPORT LAG (ARL) Studies on audit report lag (ARL) commenced several years ago with some early studies by Dyer and McHugh (1975) in Australia, Courtis (1976) and Gilling (1977) in New Zealand, Davies & Whittred (1980) in Australia, Garsombke (1981) in the United States of America and Ashton & Newton (1989) in Canada. Ashton and Willingham and Elliott (1987) investigated the relationship between audit lags and several corporate attributes. This indicates that the issue of ARL is not a new phenomenon. Contemporarily, as noted by Dao & Pham (2014), both academic and industrial researchers have developed keen interest on how ARL affects the quality of financial information as well as reactions in the capital market of most countries (Habib, 2015; Sultana et al., 2015; Lee and Jahng, 2011). According to Eghliaow (2013) and Chai & Tung, (2002) the users of financial accounting 12 University of Ghana http://ugspace.ug.edu.gh information are not only concerned with value-relevant information for decision making and forecasting but also with financial information of erstwhile periods within the shortest time. Eghliaow (2013) maintains that timeliness is a longstanding accounting concept which emphasizes on furnishing users of accounting information with financial information when it is of relevance for decision making purposes. Afify (2009) affirms that the issue of timeliness of financial accounting information has proven to be of much importance currently than before due to extraordinary events happening in today’s technological and business world. Such changes include corporate governance (CG) and changes in accounting regulation worldwide (Habib, 2015). 2.1.1 Definition of Audit Report Lag According to the International Accounting Standards Board (IASB) Framework, a key constraint to financial information being relevant to users is timeliness. The Accounting Standards Steering Committee. (1975) stresses on the fact that, corporate entities should release the annual reports for a particular year few days after the end of that period. This makes the information useful due to its timely communication to stakeholders. The UK Statement of Principles unlike accounting frameworks in Canada and New Zealand classifies timeliness as a non-formal quality of accounting information however, acknowledges that the relevance of a financial report is linked to the provision of timely information that influences ones decision. Garsombke (1981) broadly defined ARL as the difference between the dates on which the accounting period of an entity ended and the date on which the financial statement is made available for public consumption. Patton (1990) also defines ARL as “…the reporting lag from the 13 University of Ghana http://ugspace.ug.edu.gh end of the fiscal period covered by the report to the date of report”. Hence, the longer the information takes to reach intended users, the less relevant and reliable it is to potential investors and creditors (Sanders et al. 2009). Kothari et al (2008) commented that the timely issue of audit reports and their complementary information are of paramount concern to users of financial statements. Meanwhile, Davies and Whittred (1980) claim that the theory of timeliness in financial reporting has two main dimensions. These includes; 1. The frequency of reporting and length of the reporting period. and 2. The lag between the end of the reporting period and the date the financial statements are issued. Similarly, Alkhatib & Marji (2012), listed that there are two facets of timeliness in financial reporting. The first being the frequency of the reports and the other being the delays from the accounting date of the report to the date of the reports are issued to stakeholders. However, for the purpose of this study, the ARL takes into consideration the second aspect which is the period between the end of the reporting period and the date the financial statements are issued to stakeholders. 2.2 THE CONCEPT OF ARL AND INVESTMENT DECISION Dao and Pham (2014) posit that the timeliness of financial accounting information release may influence the level of uncertainty in decision-making. Timeliness according to Eghliaow (2013) is not only a universal criterion of the efficacy of financial statements but, more precisely, timely financial reporting is vital for share pricing and investment decision-making in the stock market since this will then affect market behaviors surrounding the release of the accounting information (Givoly and Palmon, 1982; Chambers and Penman, 1984; Ashton et al., 1987). 14 University of Ghana http://ugspace.ug.edu.gh For instance, Chambers and Penman (1984) found empirical evidence that suggests that investors perceive firms not reporting on time to be a signal of bad news and that firms releasing financial reports later than expected receive negative abnormal returns. Similarly, in the US market, investors postpone their purchases and sales of the security until the earnings report is released (Beaver, 1968). Salehi et al., (2003) further iterates that the release of timely information in the corporate report is of much importance in developing economies since other sources of information such as press/media releases, news conferences and financial analysts are not well advanced and regulatory bodies are not as effective in emerging economies as they are in developed economies (Eghliaow, 2013). Literature has found that timeliness is not only an important trait of financial reporting in theory, it also has a recorded positive relationship with prices of securities. Several studies conducted in the U.S found that share price increased when firms released earnings report earlier than expected, and deteriorated when earnings report was released later than standard period of expectation (Chambers and Penman, 1984; Givoly and Palmon, 1982; Iqbal and Farooqi, 2011; Kross and Schroeder, 1984). Similarly, Chambers and Penman (1984) also sampled annual earnings announcement of 100 randomly selected firms listed on the New York Stock Exchange (NYSE) over the period of 7 years spanning from 1970–1976 to study the association between the timeliness of earnings reports and share price performance surrounding their release. They empirically found positive abnormal returns associated with the release of reports published earlier than expected, while a negative abnormal returns was associated with release of reports published later than expected. 15 University of Ghana http://ugspace.ug.edu.gh 2.3 EMPIRICAL STUDIES ON AUDIT REPORT LAG The principal emphasis of prior literature has been on the developed economies like the USA by Givoly & Palmon (1982), Chambers & Penman (1984), Ashton et al (1987), Atiase et al (1988), Bamber et al (1993), Henderson & Kaplan, (2000), Ettredge et al (2005) Behn et al (2006); Canada by Ashton et al (1989), Newton & Ashton (1989) Kinney & McDaniel (1993), Schwartz & Soo (1996), Knechel & Payne (2001), Lee et al (2008); Europe e.g. France by Soltani, 2002; Owusu- Ansah & Leventis, 2006); and in Oceania (Davies & Whittred, 1980; Carslaw &Kaplan, 1991). Some emerging markets have, however, been studied, including China by Haw et al. (2003), in Hong Kong by both Ng &Tai (1994) and Jaggi & Tsui (1999), in Zimbabwe by Owusu-Ansah (2000), in Bangladesh by both Imam et al. (2001) and Karim et al. (2006), in Malaysia by Ahmad & Kamarudin (2003), in Pakistan by Hossain & Taylor (1998), in Greece by Leventis & Weetman (2004), Leventis et al. (2005) and Owusu-Ansah & Leventis (2006), and in Egypt by Mohamad (1995) and El-Banany (2006). Givoly & Palmon (1982) explored the determinants of timeliness of annual earnings announcement of companies in the USA by finding the relationship between the reporting lag and type of industry and report content hinging on a linear regression model. Data set comprised primary and secondary data from a sample of 210 companies included in the sample were categorized under paper and allied products, chemicals and allied products, drugs, petroleum refining, metal working machinery. The study revealed that there is a significant relationship between the industry and report content. However, there was a continuous reduction in the time lag which appears to be more closely related to the industry pattern and tradition rather than the company’s attributes such as size or complexity of operation. 16 University of Ghana http://ugspace.ug.edu.gh Also, Aston et al (1987) extended prior research by exploring the determinants of ARL in USA in 1982 but did not focus on annual reports. Instead questionnaires were mailed to managing partners who requested engagement partners responsible for selected audit to provide information necessary for the six industry classification arising from randomly selected 125 clients which were included in the study. The industry classifications and the number of usable responses were manufacturing (118), merchandising (89), oil and gas (43), commercial banks (61), savings and loans and mutual savings (88), and insurance (89) resulting in a total sample size of 488 companies. The use of an auditor-specific sample of companies indicates the study did not rely on secondary data as previous study of Givoly & Palmon (1982) did. Also as data was directly sourced from auditors, non-publicly available data was accessed such as client internal controls and work- scheduling practices of auditors during specific client’s engagements. Using 14 variables in both univariate regression model and ordinary least square regression model, the study found seven of the 14 variables which includes better internal control quality measures, the proportion of interim audit work, firms with calendar year closings, firm size and type of new as significantly associated with audit reporting lag. Overall, the study found that audit delay is significantly longer for companies that receive qualified audit opinions, are in the industrial as opposed to financial industry classification, are not publicly traded, have a fiscal year-end other than December, have poorer internal controls, employs less complex data-processing technology and have a greater relation amount of audit work performed after year-end. Hossain & Taylor (1998) empirically tests the relationship between audit delay and several company characteristics in emerging economies specifically Pakistan. The objective of the study was first to measure the extent of audit lag in a developing country and also to establish the impact 17 University of Ghana http://ugspace.ug.edu.gh of selected corporate characteristics on audit delay in Pakistan. The study performed both univariate & multivariate analyses to test the hypotheses. It was evidenced that audit delay for each of the 103 listed sample companies ranging from a minimum of 30days to a maximum of 249 days whiles listed firms took approximately five months on average after the balance sheet dates before stakeholders had access to audited annual reports which is the most available vehicle of communication. The results from the study showed that out of the 103 listed firms, audit delay was significantly related to the subsidiaries of multinational companies only. Six other corporate attributes were found not to be significantly associated with ARL, these includes audit fees, total sales, profitability, total assets, debt-to-equity, international link of auditing firms. Soltani (2002) also extended prior research across the develop economies the Paris as the presence of international investors particularly form the US on the Paris Stock Exchange had increased. The study examined the timeliness of a corporate and audit reports in the French context by explaining the trend in reporting and the relationship between reporting behaviour and types of audit reports over a 10-year period. A sample data was taken from more than 5000 annual reports of publicly held companies between the years of 1986 – 1995. The explanatory variables used in the study were consolidated accounts, annual accounts of companies and audit opinion the results from the Chi square, Fisher and T-test indicate that the type of accounts and audit opinions were significantly associated with reporting delay. There is also evidence from the study that there is greater improvement in timeliness of audit reports from consolidated accounts groups that those from annual accounts of companies while qualified audit opinions were released later than unqualified opinions. A study by Behn et al (2006) reports on the impediments identified by practicing auditors in US that kept them from significantly reducing the time lag between closing and issuing reports. 18 University of Ghana http://ugspace.ug.edu.gh Focusing on clients-related impediments and audit-related impediments, technology and implementation of quarterly audit reporting system as main independent variables, the results from a sample of 179 observations showed that both lack of sufficient personnel resources both with client and audit firm hindered a significant reduction in prior audit report delays. With the reported average ARL of 35 days which was expected to be 26 days after the SOX’s implementation in 2006, the study revealed that the partners of the audit firms believe that before ARLs are significantly reduced, the clients and auditors’ mindset must change to accommodate a new audit approach. The study therefore concluded that even if the mindset of both parties is changed, the partners believe the skill set of auditors must improve and the flexibility of the scheduling process must also increase considerably. Owusu-Ansah & Leventis (2006) conducted a study to investigate the factors that affected timely annual financial reporting practices by 95 non-financial, group companies listed on the Athens Stock Exchange. As suggested in the descriptive analysis of the study, 92 percent of the companies reported earlier than the regulatory 161day deadline while 3 percent exactly on the 161st regulatory day and the remaining 5 percent reported late. The explanatory variable for the study were, company size, profitability, gearing, financial condition, industry type, and ownership structure. It was also evidenced from the multivariate regression analysis that large companies, companies audited by the Big-5 audit firms and service companies have shorter reporting lead-time. Conversely, companies in the construction sector, companies that had majority of its equity shares held directly or indirectly by insiders and companies whose audit reports were qualified, do not promptly release their annual financial reports within the regulatory date. Afify (2009) examined the impact of corporate governance characteristics and audit related characteristics on audit report lag of companies listed on the Cairo & Alexandra Stock Exchange 19 University of Ghana http://ugspace.ug.edu.gh (CASE). The study considered a sample of 85 companies and included explanatory variables relating to corporate governance characteristics like board independence, duality of CEO the existence of an audit committee which had not been considered in other studies. The descriptive analysis showed that the ARL for each of the 85 listed companies ranged from a minimum interval of 19days to a maximum interval of 115days. The regression analysis indicates that duality of CEO, board independence and existence of an audit committee are significantly associated with ARL while ownership concentration has an insignificant effect on ARL. In conclusion, Afify (2009) provided empirical evidence that, corporate governance mechanisms indeed affected how early or late Egyptian firms released their financial statements. This then serves as a vital information to stakeholder (investors and regulators) to look beyond a firm’s characteristics when making investment/policy decisions in relation to listed companies on the CASE. Habib (2015) examined the effect of the new Chinese Accounting Standards (CAS) on ARL. The study explored the effect of changes in reporting regulation on ARL while including other explanatory variables such as auditor type, size of the company, profitability, audit fees, auditor tenure, type of audit opinion and an interacting variable of auditor type and change in reporting regulations (CAS). With a final sample size of 9,969 firm year observations, the descriptive analysis indicates that the mean ARL is 87 days while the regulatory average is four (4) months after the end of each accounting year. Generally, the study documented a significant increase in ARL in China after the adoption of the new CAS in 2007 which has its roots based on the fair value accounting concept synonymous to IFRS. In conclusion, most initial ARL literature have focused on incorporating several set of firm characteristics and auditor related characteristics in ascertaining the influence of them on ARL. 20 University of Ghana http://ugspace.ug.edu.gh However, current studies tend to focus on the impact of corporate governance characteristics, other firm related characteristics and accounting regulation on ARL. 2.4 FINANCIAL REPORTING FRAMEWORK IN GHANA Aboagye-Otchere (2014) described the regulatory framework of financial reporting in Ghana as a two-stage framework. In the first stage, accounting standards which is the basis of financial reporting is meant to be complied by all businesses that are issuing financial statements. The second-stage entails another set of financial reporting regulations that is meant for entities that fall within a specific group. Nonetheless, the responsibility of enforcing the financial reporting requirements on listed companies is a joint effort of both the Registrar General’s Department and the Securities and Exchange Commission (which are both public sector bodies) and the Institute of Chartered Accountants- Ghana and the Ghana Stock Exchange (private sector bodies). 2.4.1 The Registrar General's Department (RGD) It is a legal requirement for companies in Ghana to register with the Registrar General’s Department before they started operation. However, practically, most business start operations before registering legally with the RGD. The RGD then issues certificate of incorporation and commence before a company can legally start operations. As part of regulatory requirements, companies are expected to submit their financial statements to the RGD annually. Nonetheless the main financial reporting tool that regulated companies in Ghana is the Companies Act 1963, Act 179. 2.4.2 The Companies Act 1963 (Act 179) Ghana’s Companies Act has its origins from the English law as a result of its colonial ties to the United Kingdom (Assenso-Okofo et al., 2011, Nobes & Parker, 2002). The Companies Act 21 University of Ghana http://ugspace.ug.edu.gh contains some accounting and auditing requirements that all public and private companies are obligated to conform to. Nevertheless, the Companies Act has been critiqued of not being at par with the current financial reporting regulations, that is the principles of IFRS since it has not undergone any updates since 1963. As a result, the regulatory authorities mandate all businesses to comply fully with either the full IFRS or the IFRS for SMEs (Aboagye-Otchere, 2014). Institute of Chartered Accountant Ghana (ICAG) is the sole regulator of financial reporting in Ghana which among other duties is responsible for determining applicable financial reporting standards and also organizing training seminars to educate companies on such standards. 2.4.3 Mandatory Adoption of IFRS in Ghana Historically, the Ghanaian financial reporting environment has been characterized by the dominance of the Ghana National Accounting Standards and the Companies Act which leaves little room for managerial judgement and estimations. However, the demand for high quality accounting information by both local and foreign stakeholders revealed the weaknesses in the GNAS. In the sense that it was based on the international accounting standards (IAS) that were applicable in the mid-nineties and had become outdated since no updates were made to contemporize it. (World Bank, 2004). Against this backdrop, in January 2007, Ghana launched its adoption of the IFRS without any modification to it as the only accounting standard by which all general-purpose financial statements of companies were to be prepared in accordance to. Even though the adoption of IFRS was in 2007 the actual implementation for most listed firms began a year later due to difficulties in conversion (Aboagye-Otchere, 2014). 22 University of Ghana http://ugspace.ug.edu.gh Despite this huge leap in the financial reporting environment, Assenso-Okofo et al (2011) iterated that the mere change in Ghana’s accounting regulation from the GNAS to IFRS does not guarantee accounting quality since the accounting and reporting quality is significantly affected by legal, political, institutional and economic factors. The study also revealed that the regulatory environment is neither effective or efficient since the monitoring and enforcement of compliance still as weak as the previous financial reporting regime (World Bank, 2004). 2.5 CORPORATE GOVERNANCE According to Demirag (2005) organizational scholars have since the 1930s developed theoretical frameworks related to corporate governance along dimensions such as transaction costs, institutional isomorphism, behaviour of agents, resource dependence and stakeholder management. The presence of a strong governance mechanism has long been considered as very critical for enhancing the long-term value of stakeholders. Peni et al. (2010) have argued that financial reporting is of higher quality firms have stronger corporate governance mechanisms. Levitt (2000) contends that in today’s technology-driven information dispensation, strong corporate governance exceeds just good business practices but rather an indispensable component of market discipline. Cohen et al (2002) stresses on the recent demands of investors and other stakeholders for greater accountability from boards of corporations and the effectiveness of the audit committee is likely to enhance the quality of managerial ownership and subsequently a much efficient capital market. In 1999, corporate governance standards and guidelines were released by the Organisation for Economic Cooperation and Development (OECD) with the sole purpose of assisting governments to assess and improve the regulatory environment in connection to corporate governance. The 23 University of Ghana http://ugspace.ug.edu.gh guidelines is also meant to provide the players responsible for the development of corporate governance some form of roadmap to achieve such an aim (OECD, 1999). 2.5.1 Definition of Corporate Governance Bozec et al (2004) stresses that the concept of CG is a relatively popular subject of discussion among academics, practitioners, regulators and the business world. As a result, the most widely used definition of CG is “the system by which companies are directed and controlled” (Cadbury Report, 1992; OECD, 1999). The OECD stresses that corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set, and the means through which those objectives and monitoring performance are attained”. Consistent with the above definition, Shleifer and Vishny (1997) expounds that “corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment.” Also, Oman et al (2003) iterates that “corporate governance comprises a country’s private and public institutions (both formal and informal) which together govern the relationship between the people who manage corporations (corporate insiders) and all others who invest resources in corporations in the country”. Luo (2005) adds up by describing corporate governance as a system of directing and controlling corporations through mechanisms such as board composition, size, committee structure, code of conducts, and ethics programs. Corporate governance is critical to ensuring financial reporting 24 University of Ghana http://ugspace.ug.edu.gh accountability and disclosure of all relevant, reliable, and accurate information to stakeholders. It plays a pivotal role in guaranteeing good practices, transparency, accountability, probity, responsibility, and ethics in the corporate world (Berglof & Thadden, 1999). La Porta et al. (2000) refer to CG as “a set of mechanisms through which outside investors protect themselves against expropriation by the insiders” (that is large controlling shareholders and managers). In contrast, Demb and Neubauer (1992) define CG as “the process by which corporations are made responsive to the rights and wishes of stakeholders. 2.5.2 Corporate Governance in Ghana Unlike jurisdictions such as the US and the UK, Ghana does not have a single comprehensive corporate governance framework. Rather, the rules that govern the relationship among a business’s stakeholders can be found in bits and pieces in different regulatory instruments hence there is no single overarching set of principles for corporate governance for companies in Ghana. 2.5.2.1 The Companies Act 1963 (Act 179) The Companies Act contains some corporate governance provision that all companies are required to comply with. These include provisions on the number, the appointment, duties, remuneration and removal of directors; shareholder meetings; rights of shareholders; and the appointment, duties, powers, remuneration and removal of auditors. Nonetheless these provisions in the Companies Act has not been updated since 1963 hence they are deemed to have lost touch with the dynamic nature of world operations (Assenso-Okofo et al., 2011). 25 University of Ghana http://ugspace.ug.edu.gh 2.5.2.2 Corporate Governance Rules in Securities and Stock Exchange Rules In addition to the Companies Act, listed companies are required to comply with corporate governance principles set out in the Securities Industry Law (1993), the Securities Industries (Amendment) Act 2000, the SEC Regulations (2003) and the GSE Listing Regulations. 2.5.2.3 Voluntary Corporate Governance Codes Voluntary corporate governance codes in Ghana include the Ghana Manual on Corporate Governance issued by the Private Enterprises Foundation (PEF) and the Institute of Directors (IOD); and the SEC Guidelines on Best Corporate Governance Practices. The SEC guidelines are based on OECD principles. These voluntary codes however have little recognition in Ghana and are mostly not adhered to. The lack of adherence to these voluntary corporate governance codes is hardly surprising given that even statutory laws in Ghana generally suffer from weaknesses in compliance (Aboagye-Otchere, 2014). 2.6 FACTORS AFFECTING AUDIT REPORT LAG Several research in the area of audit report timeliness or audit report lag have discussed the factors which influences the delay in the release of annual reports for the purpose of informing interested stakeholders. Most studies have attempted to classify these factors under firm-related characteristics (Hossain and Taylor, 1998; Habib, 2015), audit-related characteristics and corporate governance characteristics (Lee et al., 2008; Afify, 2009; Habib, 2015; Sultana et al., 2015). Despite attempts to clearly distinguish these factors into various classes, their interrelated nature makes it quiet complex. This study therefore classifies the factors affecting ARL into three divisions; change in accounting regulation, corporate governance characteristics and firm-related characteristics. 26 University of Ghana http://ugspace.ug.edu.gh 2.6.1 Change in Accounting Regulation (IFRS mandate) The change in accounting regulation from the GNAS to IFRS has certainly affected the accounting and financial reporting practices of firms that are mandated to report using the new standard since IFRS allow for the use of fair values for initial and subsequent measurement of assets and liabilities. However, Habib (2015) noted that there are concerns associated with the implementation of the new fair value based accounting standard among countries that have either adopted it in full or adapted it. In light of this observation the adoption of IFRS is believed to have repercussions on the timeliness of financial statements as a result of delays which are necessary during the auditing phase. Habib (2015) posit that the new fair based accounting allows for managers to use the discretionary approach in the valuation of identical assets and liabilities relying on quoted prices in active markets. However, where illiquid markets exist for the purposes of determining the fair value or exit value, managers tend to be more subjective hence leading to an increase in the level of disclosure in relation to the companies’ market risk. Auditors are therefore likely to spend more time to understand the rationale behind such subjectivity in the valuation of such assets and liabilities before opining on the true and fairness of financial statement in order to mitigate audit risk hence increasing the ARL. Also the change in accounting regulation does not only affect companies but external auditors too. External auditors use accounting standards as their sole benchmark for expressing an opinion on the quality of accounting information The consistency, legitimacy and rationality of accounting information disclosed by companies are largely the main basis for the independent audit opinion issued by external auditors after benchmarking the accounting information against the accounting standards. Hence upon a change in accounting regulation, not only does it change the recognition, 27 University of Ghana http://ugspace.ug.edu.gh measurement and representation of financial reports but also influences the auditors work directly (Zhu & Sun, 2012). External auditor will necessarily spend a considerable amount of time to full comprehend the standard before they undertaking an audit of fair value-based financial statement. However, the two processes are not mutually exclusive but overlaps in the sense that the understanding of some standards by external auditors are sought for during the audit engagement hence increasing the amount of time spent thus an increase in ARL. Based on the aforementioned, the following testable hypothesis is developed: H1: ARL increases post IFRS mandate 2.6.2 Corporate Governance Characteristics ARL literature that incorporated corporate governance characteristics has taken into consideration several of such characteristics which are deemed to have a significant impact on the timeliness of the reports issued by firms to its stakeholders. Such characteristics includes mostly board characteristics (board – independence, size, composition etc.). However, Sultana et al (2015) argue that since the responsibility of the timeliness of the annual audited financial reports is mostly delegated to the audit committee which is a sub-committee of the board, corporate governance characteristics that seek to explain the delay in the issue of annual reports should include the audit committee characteristics. Other corporate governance characteristics include board size, board independence and ownership structure. 2.6.2.1 Audit Committee Effectiveness Index In finding a composite measure for audit committee variables DeZoort et al. (2002) as cited in Rochmah & Ghazali (2012) posits that there are four elements that determine composite audit committee effectiveness. These includes composition; authority; resources; and diligence. 28 University of Ghana http://ugspace.ug.edu.gh 2.6.2.1.1 Composition This refers to the condition for qualifying as an audit committee member for example educational background, capability, independence and experience (Rochmah & Ghazali, 2012). The purpose of such requirement according to DeZoort et al., (2002) is “to enable audit committees to make judgments that are in the best interest of shareholders”. Consistent with prior studies, this study uses independence, experience and expertise as proxies for composition. 2.6.2.1.1.1 Audit committee independence The independence of the audit committee has been of great interest to policymakers, regulators, and researcher in recent times (Abbott et al., 2000). Advocates for both agency and resource dependence theory seem to be in tune with the implications that and independent audit committee has on ARL. In light of this, both theories argue that the presence of a greater proportion of non- executive directors on the board restricts management from exercising control over the audit committee hence hindering the committee from carrying out its duties and responsibilities. Subsequently, Klein (2002) and Bedard et al., (2004) a more independent audit committee is likely not to be bias since it has less personal relationship with management, allowing it to address key financial issues that arise during the audit process, resolve disputes between management and external auditors and also carry out recommendations from previous audits effectively. Extant literature brings to bear that misleading financial statements and fraudulent activities are reduced where the audit committee is more independent (McMullen & Raghunandan, 1996; Bedard et al., 2004). In summary, audit report lag is purported to be very low where the audit committee is highly independent of management of an organisation. 29 University of Ghana http://ugspace.ug.edu.gh 2.6.2.1.1.2 Audit committee financial expertise Contemporary audit committee studies have emphasized on the necessity of audit committee members or at least a member of the committee, having knowledge in relation to auditing and financial reporting (DeZoort, 1998; Beasley & Salterio, 2001). Agency theory advocates argue that the presence of members with financial expertise enhance the audit committee’s ability to ensure the external auditor’s work is competently undertaken, comprehend audit judgements and understand and mediate during auditor/corporate management disagreements, thereby ultimately reducing audit report lag. Furthermore, members with financial expertise will assist the audit committee develop more effective internal controls and risk management processes (McDaniel, Marint & Maines, 2002; Cohen et al., 2013). In supporting the presence of financial experts on the audit committee, resource dependency advocates argue such a presence enables the sub-committee to retain greater power over financial accounting information and audit judgements. Without financial expertise, the audit committee is heavily reliant upon the external auditor providing assurance that key financial accounting figures (e.g., earnings) are reliable and relevant to external decision makers (DeFond, Hann & Hu, 2005; Sultana & Van der Zahn, 2013). 2.6.2.1.1.3 Audit committee experience DeZoort (1998) noticed that audit committee members with experience made sound internal control judgements than members without experience. Also in a study by DeZoort & Salterio (2001), experience of the audit committee members played a significant role in settling of disputes between management and external auditors. This aided significantly to the reduction in the time consumed by auditors in carrying out their audit work hence minimizing ARL. DeZoort et al. (2002) claims that audit committee experience is a critical component of the effectiveness of the audit committee yet most studies have been concerned with members’ expertise only. The study 30 University of Ghana http://ugspace.ug.edu.gh posited that audit committee experience results in greater interaction between members and internal auditor, reduce the incidence of financial reporting problems and provides greater support for auditors in auditor-management disagreements. 2.6.2.1.2 Authority This is the second element in the determination of an effective audit committee. According to DeZoort et al. (2002) authority could also be referred to as responsibility. The author further explains that in order for the audit committee to discharge its responsibilities, it needs to be empowered by means of giving it some level of authority. The empowerment of the audit committee is usually derived from the audit committee charter. 2.6.2.1.2.1 Audit Committee Charter According to KPMG (2002), the audit committee charter has become the single most important document which aids and guides audit committee members on their specific responsibilities and also serves as a benchmark to help stakeholders assess and evaluate the committee’s performance. DeZoort et al. (2002) highlights that, the audit committee charter is the source of authority for the audit committee and such authority also depends on the audit committee’s relationship with management, both external and internal auditors and the board as a whole. Krishnan & Visvanthan (2008) posit that the duties of audit committee members are usually enshrined and described in the audit committee charter hence the absence of it signifies inefficiency and effectiveness of the committee. 2.6.2.1.3 Resource In explaining the third element of audit committee effectiveness, DeZoort et al. (2002) argue that the audit committee must have sufficient resources in order to operate if maximum effectiveness 31 University of Ghana http://ugspace.ug.edu.gh is expected. This includes the size and gender diversity of the audit committee as argued by agency and resource dependency theorist. 2.6.2.1.3.1 Audit committee size The position of the resource dependency theorist in terms of the adequate size of an audit committee that will result in the early release of financial statements to stakeholders diverge from that of the agency theorist. According to Collier & Gregory (1999) and Hillman & Dalziel, (2003) groups are more effective when there is some level of cohesion and unity among group members hence where the size of a group is large, these qualities do not exist leading to loss in monitoring and control of members and the organisations activities. Also agency theorists argue that large group size is a breeding ground for opportunistic behaviour which further results in delay in decision making since without a quorum critical and immediate decisions cannot be made (Mintzberg, 1983). There is also the problem of the free rider effect where some group members do not contribute in carrying out the roles and responsibilities of the group thereby resulting in total ineffectiveness of the group (Evans & Dion, 1991; Jensen & Tang, 1993). Inversely, resource dependence theorists claim that large audit committee is able to attract members with the necessary resource needed by the firm in order to enhance growth. The members possess special set of qualities such as expertise, experience, knowledge and connections that could be beneficial the company. Accordingly, with a wider group, the audit committee is able to draw on the experience in resolving disagreements between management and external auditors and also assess and outline clearly the roles and responsibilities of the management in connection with recommendations from the audit (DeZoort et al., 2002; Turley & Zaman, 2007). In summary agency theorist suggest that a smaller sized audit committee will result in an effective audit committee whiles resource dependency theorist argue otherwise. 32 University of Ghana http://ugspace.ug.edu.gh 2.6.2.1.3.2 Audit committee gender diversity The influence of gender diversity on the audit committee in aiding to achieve effectiveness of the committee has be argued in diverse ways by the advocates of both agency and resource dependency theory. Accordingly, agency theorists argue that females are risk averse and to some extent more ethically bound than their male counterparts. Hence were decisions on sensitive issue like risk and finance are supposed to be made, their diverse views retard the progress of the committee. Also since most groups thrive based on cohesion as purported by Powell & Anisc (1997) females on the audit committee are likely to split the group into sub-groups of majority and minority resulting in an ineffective corporate governance mechanism. Therefore, from the agency theory perspective gender diversity on the audit committee may result in a reduction of the audit committee’s effectiveness. Conversely, advocates of the resource dependency theory suggest that the importation of broader and diverse ideas into a group is necessary for the purpose of observing situations from a much wider spectrum hence the need for gender diversity on the audit cimmitte. Also in the bid to counter fraudulent activities and misrepresentation of financial statements, resource dependency theorists support the presence of females on the audit committee (Pucheta- Martinez & Fuentes, 2007; Gul, Srinidhi & Ng, 2011) since they are more ethically bound that their male colleagues. This, as claimed by resource dependency theorists will reduce the effect of group think mentality among a single gender audit committee (Owusu-Ansah & Leventis, 2006; Gold et al., 2009). 2.6.2.1.4 Diligence Diligence according to DeZoort et al., (2002) is the forth element in assessing audit committee effectiveness and refers to “the willingness of committee members to work together as needed to prepare, ask questions, and pursue answers when dealing with management, internal auditors, 33 University of Ghana http://ugspace.ug.edu.gh external auditors, and other relevant constituents”. This is indicated in the study by the frequency of meetings held by the audit committee. 2.6.2.1.4.1 Audit committee meeting Farber (2005) examined the relationship between the quality of corporate governance structures and the reliability of the financial reporting environment in a firm. The study found that the regularity of audit committee meetings is negatively related to fraudulent financial reporting. Similarly, Menon & William (1994) and Xie et al., (2003) provide evidence that the number of meetings held by the audit committee signifies the effectiveness of the audit committee. Zhang et al (2007) found that firms with internal control weakness are more likely to have high frequency of audit committee meetings as against firms with strong internal controls systems. Where internal controls are weak, financial statements are more susceptible to errors which increases the auditors risk. This leads to a more substantive audit approach causing a delay in the completion of the audit work hence an increase in ARL. Based on the aforementioned in relation to the audit committee effectiveness in totality, this study develops a testable hypothesis that; H2: Audit committee effectiveness is a negatively association with ARL. 2.6.2.2 Board size Prior literature has shown the importance of the size of the board in determining the ARL of firms through its effect on the audit committee (Zhang et al., 2007). Agency theorists and resource dependency theorists hold diverse views on the effect of board size on ARL. Agency theorists advocate that as the size of the board increases, it becomes less efficient since control and monitoring function of the board becomes impaired due to “free-riders” effect (Hilman & Dalziel, 34 University of Ghana http://ugspace.ug.edu.gh 2003; Jensen & Tang, 1993). Xie et al. (2003) also conveys that smaller boards are more functional and are able to provide better financial oversights since they have less bureaucratic problems plaguing them. On the other hand, resource dependency theorists argue that a larger board provides the platform for diverse resources and set of qualities such as expertise and knowledge to be pooled (DeZoort et al.,2002). While Habib (2015) found a negatively insignificant relationship between board size and ARL, Niami et al. (2010) found a positively insignificant association. This indicates that findings on the size of the board from prior literature is inconclusive. Hence this study makes the following hypothesis: H3: Board size is significantly associated with ARL. 2.6.2.3 Board independence The Company’s Act and the Corporate Governance Guidelines on Best Practices issued by SEC- Ghana requires that half of the members of the board of listed firms should be non-executive directors. Agency theorists Fama & Jensen (1983) argue that non-executive directors are not likely to connive with managers because they are incentivized enough to carry out their tasks. Literature from both agency and resource dependency theorists shows that the inclusion of non-executive directors on the board enhances disclosure quality (Patelli & Prencipe, 2007; Petra, 2007), reduces the possibility of financial statement fraud (Farber, 2007) and curtail the intensity of earnings management (Xie et al., 2003; Jaggi, Leung & Gul, 2009). It is therefore hypothesized that; H4: Board independence has a negatively significant association with ARL. 35 University of Ghana http://ugspace.ug.edu.gh 2.6.2.4 Ownership structure Owusu-Ansah & Leventis (2006) argue that majority of shareholders show less interest in making sure annual reports are released on time to keep the market informed since they have superior access to inside information. This means that where the shares of a firm are highly concentrated among a few shareholders, ARL is high. However, where the shares are evenly spread, ARL is low since no single shareholder has access to inside information. Similarly, Soltani (2002) claims that the presence of foreign investors reduces ARL due to the influence they wield on corporate reporting, corporate governance and choice of accounting methods used by such firms. Habib (2015) also posit that the presence of governmental ownership reduces the demand for external auditing since governments monitor and communicates to management directly through internal channels. Yaacob & Che-Ahmad (2012) argue that blockholder ownership (i.e. 5percent or more shareholders) reduces agency conflict between agents & principals, thereby reducing monitoring cost of agents. Invariably, a higher percentage of blockholders have been found by Abdelsalam & El-Masry (2008) to have a significantly negative relationship with ARL. Hence it is hypothesized that: H5: Ownership structure has a positive association with ARL. 2.6.3 Lagged Corporate Governance Characteristics Extant literature has over time incorporated corporate governance characteristics in determining ARL as though the effect of these characteristics are instantaneous and exhaustive in one accounting period. Researchers argue vehemently that the effect of a corporate governance mechanism or structure is not immediate but influences forthcoming financial accounting events, transactions and reports (Zahra & Pearce, 1989; Dalton et al., 1999). Drawing from this, all the for 36 University of Ghana http://ugspace.ug.edu.gh corporate governance characteristics are hypothesized in the lagged form to test the above assertion. Hence the study hypothesizes that; H6: There is a negative association between lagged audit committee effectiveness and ARL. H7: There is a significant association between lagged board size and ARL H8: There is a negative association between lagged board independence and ARL. H9: There is a positive association between lagged ownership structure and ARL. 2.6.4 Firm Characteristics Literature on audit report timeliness has often described firm characteristics as corporate attributes. Prior studies have examined the impact of various firm characteristics on audit report timeliness or lag (Dyer and McHugh, 1975; Courtis, 1976; Gilling, 1977; Whittred & Zimmer, 1984; Ashton et al, 1987; Carslaw & Kaplan, 1991; Ng and Tai, 1994; Hossain and Taylor, 1998, Owusu-Ansah & Leventis 2006; Lee et al., 2008; Afify, 2009; Habib, 2015). Among these characteristics are company size, profitability, leverage, type of industry and the type of auditor. 2.6.4.1 Company Size There are several studies which have identified a significant association between the size of the company and the ARL in both developed and developing economies (Newton & Ashton, 1989; Davies and Whittred, 1980; Ashton et al., 1989). The reason suggested by these studies to justify why company size could be negatively associated to the ARL includes the fact that larger companies may be theorized to complete the audit of their financial reports on time than smaller companies. Carslaw and Kaplan (1991) argued that large companies are likely not commit substantial errors in the financial statement since they are perceived to have a stronger internal control system as compared to a small firm. Hence external auditors are more likely to trust the 37 University of Ghana http://ugspace.ug.edu.gh information from such strong internal controls than information generated from a smaller firm. In effect external auditors are likely to perform a substantive audit on smaller firms than a larger firm. Conversely larger firms are likely to hold large inventory levels which may delay the audit report in the event where external auditors perceive some level of mischief and want to mitigate the audit risk (Davies and Whittred, 1980; Ashton et al., 1989). Givoly and Palman (1982) found neither a negative nor a positive (no significant) relationship between the size of the company and the audit delay. 2.6.4.2 Profitability Authors like Dyer & McHugh, (1975), Courtis (1976) and Carslaw & Kaplan (1991) have used profitability as an explanatory variable for audit report lag. Courtis (1976) and Dyer & McHugh (1975) found a positive association between profitability and audit report lag whereas Carslaw and Kaplan (1991) found a negative association. According to Ashton et al., (1987) profitability can be considered one indication of whether good news or bad news resulted from the year’s activity. Management is likely to postpone the release of annual reports if the company records losses in order to avoid the discomfort of communicating the “bad news” to stakeholders. Conversely companies having higher profitability may complete their audits as early as possible in order to release audited corporate annual reports to convey the “good news”. Also as stated by Carslaw and Kaplan, (1991) “an auditor may proceed more cautiously during the audit process in response to a company loss if the auditor’s believes the company’s loss increases the likelihood of financial failure or management fraud”. 2.6.4.3 Leverage According to Owusu-Ansah (2000) the relationship between timely reporting and the extent to which a company’s total assets is financed by debt capital is unclear. In the audit report lag 38 University of Ghana http://ugspace.ug.edu.gh literature, there exist two opposing views on the relationship between leverage and audit report timeliness. One view holds that high-leveraged companies report more promptly than low- leveraged companies. Jensen & Meckling (1976) supporting one school of thought contends that highly leveraged companies have the incentive to invest sub-optimally, debtholders typically include clauses in debt contracts to constrain the activities of management. One common clause found in debt contracts is the requirement of management to report promptly and at a certain frequency to enable debtholders to re-assess the long-term financial performance and position of companies. Furthermore, another explanation for the negative relationship between leverage and timely reporting is provided by the monitoring costs theory (Owusu-Ansah, 2000). This theory argues that depending on the ownership structure of companies, different levels of audit quality would be demanded. Management is likely to desire a higher quality audit to add credibility to the financial statement as a means to reduce monitoring costs in situations where agency cost is high. The reliability of financial statement is enhanced by association with reputable audit firms, usually one of the Big-five audit firms currently the Big-four (Firth & Smith, 1992). Because such audit firms are known to expend more resources (Palmrose, 1986), and use high quality staff (Chan et al., 1993) in their audit engagements, it is likely that audit delay will be minimal and this results in speedy reporting by client companies. In contrast, the other school of thought holds that leverage usually associates positively with timely reporting (Carslaw & Kaplan, 1991) on two grounds. First, a high leverage ratio increases the probability of a company’s failure which, in turn, increases the probability of the external auditor being sued. Carey & Simnett explains that the auditor may have to perform more audit work, to improve his defense against any possible legal suit, which may lengthen the time of the audit 39 University of Ghana http://ugspace.ug.edu.gh assignment. Secondly the audit of debt is relatively more time consuming than audit of equity especially if the number of the debtholders is large (Carslaw & Kaplan, 1991). 2.6.4.4 Type of industry Hossain & Taylor (2008) grouped industries into two classes (financial, e.g. banks and other financial institutions and insurance companies; and non-financial) for purposes of analysis. The author uses two measures to examine the impact of company industry membership on audit report lag. One is whether the company belongs to a financial industry; the other is whether the company belongs to a non-financial industry. Earlier research has used industry type as an explanatory variable for audit report lag. One industry may have complex manufacturing process while others may not. The adoption of different industry-related accounting measurement, valuation and disclosure techniques and policies may cause lag in preparing accounts and audit of complex industries. Therefore, the time to perform the audit work may be longer for the companies having complex manufacturing process than other companies. Audit report lag is expected to be shorter for companies in the financial industry that hold little inventory or fixed assets (Bamber et al., 1993). The financial assets they hold are easier to audit than non-financial assets. Therefore, audits of financial companies are expected to require less time than audits of non-financial companies. Studies by Ashton et al. (1989), Newton & Ashton (1989) and Bamber et al. (1993) consistently found that financial companies have shorter audit report lag compared to non-financial companies. Audit report lag is expected to be shorter for firms with less or no inventory levels. 2.6.4.5 Type of auditor Al-Ajmi (2008) posit that larger audit firms are able to complete audit engagements faster than smaller ones since they possess the capacity and technology that gives them a competitive advantage over smaller audit firms. Also Ahmed (2003) states that large audit firms have a rich 40 University of Ghana http://ugspace.ug.edu.gh source of experience as a result of multiple clientele base hence are able to settle disagreement with management faster than smaller firms do. Conversely, it can be argued that large audit firms for the purpose of protecting their image or brand name will consume less time to audit entities unlike smaller audit firms (Afify, 2009). The Big 4 audit firms are in this case considered more experienced, resourceful and technological advantaged than smaller audit firms hence it is expected that a firm’s ARL is less when audited by a Big 4 as supported by Lee et al., (2008). 2.7 THEORETICAL FRAMEWORK Predominantly two major theories have been adopted by researchers to explain the phenomenon of delay in the release of audited annual reports. Studies by Dyer & McHugh (1975), Courtis (1976), Gilling (1977), Whittred & Zimmer (1984), Ashton et al. (1987), Carslaw & Kaplan (1991), Ng and Tai (1994), Hossain and Taylor (1998), Owusu-Ansah & Leventis (2006), Lee et al. (2008), Afify (2009), Habib (2015) and Sultana et al. (2015) either hinged on the agency theory and/or the resource dependency theory to explain the concept of audit report lag. This study however dwells on both theories since both theories explain the phenomenon of ARL perfectly together than individually (Habib, 2015). 2.7.1 Agency Theory Agency theory is a common theory used to explain the phenomenon of the separation of an organisation’s ownership from its control, and is widely adopted by researchers to explain the complex relationship that exists between the owners and the managers of public companies and companies that hold funds in trust for third parties. According to Jensen & Meckling (1976) the agency relationship is seen as: the division of corporate control from its proprietorship could create a contention between the stakeholders’ welfare and the managers’ welfare. By agency theory, proprietors otherwise called principals, can lessen any potential clash with managers (agents) 41 University of Ghana http://ugspace.ug.edu.gh following up on principals’ benefit, by giving the agent a motivating force to act to the principal’s advantage, and by inquiring monitoring costs intended to restrain the unordinary activities of the agent. Kiel and Nicholson (2003) have called attention to the fact that the detachment of control from proprietorship deduces that managers manages a firm for the benefit of the firm’s proprietors. Clashes emerge when a firm's proprietors see that the directors are not dealing with the firm to the greatest advantage of the proprietors. As per the agency theory, managers possess superior knowledge which gives them an advantage over the firm’s owners. The thinking is that a company's top managers might be more intrigued by their own welfare than in the welfare of the company's shareholders (Berle and Means, 1967). According to Eisenhardt (1989), the agency theory is worried with investigating and determining issues that happen in the relationship between principals (proprietors or shareholders) and their agents or top administration. Blair (1996) posits that the agency theory lays on the assumptions that the ultimate goal of an organisation to expand the abundance of their proprietors or shareholders. The agency theory maintains that most companies work under states of fragmented data and vulnerability. Such conditions open up the organisation to two main agency problems namely adverse selection and moral hazard. Adverse selection arises when a shareholder (principal) cannot determine with reasonable certainty whether an agent accurately precisely speaks to his or her capacity to take every necessary step for which he or she is paid to do. Then again, moral hazard is a condition under which a principal can’t make sure if an agent has advanced maximal exertion (Eisenhardt, 1989). As per the agency theory, certain aspects came to the surface in relation to audit report timeliness. Obviously, the audit committee plays an inarguable part where they have to screen and report the advancement in the organizations. Agency theory is perceived as a relevant theory which is 42 University of Ghana http://ugspace.ug.edu.gh applicable to this study because it explains the board of directors and audit committee, whereby each of them is functioning as a monitoring mechanism to reduce agency problems. Monitoring mechanism refers to corporate governance practices, the proper management performance and financial reporting processes (Nelson and Shukeri, 2011). Research on audit committees is mainly based on agency theory proposed by Jensen and Meckling (1976) and Fama and Jensen (1983). According to agency theory, because of separation and difference in terms of interest between management (agents) and shareholders (principals), the agent may not necessarily always perform in the best interest of principals. This leads to the creation of agency problems such as suboptimal investment decisions, unnecessary and excessive spending and information asymmetry as a result of opportunistic persons involved in management of the business. Turley & Zaman (2004) claim that there is the need for an audit report lag since in a way it serves as means to safeguard shareholders’ interests through its oversight responsibility by ensuring appropriate financial reporting, internal control, and external auditing activity. The relation between corporate governance and timeliness of reporting is based on the justification that if audit committee is operational in the execution of its monitoring obligation of financial reporting process, it will influence the quality of financial reporting which may prompt the opportune presentation of the annual report. 2.7.2 Resource Dependency theory Resource dependency theorist explain the behaviour of organisations based on the fundamental assumption that organisation that depend on “critical” and important resources are likely to be influenced in their decision as a result of their dependence on that resources. Hence the decisions and actions of an organisation can be explained depending on the particular dependency situation. 43 University of Ghana http://ugspace.ug.edu.gh According to Hilman & Dalziel (2003), the second most important function of the board is the supply of resources to the firm. Pfeffer & Salancik (1978) provide the theoretical underpinning for the provision-of-resource function of boards through their work on resource dependency theory which claims that “when organisations appoint an individual to a board, it expects the individual will come to support the organisation, will concern itself with the problems, will variably represent it to others and will try to aid it” (Pfeffer & Salancik, 1978). Subsequently, Dalton et al. (2007), Johnson et al (1996), Zahra & Pearce (1989) emphasizes that although agency theory is the predominant theory used in the research on boards of directors and their sub committees Resource Dependency theory (RDT) has greater research influence. Prior studies by Johnson et al., (1996) and Zahra & Pearce (1989) which borders on board of directors settle that RDT is supported more often than other board perspectives which includes agency theory. Hence, even though RDT is not predominantly used to study boards unlike agency theory, evidence from empirical literature suggests that it is a more suitable spectacle for understanding boards. Pfeffer (1972) proclaims that boards empower organisations to minimize reliance or access vital resources. According to Pfeffer & Salancik (1978) directors bring four benefits to firms and these include: (a) information in the form of advice and counsel, (b) access to channels of information between the firm and environmental contingencies, (c) preferential access to resources, and (d) legitimacy. For instance, Provan (1980) finds that firms that are able to entice and bring on board powerful members of the public onto their boards are able to obtain important resources from the environment. Even though Hillman and Dalziel (2003) suggest two broad functions of the board, 44 University of Ghana http://ugspace.ug.edu.gh that is, monitoring from the agency theory perspective and resource provision, earlier reviews by Johnson et al., 1996; Zahra & Pearce, (1989) discuss roles of directors related to RDT ideas. Hillman and Dalziel (2003) argue that the level of board capital, that is, sum of director human and social capital along with incentives, will influence both monitoring and resource provision by the board. In summary, even though agency theory has been predominantly used in ARL literature, the resource dependency theory is appropriate for this study not only because its application to board related research seems to be gaining attention but because contemporarily, corporate governance seems have gone pass the mere monitoring function of boards to the resource provision function of boards (Hilman & Dalziel, 2003; Hilman et al., 2009). 2.8 THEORETICAL FRAMEWORK Figure 2. 1: Theoretical Framework Agency Theory: Monitoring Function Theoretical Perspective Resource Dependency: Resource Provision Function Source: Researcher’s Own frame 45 University of Ghana http://ugspace.ug.edu.gh 2.9 CONCEPTUAL FRAMEWORK Figure 2. 2: Conceptual Framework Audit Report Lag CHANGE IN (ARL) ACCOUNTING REGULATION (IFRS MANDATE) Corporate Governance Firm Characteristics Characteristics  Company size  Board size  Profitability  Board independence  Leverage  Ownership structure  Type of industry  Audit Committee  Type of auditor Effectiveness Index Source: Researcher’s Own frame 2.10 CONCLUSION This chapter reviewed extant literature and theories on ARL in relation to the main objectives of the study. Both a theoretical and conceptual frameworks are developed for the study based on the review conducted and depicted in the diagram above. The conceptual framework diagram shows that, ARL is affected by several factors. Based on the framework, the factors which explain the ARL could be grouped into three (3), namely; change in accounting regulation (IFRS mandate), corporate governance variables and firm characteristic variables. However, the effect of the change in accounting regulation (IFRS mandate) on ARL could be moderated by corporate governance characteristics. 46 University of Ghana http://ugspace.ug.edu.gh CHAPTER THREE METHODOLOGY 3.1 INTRODUCTION This chapter outlines a detailed analysis of the procedures engaged in fulfill the objectives that this research seeks to address. This chapter highlights the research philosophy, discusses the research strategy and design adopted, explains the data gathering methods sampling techniques and data analysis techniques employed by this research in answering the research objectives stated. 3.2 RESEARCH PHILOSOPHY The research methodology According to Heeks & Bailur (2007), refers to the systematic and logical approach taken towards the collection and analysis of data so that information can be gained from those data. Holden (2004) argues that research methodology, which is the “how of research”, necessitates or requires philosophical solution which is deemed as the “why of the research”. Burrel & Morgan (1979) postulate that in emerging philosophical perspective in research, the researcher assumes on the nature of society, that is, whether society evolves rationally or is viewed from a radical change perspective. This assumption aids the researcher to identify the methods of advancement and nature of knowledge (Saunders, Lewis & Thornhill, 2007). As a result, the research philosophy adopted for the study is heavily reliant on the certain key assumptions of the researcher’s view of the world of knowledge. As put by Holden and Lynch (2004), based on a researcher’s sociological persuasion, the researcher’s assumptions are consequential to each other, in the sense that, their view of ontology affects their epistemological persuasion which, in turn, affects their view of human nature, consequently, choice of methodology logically follows the 47 University of Ghana http://ugspace.ug.edu.gh assumptions the researcher has already made. According to Saunders et al. (2007) the three ways of perceiving research philosophy are epistemology, ontology, and axiology. 3.3 ONTOLOGY AND EPISTEMOLOGY Blaikie (2000) summarizes Ontology as the claims and assumptions in relation to what researchers believe to constitute social reality. These are the assertions and assumptions that are made about the nature of social reality, what exists, what it looks like, what units make up it and how these units interact with themselves (Blaikie, 2000). In management research the ontological assumptions are categorized into two, that is, objectivism and subjectivism (Saunders et al., 2007). Objectivism or objective researchers represent the position that reality is “out there” (Senik, 2009). These group of researchers see the world as a single reality (Bisman, 2010) hence anything perceived through the lens of objectivism is reality (Sarantakos, 2012). Subjectivism or subjective researchers hold the view that reality is external and a resultant product form one’s mind (Senik, 2009); it is idealistic and non-material (Lincon, Lynham & Guba, 2011); and internally experienced (Bisman, 2003). Epistemology: This deals with the acquisition of knowledge. According to Blaikie (2000) epistemology is summarized as the possible avenues of acquiring knowledge of social reality, whatever it is understood to be. Similarly, Burrell & Morgan (1987) subjective researchers defend the view that knowledge can only be acquired through personal experience and investigation since its soft. These groups of researchers are interpretive with the notion that, human beings can best be studied through ethnography, social interactions, and hermeneutics. Positivist researchers comprehend the social world to be describable through predictions-causal association between components or scientific techniques hence adopt hypothetical-deductions to explain a given event. 48 University of Ghana http://ugspace.ug.edu.gh Also, two major research philosophical paradigms of positivist and interpretivist have been advocated by Hussey and Hussey (1997). The positivist researchers perceive knowledge as a solitary, tangible reality while the interpretivist assumes the presence of multiple realities in gathering knowledge. To address the research questions, this study followed the positivism paradigm. Ontologically, this study builds on the position that reality is objective and it is a natural phenomenon. Hence, information on a phenomenon can be obtained by observing. The justification for the choice of these approaches is due to the fact that this study predominantly seeks to identify causal relationships that exist between audit report lag, change in accounting regulation and corporate governance variables. 3.4 RESEARCH DESIGN In carrying out the research, the researcher is obliged to plan and strategize how the study will be conducted in order to exert some level of control over the study. Burns & Grove (2010) explains that designing the study allows adequate planning and implementation of the study to deduce evidence similar to the status quo. Also, Polit & Beck (2004) describe research design as a blueprint for carrying out a study in a way that permits for maximum control over reasons that might restrict the validity of the study. Saunders et al. (2007) emphasize on two main research approaches, that is, inductive and deductive approach. With the inductive approach, the researcher collects data and develops a theory based on the data analysis while the deductive approach refers to the development of theory based hypothesis, testing of those hypothesis in the light of those theories and making modifications to the theory where necessary as a result of the findings (Saunders, 2007; Robson, 2002). This study was carried out by means of the deductive research approach. With regard to this approach the study began with theories from which hypotheses were 49 University of Ghana http://ugspace.ug.edu.gh developed (deduced), then proceeded to the collection of data, data analysis and finally the evaluation of the findings in light of the theories. The study adopted this approach since it’s been predominantly used in prior audit report lag literature. This research also employs the quantitative research design over its qualitative counterpart since positivist stance has been the basis of this study. Quantitative approach advocates the collection of objective data, rigorous measurement and the use of statistical methods in the analysis of the data collected in order to be able to generalize the results to large populations. However, this approach has been critiqued of not providing objective explanation to why the factors observed may have happened. The choice of the research method depends mainly on the nature of the study, the researcher’s resource availability and skills (Saunders et al., 2007; Bryman and Bell, 2003). The quantitative methodology comprises of methods of data collection such as the use of primary and secondary data, descriptive and statistical inferences in analyzing the findings and results of the study. 3.5 RESEARCH POPULATION Polit and Hungler (1999), defined population as the totality of all subjects that pertains to a set specification, comprising the entire group of persons that is of interest to the researcher and to whom the research results can be generalized. The population for the study covered all 35 companies that were listed on the GSE as at 2014 fiscal year-end. 3.6 RESEARCH SAMPLE The study sample includes companies listed on the GSE considering the inability to use the whole population. The GSE Fact book showed that by the end of 2014, the GSE had listed 35 companies. The main criteria used for sampling the firms was the fact that the firm must have been listed for 50 University of Ghana http://ugspace.ug.edu.gh the entire period of the study 2003-2014. Also the firm should not be in the mining industry or financial sector because of the uniqueness of regulations in these sectors. Using these criteria, the sample size for the study was 14 firms. The distribution of sample firms is contained in Table 5.1 below. Table 3. 1 Distribution of Sample Firms Sector No. of Listed Number included % Included Firms in Sample Manufacturing 8 5 63.00 Mining 3 0 0.00 Food & Beverage 2 2 100.00 Printing & Publishing 2 2 100.00 Banking, Finance & Insurance 12 0 0.00 Pharmaceuticals 2 1 50.00 Distribution & Trading 4 2 50.00 Information, Communication 2 2 100.00 Technology Oil & Gas 1 0 0.00 In line with quantitative studies, this study concentrates on audited annual reports for twelve (12) years (from 2003 to 2014) in order to get a wider firm-year observation (Matsumura et al., 2011). 51 University of Ghana http://ugspace.ug.edu.gh This provided a total number of 168 firm-year observations. This made the study a longitudinal study hence the researcher employed an unbalanced panel regression model. 3.7 DATA COLLECTION INSTRUMENTS This study adopts the explanatory research approach which aided to “examine and explain the relationships between variables in a particular cause and effect relationship” (Saunders et al., 2007). The primary data source was the annual reports of listed firms on the GSE. As posited by Cozby (2003) this source of data is archival in nature and involves using previously compiled information to answer research questions. Since annual reports seems to be the predominant vehicle of communication between management and stakeholders, they are perceived as the most vital avenue that firms divulge their corporate information. 3.7.1 Time Period The focus period for collecting data for the study was financial years 2003 to 2014. The period 2003 to 2007 represented periods before the mandatory IFRS adoption and 2008 to 2014 were post adoption of the IFRS. At the time of data collection for this study, the 2014 annual reports were the most recent reports from the GSE. This provided five years’ continuous data pre-IFRS mandate (2003 – 2007) and a seven years’ comparative representing the post-IFRS mandate period. The five years pre and seven years post adoption were long enough to enable the establishment of trends. The twelve firm years compensated for the relatively small sample because of the number of companies listed on the GSE. 3.8 DEFINITION AND MEASUREMENT OF VARIABLES This section defines the various variables used in the research. These variables lead to the development of the two models in order to meet the study objectives. The classification of a 52 University of Ghana http://ugspace.ug.edu.gh variable as a dependent, independent and control variable is explained in the specified model discussed in later sections. 3.8.1 Dependent Variables 3.8.1.1 Audit Report Lag Prior literature in relation to the timeliness of audit reports to stakeholders have been predominantly measured using the common measure of the number of calendar days from year end to the date of auditor’s report (Lee et al., 2008; Afify, 2009; Sultana et al., 2015). However, Habib (2015) measured audit report lag as the number of calendar days from fiscal year-end to the date of the auditor’s report. Nevertheless, ARL is measured in this study as the number of calendar days from year end to the date of auditor’s report. 3.8.2 Independent variables The independent variables that were used for the study were the change in accounting regulation and corporate governance mechanisms of Ghanaian listed companies. The corporate governance characteristics included in the study are: board size; board independence; ownership composition and audit committee effectiveness which is a composite measure consisting of audit committee independence; audit committee financial expertise, audit committee experience, audit committee size and audit committee gender. 3.8.2.1 Change in Accounting Regulation (IFRS Adoption) Empirical evidence suggests IFRS is based on fair value accounting which uses a discretionary approach in valuing identical assets and liabilities relying on quoted prices in active markets (Habib, 2015). Dontoh et al. (2012) suggests that, this subjectivity leads to an increased amount of disclosure in relation to market risk. This therefore increases the amount of time spent by auditors 53 University of Ghana http://ugspace.ug.edu.gh to mitigate audit risk leading to an increase in ARL. Hence in this study accounting regulation (IFRS adoption) is measured as a dummy variable with the value of 1 if post IFRS adoption and 0 pre IFRS adoption. 3.8.2.2 Board size In the extant literature, even though the direction of influence is mixed, board size is found to be potentially associated with directors’ ability to monitor and control managers (Lipton and Lorsch, 1992). Habib (2015) found a positive relation between the number of directors and effective monitoring of managerial behavior. It is argued that audit report lag is likely to be shorter as the inherent and control risks will be assessed as very low. Williams et al. (2005) maintains that bigger board size has more specialized skills and are better equipped to monitor management. However, Beasley (1996) argues that smaller boards are more efficient in ensuring financial reporting quality hence leading to lesser inherent risk leading to lower audit report lag. Board size refers to the number of directors who serve on the board (Zahra and Pearce II, 1989). It is measured by the log of total number of directors on the board. 3.8.2.3 Board independence Board independence which is also known as board composition is defined by Ayuso & Argandoña (2009) as “the degree to which board members are dependent on the current CEO or organization”. Literature distinguishes between independent non-executive directors and dependent non- executive directors. According to Ayuso & Argandoña (2009) independent non-executive directors comprises those directors who are not in any way linked to the company whiles the dependent non-executive directors are those directors who have personal and/or professional relationships with the firm other than board membership. Other studies have reported significant positive associations between the proportion of NEDs and the timeliness of audited financial 54 University of Ghana http://ugspace.ug.edu.gh reports. Also, prior literature suggests that board comprising a majority of independent directors are more likely to improve the financial reporting quality of firms by hiring industry specialist auditors, employing an internal audit function within the firm and engaging in higher levels of accounting conservatism (Goodwin, 2003). Thus, board independence is measured as the proportion of independent non-executive directors on the board; that is the number of independent NEDs to the total number of directors on the board. 3.8.2.4 Ownership Structure Afify (2009) suggests that large overriding shareholders usually have stronger influence on management behaviour in favour of their own benefit with the result that attention frequently focuses on conflicts between large and minority shareholders (La Porta et al., 1999, 2001). In this respect, literature shows that ownership structure may have relevant corporate governance implications (Shleifer and Vishny, 1997). That is, the auditor’s business risk affects the required audit risk in the audit engagement, and hereafter the degree of audit work required (Bamber et al., 1993). The increased level of audit work can end in an unnecessary audit delay. Audit literature proposes that the degree to which a company’s shares are broadly held is one of the factors related to audit business risk (Brumfield et al., 1983; Arens et al., 2004). Hence for this study, ownership structure is measured by the percentage of total shares held by shareholders in excess of 5percent. 3.8.2.5 Audit Committee Effectiveness According to DeZoort et al. (2002) as cited in Rochmah & Ghazali (2012) there are four elements that determine composite audit committee effectiveness: composition; authority; resources; and diligence. 55 University of Ghana http://ugspace.ug.edu.gh 3.8.2.5.1 Composition This refers to the condition for qualifying as an audit committee member for example educational background, capability, independence and experience. The purpose of such requirement according to DeZoort et al., (2002) is “to enable audit committees to make judgments that are in the best interest of shareholders”. Consistent with prior studies, this study uses independence, experience and financial expertise as proxies for composition. Hence, in order for the audit committee to be effective in its activities, there is the need to develop more effective internal controls and risk management processes. This the committee can only achieve if at least a member of the committee is knowledgeable in financial reporting and auditing (McDaniel, Marint & Maines, 2002; Mangena & Pike (2005); Cohen et al., 2013). In that light, audit committee financial expertise is measured as a dummy variable which takes the value one (1) if at least one director of the audit committee has necessary expertise (based on educational, professional affiliations and/or a for-profit role) to be financially qualified; and zero (0) if otherwise in this study. Overall, prior experience enables an audit committee member to be more efficient and effective in understanding the requirements and responsibilities of the sub-committee and its members (DeZoort, 1998; Beasley & Salterio, 2001). Therefore, in this study audit committee experience takes the value of one (1) if at least one director of the audit committee has prior audit committee experience and zero (0) if otherwise. Klein (2002) and Bedard, Chtourou & Courteau (2004) have suggested that an independent audit committee is expected to be well able to augment key financial accounting issues such as earnings quality, dealings with the external auditor and mediation of disagreements due to a lack of bias. In 56 University of Ghana http://ugspace.ug.edu.gh general, the actions of a more independent audit committee are therefore likely to reduce the time taken to issue the audit report (Sultana, 2015). In this study therefore, audit committee independence is a dichotomous variable which takes on the value one (1) if all member of the audit committee are external independent parties and zero (0) if otherwise. 3.8.2.5.2 Authority As explained by DeZoort et al. (2002) refers to responsibility since to discharge its responsibilities an audit committee is given the authority (example to ask questions to the auditors, have access to relevant documents). Audit committee responsibilities should be documented in an audit committee charter. “A formal charter not only provides guidance to members as to their duties, but it is also a source of power for the audit committee” (Bedard et al., 2004). The assessment of authority dimension in this current study uses audit committee charter (i.e. whether there is a proxy statement concerning audit committee charter) and audit committee oversight responsibilities. This is measured as a dichotomous variable which assumes the value of one (1) where there is a proxy statement concerning audit committee charter and zero (0) if otherwise. 3.8.2.5.3 Resources As posited by DeZoort et al. (2002) indicates that in order to attain effectiveness the audit committee must have sufficient resources in order to operate. In that vein for the audit committee to be able to perform its duties, it must have adequate number of committee members. Hence for the purpose of this study audit committee size is a dummy variable which takes on the value one (1) if the audit committee comprises of at least three (3) members and zero (0) if otherwise. Prior corporate governance literature has stressed on the role and resources that gender diversity bring to the audit committee (Pucheta-Martinez & Fuentes, 2007; Gul, Srinidhi & 57 University of Ghana http://ugspace.ug.edu.gh Ng, 2011; Sultana et al., 2015). In order to including audit committee diversity in this study, it is measured as a dummy variable which take on the value one (1) if there is the presence of a female on the audit committee and zero (0) if otherwise. 3.8.2.5.3 Diligence Expertise, independence, authority, and resources, will not result in effectiveness unless the audit committee is active. Diligence refers to “the willingness of committee members to work together as needed to prepare, ask questions, and pursue answers when dealing with management, internal auditors, external auditors, and other relevant constituents” (DeZoort et al., 2002). Proxy for diligence in this study is the number of meetings held per year by audit committee which is captured as a dummy variable taking a value of one (1) if audit committee held meetings more than four (4) in a year and zero (0) if otherwise. Meanwhile, the score of audit committee effectiveness for a listed company is the sum of all requirements. Therefore, the maximum possible score for each company is 7. It is assumed that a higher score indicates a more effective audit committee. 58 University of Ghana http://ugspace.ug.edu.gh Table 3. 2 Component of Audit Committee Effectiveness Index Dimension Code Proxies Scoring Data Source ACINDI AC Independence 1;0 Company Annual All member of the audit Report committee are external independent parties ACFEXP AC expertise 1;0 Company Annual Report Composition At least one member of the AC has educational background and experience in accounting or finance. ACEXPE At least one member of AC has 1;0 Company Annual prior audit committee experience. Report ACCHART AC charter 1;0 Company Annual Report Authority Proxy statements concerning AC charter ACSIZE AC size 1;0 Company Annual Report Comprise at least three members Resource ACGEN At least one member of AC is a 1;0 Company Annual female Report ACMEET AC meeting 1;0 Company Annual Report Diligence AC has meetings at least four times in a year. 3.8.3 Control variables A review of the literature on audit report timeliness led to the inclusion of the following as control variables in the multiple regression models for testing the hypotheses. They include: leverage; profitability; firm size; industry type and auditor type. 59 University of Ghana http://ugspace.ug.edu.gh 3.8.3.1 Leverage Leverage is measured using the annual reports of listed companies. In the corporate governance literature, leverage has been measured using a number of ratios. These ratios include: debt to assets, debt to shareholders’ equity, and debt to standard capital employed. However, the most commonly used ratio in the audit report lag literature is the debt to assets ratio (Ettredge et al., 2006; Alkhatib & Marji, 2012; Sultana et al., 2015; Habib, 2015). In this respect, leverage is measured in this current study using the ratio of total debt to total assets. 3.8.3.2 Profitability Prior literature in audit report lag has used several measures in assessing profitability. These measures are either dichotomous or continuous in nature. In the case of the dichotomous measures, if a firm makes profit in a particular year, it takes on the value one (1) and zero (0) if otherwise. On the other hand, with respect to the continuous variable, profitability is predominantly measured as ROA and ROE (Davies & Whittred, 1980; Ashton & Wright, 1989; Ettredge, Li & Sun, 2006; Munsif, Raghunandan & Dasaratha, 2012; Blankley et al., 2014). However, for the purpose of this study, the former (dichotomous variable) will be employed since the study only seeks to measure the presence of profit and not the ability of firms to generate profit based on the assets or equity. 2.8.3.3 Firm size Total assets, total sales, capital employed, number of employees, turnover, shareholder’s equity and market capitalization have been used as measures for firm size. However, prior studies indicate that total assets appear to be the predominant measure for firm size hence in this present study it is measured by a natural logarithm of the company's fiscal year-end total assets (Al-Ghanem & Hegazy, 2011; Khasharmeh & Aljifri, 2010; Che-Ahmad & Abidin, 2008; Al-Ajmi, 2008; Bonson- Ponte et al., 2008). 60 University of Ghana http://ugspace.ug.edu.gh 3.8.3.4 Industry type Previous research divided industries into two categories. One is whether a firm belongs to a financial industry and the other is whether a firm belongs to a non-financial industry for purposes of analysis (Hossain and Taylor, 2008). Dummy variables have been predominantly used in operationalizing industry of operation in prior studies of audit report lag (Owusu-Ansah & Leventis, 2006). Similarly, firms with little or no inventory are audited faster hence reduce the audit report lag. For the present study industry type was measure by assigning continuous variable to the individual industries. 3.8.3.5 Auditor type Another corporate governance mechanism that is likely to affect audit report lag is auditor type. The role of the external auditor is not downplayed in the audit report lag literature. Larger audit firms characteristically possess more resources and expertise and are likely to be complete the audit in time in order to reduce audit report lag. It can also be contended that large audit firms deliver a higher quality audit as a result of greater monitoring ability (Al-Ajmi, 2008). They also have greater staffs and better experience in auditing the listed companies (Ahmed, 2003; Afify, 2009). Hence it is more likely that large audit firms will perform audit faster as they may have the advantage of using presumably more efficient audit technology (Newton and Ashton, 1989). The choice of external auditor is represented by Big4 vs. Non-Big4, which is one (1) for Big4 and zero (0) if otherwise (Ng and Tai, 1994; Imam et al., 2001; Ahmad and Kamarudin, 2003; Leventis et al., 2005). 61 University of Ghana http://ugspace.ug.edu.gh Table 3. 3 Operational Definitions of Variables Variable Acronym Operational Definition Data Source Dependent Variables Audit Report Lag ARL Number of calendar days from year Company Annual end to the date of auditor’s report. Report Independent Variables Change in Accounting ifrs Dummy variable equal to 1 if the Institute of Chartered Regulation (IFRS period is IFRS mandate, 0 otherwise Accountants Ghana Adoption) (ICAG) Board Size bdsize Log of total number of directors on the Company Annual board Report Board Independence bdindi number of independent non-executive Company Annual directors to the total number of Report directors on the board Ownership Structure ownstr Percentage of total shares held by Company Annual shareholders in excess of 5percent. Report Audit Committee aceff Total score of audit committee Company Annual Effectiveness effectiveness index as presented in Report Table 3.0 Control Variables Leverage lev The ratio of the sum of short- and Company Annual long-term debt to total long term Report capital. Profitability prof Dummy variable that takes the value Company Annual of one if the firm makes profit in the Report year; and zero otherwise Firm size csize Natural log of the book value of total Company Annual asset Report Industry type itype Dummy variable: 1 for Ghana Stock Exchange Manufacturing; 2 for Pharmaceutical; Website 3 for food and Beverage; 4 for distribution and trading; and 5 for printing and publishing. Auditor Type atype Dummy variable that takes the value Company Annual of one if the auditor is a BIG 4; and Report zero otherwise 62 University of Ghana http://ugspace.ug.edu.gh 3.9 MODEL SPECIFICATION For the objectives two and three, the models utilize a panel data structure, the one most appropriate to the sample data due to the small sample size in terms of firms. This aids in solving the issue of omitted variable and at the same time helps obtain consistent estimators (Wooldridge, 2002). The main panel-corrected standard errors (pcse) regression tests performed to formally test the hypotheses are based on the models specified by the following two equations as adopted from Sultana et al. (2015); Model 1 𝐴𝑅𝐿𝑖,𝑡 = 𝛽0 + 𝛽1𝑖𝑓𝑟𝑠𝑡 + 𝛽2𝑏𝑑𝑠𝑖𝑧𝑒𝑖,𝑡 + 𝛽3𝑏𝑑𝑖𝑛𝑑𝑖𝑖,𝑡 + 𝛽4𝑜𝑤𝑛𝑠𝑡𝑟𝑖,𝑡 + 𝛽5𝑎𝑐𝑒𝑓𝑓𝑖,𝑡 + 𝛽6𝑎𝑡𝑦𝑝𝑒𝑖,𝑡 + 𝛽7𝑙𝑒𝑣𝑖,𝑡 + 𝛽8𝑝𝑟𝑜𝑓𝑖,𝑡 + 𝛽9𝑐𝑠𝑖𝑧𝑒𝑖,𝑡 + 𝛽10𝑖𝑡𝑦𝑝𝑒𝑖,𝑡 + ƞ𝑖 + 𝜀𝑖,𝑡………….. (1) Model 2 𝐴𝑅𝐿𝑖,𝑡 = 𝛽0 + 𝛽1𝑖𝑓𝑟𝑠𝑡 + 𝛽2𝑏𝑑𝑠𝑖𝑧𝑒𝑖,𝑡−1 + 𝛽3𝑏𝑑𝑖𝑛𝑑𝑖𝑖,𝑡−1 + 𝛽4𝑜𝑤𝑛𝑠𝑡𝑟𝑖,𝑡−1 + 𝛽5𝑎𝑐𝑒𝑓𝑓𝑖,𝑡−1 + 𝛽6𝑎𝑡𝑦𝑝𝑒𝑖,𝑡 + 𝛽7𝑙𝑒𝑣𝑖,𝑡 + 𝛽8𝑝𝑟𝑜𝑓𝑖,𝑡 + 𝛽9𝑐𝑠𝑖𝑧𝑒𝑖,𝑡 + 𝛽10𝑖𝑡𝑦𝑝𝑒𝑖,𝑡 + ƞ𝑖 + 𝜀𝑖,𝑡…………… (2) 63 University of Ghana http://ugspace.ug.edu.gh Where: ARL Audit Report Lag ifrs Change in Accounting Regulation (IFRS Mandate) bdsize Board Size bdindi Board Composition ownstr Ownership Structure aceff Audit Committee Effectiveness Index atype Choice of a Big4 Audit Firm lev Leverage prof Profitability csize Firm Size itype Industry Type 𝛽0 Intercept 𝛽1 𝑡𝑜 𝛽10 Coefficient of slope parameters t-1 Each corporate governance characteristic lagged by one year 𝜂𝑖 An unobservable variable that captures idiosyncratic features of each company that are constant over time ℰ𝑖,𝑡 Random shock or Error term 3.10 DATA ANALYSIS AND PRESENTATION The data collected were analyzed using descriptive tests, tests of difference of means, correlation and regression analyses. The descriptive analysis included frequencies, summary statistics and graphs. The regression analysis was used to investigate the influence of IFRS mandate and corporate governance on ARL of listed companies in Ghana. 3.11 METHOD OF ESTIMATION As indicated earlier, due to the small sample size in terms of firms, the models utilized a panel data structure. The method of estimation generally can be parametric or non-parametric. The choice of 64 University of Ghana http://ugspace.ug.edu.gh an appropriate method of estimation depends largely on the characteristics of the data. As a result, the assumptions regarding panel data regression were tested to determine the appropriate regression model. Some of the main assumptions of the classical linear regression model which were tested included: an adequate number of cases; that there is no multicollinearity among the independent variables; that the data distribution is normal; that there is linearity; that the data is homoskedastic, that there are no significant outliers and independence of residuals confirmed. These tests revealed that some of the assumptions of the classical linear regression model were not met. Using panel data for the years 2003 – 2014, the Panel Corrected Standard Error (PCSE) regression was used to measure the influence of IFRS mandate, corporate governance and firm- related variables on audit report lag. 65 University of Ghana http://ugspace.ug.edu.gh CHAPTER FOUR DATA ANALYSIS AND DISCUSSION OF FINDINGS 4.1 INTRODUCTION This chapter discusses and interprets the findings of the data collected using the research methods that were discussed in the methodology chapter. To achieve the study objectives outlined in chapter one, this chapter begins with the analysis and discussion of results from the descriptive analysis, and also that of the univariate tests performed. Findings from the regression analysis which tests the hypotheses are discussed in the final part of this chapter. 4.2 DESCRIPTIVE STATISTICS This section presents the descriptive statistics of the dependent, independent and control variables outlined in the methodology chapter. The dependent variable (i.e. ARL) is described using minimum, maximum, mean, standard deviation, skewness and kurtosis of the dependent variable. The variable is illustrated primarily on a year by year basis, an overall aggregate and finally clustered into pre and post mandatory adoption of the IFRS. This gives a fair description of the nature and direction of the variable. 4.3 DESCRIPTIVE STATISTICS OF THE DEPENDENT VARIABLE (ARL) The table 4.1 below shows the descriptive statistics of the aggregate dependent variable ARL and a year by year data for the sampled period. The aggregate mean ARL in days of the firms sampled is approximately 109 days, however it ranges between 32 to 614 days for firms to release audited financial statements. The significant finding about Table 4.1 is the fact that the ARL seems to decrease in the later years. ARL significantly reduced in the year 2006 where it averagely took sample firms 82 days to release audited financial statement. However, it also took the sampled 66 University of Ghana http://ugspace.ug.edu.gh firms an average of 147 days to release audited financial statement to the public in 2012 which is the highest over the time period under study. The subsequent years after 2012 saw a reduction in the ARL which might be indicative of auditor’s learning effect. Table 4. 1: Summary Statistics of ARL on Aggregate and year by year Aggregate/Year Min Max Mean SD Skewness Kurtosis Aggregate 32 614 109 73.17 4.46 27.86 2003 63 281 115 59.09 1.68 4.33 2004 60 174 96 30.13 1.23 4.34 2005 32 180 94 35.69 1.01 4.31 2006 49 126 82 19.62 0.38 3.21 2007 70 134 92 17.23 1.25 4.08 2008 56 180 97 32.87 1.50 4.38 2009 51 312 105 66.22 2.37 7.99 2010 39 614 123 142.864 3.21 11.62 2011 68 382 124 87.73 2.19 6.63 2012 59 597 147 141.54 2.53 8.52 2013 54 259 119 64.02 1.40 3.65 2014 80 172 111 28.72 0.84 2.55 Source: Source: Field work, 2003-2014 A year by year analysis of ARL over the period shows interesting results. The average ARL seemed to be decreasing from 115 days to 82 days within the period of 2003 to 2006 and starts to increase steadily from 2007 to 2012 (92 days to 147 days) from which it begins to decline again from 2013 to 2014 (119 days to 111 days). The variable has a standard deviation of approximately 73 days which indicates some level of deviation from the mean for the listed firms sampled within the period under discussion. Data is statistically considered to be normally distributed if the 67 University of Ghana http://ugspace.ug.edu.gh skewness value is ±1.96 and the kurtosis value is within±3 (Haniffa & Hudaib, 2006). From the data in Table 4.1 it is obvious that the overall pooled dependent variable is not normally distributed with an average skewness of 4.46 and kurtosis of 27.86. Figure 4. 1: Trends of Mean ARL of Firms 160 140 120 100 80 60 40 20 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 YEARS ARL Source: Source: Field work, 2003-2014 Table 4. 2: Descriptive Statistics for Pre and Post IFRS mandate Period Min Max Mean SD Skewness Kurtosis Pre IFRS Mandate 32 281 95.8 36.32 2.39 11.57 Post IFRS Mandate 39 614 117.88 89.85 3.79 11.39 Source: Statistical Analysis from Annual Reports of Companies from 2003-2014 Concerning the descriptive statistics of the dependent variable for the pooled sample pre and post mandatory IFRS adoption in Ghana, Table 4.2 presents the summary. The average ARL for pre 68 DAYS University of Ghana http://ugspace.ug.edu.gh mandatory IFRS adoption is approximately 96 days. The minimum and maximum range between 32 days and 281 days. Meanwhile, the mean ARL for post mandatory IFRS adoption is approximately 118 days and ranged between 39 days and 614 days. These results clearly show an increase in the mean ARL and the corresponding skewness and kurtosis of 3.79 and 11.39 respectively after the mandatory adoption. This could be attributed to the increased disclosure responsibility imposed by the mandatory adoption of IFRS as a result of its fair-value basis of accounting which gives room for the application of director’s discretion. Hence external auditors in their bid to reduce audit risk are likely to spend more time during the audit due to the increased disclosures which may lead to an increase in ARL. 4.4 DESCRIPTIVE STATISTICS OF THE INDEPENDENT VARIABLES Table 4. 3: Corporate Governance Characteristics Variable Min Max Mean SD Skewness Kurtosis BSIZE 5 13 8.28 1.97 0.42 2.25 BDINDI 0.28 1 0.69 0.17 -0.40 2.47 OWNSTR 0.41 0.93 0.76 0.12 -0.90 3.26 ACEFF 1 6 4.38 1.07 -0.34 3.37 Source: Field work, 2003-2014 Table 4. 4: Summary Statistics of the Independent Variables Pre IFRS Mandate Variable Min Max Mean SD Skewness Kurtosis BSIZE 5 12 8.37 1.60 -0.21 2.53 BDINDI 0.37 0.88 0.65 0.14 -0.15 2.17 OWNSTR 0.41 0.93 0.74 0.12 -0.79 3.09 ACEFF 1 6 4.35 1.14 -0.32 3.44 Source: Field work, 2003-2014 69 University of Ghana http://ugspace.ug.edu.gh Table 4. 5: Summary Statistics of the Independent Variables Post IFRS Mandate Variable Min Max Mean SD Skewness Kurtosis BSIZE 5 13 8.22 2.21 0.62 2.06 BDINDI 0.28 1 0.72 0.18 -0.68 2.74 OWNSTR 0.46 0.93 0.77 0.12 -1.01 3.46 ACEFF 2 6 4.39 1.03 -0.35 3.22 Source: Field work, 2003-2014 Table 4.3 presents the descriptive statistics of the independent variables over the entire period of the study while Tables 4.4 and 4.5 shows the descriptive statistics in terms of pre and post mandatory IFRS adoption in Ghana respectively. 4.4.1.1 Board size (BSIZE) On average board size (BDSIZE) for the entire period is 8 members (mean=8.28), with a minimum of 5 and a maximum of 13 directors. This is similar to the findings of Aboagye-Otchere (2014) who found the board size among listed firms to be 9 directors with a minimum of 4 and maximum of 13 directors. This is also in tandem with findings of Niami et al. (2010) and Yatim et al. (2006) of Malaysia who obtained an average board size of 8 directors (mean = 7.6 and 7.5 respectively). Nonetheless, the number of directors in the post and pre mandatory adoption period are not too different which means that mandatory IFRS adoption did not affect the size of the board. Since the average board size did not reduce as preferred by agency theorist, it could be deduced that firms rather attracted individuals with the necessary resource and skills set through incentives unto the board anytime members resigned; in effect supporting the resource dependency theory. 70 University of Ghana http://ugspace.ug.edu.gh 4.4.1.2 Board Independence (BDINDI) In relation to the proportion of non-executive directors that make up the board (BDINDI) the descriptive statistics shows that for the entire duration of the study, on average, 69percent of the directors on the board in the sample were non-executive members. This result is higher than that which was obtained by Yaacob & Che-Ahmad (2012) and Mohammad-Nor et al., (2010) which is 40 percent and 43 percent but the same as that of Aboagye-Otchere (2014) which is 69 percent. However, while the mean of the proportion of non-executive directors on the board was 65 percent before the mandatory IFRS adoption, it increased to 73 percent after the mandatory IFRS adoption and is also in line with the GSE listing requirement of at least one-third of the board should consist of non-executive directors. 4.4.1.3 Ownership Structure (OWNSTR) The descriptive statistics shows that 76 percent of shareholders hold shares in excess of 5 percent of the total shareholdings of the companies. The lowest percentage was 41 percent and the highest was 93 percent. However, in a study conducted by Afify (2009) on sampled firms in Egypt, it was found that the average percentage of shareholders who held shares in excess of 5 percent was 74 percent, with a minimum of 1 percent and a maximum of 100 percent. In terms of pre and post mandatory IFRS adoption periods, the average holders of shares in excess of 5 percent was 74 percent and 77 percent respectively. This increase is as a result of investors (both existing and prospective) purchasing more of firms’ share as a result of the benefits such as high quality financial information, reduced cost of capital and increased transparency levels in their disclosure which is associated with the adoption of IFRS. 71 University of Ghana http://ugspace.ug.edu.gh 4.4.1.4 Audit Committee Effectiveness (ACEFF) Again the descriptive statistics shows that the effectiveness of the audit committee for the sampled firms averaged at 4.38 out of 7 maximum score of effectiveness. This number suggest that the average audit committee effectiveness score of the sample firms is about 63 percent of the maximum score of effectiveness. This is similar to the findings of Rochmah & Ghazali (2012) who obtained 67 percent of maximum score of audit committee effectiveness. In comparing the pre and post mandatory IFRS adoption period in relation to audit committee effectiveness, an average of 4.35 representing 62 percent for the former period and 4.39 representing 63 percent for the latter period. This means that there has been a marginal improvement in the level of effectiveness of the audit committee after the mandatory adoption of IFRS. This could be explained by the intuition that listed firms complied with SEC-Ghana’s regulation of having an audit committee’s and reporting its operations annually which resulted in the effectiveness of the audit committee. Hence, the influence of the mandatory IFRS on audit committee effectiveness was minimal. Table 4. 6: Summary Statistics of Lagged Corporate Governance Characteristics Variable Min Max Mean SD Skewness Kurtosis LGBSIZE 5 13 8.28 1.93 0.32 2.24 LGBDINDI 0.28 1 0.69 0.17 -0.38 2.50 LGOWNSTR 0.41 0.93 0.76 0.12 -0.90 3.21 LGACEFF 1 6 4.38 1.09 -0.34 3.35 Source: Field work, 2003-2014 72 University of Ghana http://ugspace.ug.edu.gh Table 4. 7: Summary Statistics of the Lagged Independent Variables Pre IFRS Mandate Variable Min Max Mean SD Skewness Kurtosis LGBSIZE 5 12 8.37 1.60 -0.26 2.77 LGBDINDI 0.37 0.88 0.65 0.14 -0.26 2.20 LGOWNSTR 0.41 0.93 0.74 0.12 -0.69 2.95 LGACEFF 1 6 4.35 1.14 -0.38 3.46 Source: Field work, 2003-2014 Table 4. 8: Summary Statistics of the Lagged Independent Variables Post IFRS Mandate Variable Min Max Mean SD Skewness Kurtosis LGBSIZE 5 13 8.22 2.11 0.51 2.00 LGBDINDI 0.28 1 0.72 0.18 -0.55 2.65 LGOWNSTR 0.46 0.93 0.77 0.12 -1.03 3.40 LGACEFF 2 6 4.39 1.03 -0.30 3.16 Source: Field work, 2003-2014 In lagging the independent variables, the descriptive statistics did not show much difference from the unlagged variable but for very minimal changes in the descriptive values for skewness and kurtosis. The minimum, maximum, mean, standard deviation (SD) values for the lagged; board size (LGBSIZE), board independence (LGBDINDI), ownership structure (LGOWNSTR), and audit committee effectiveness (LGACEFF) remained similar to the unlagged variables. Also the descriptive statistics for the independent variable under the sub-groups of pre and post IFRS observed similar behaviour as the independent variables over the entire period of the study. Nonetheless, the influence of some of the corporate governance characteristics on a firm’s ARL seems to have instantaneous effect but not futuristic effect as argued by literature (Habib, 2015) hence the similar results in pre and post IFRS. 73 University of Ghana http://ugspace.ug.edu.gh Furthermore, in terms of normality of the data, Haniffa and Hudaib (2006) posit that data is said to be normally distributed if the standard skewness is within ±1.96 and standard kurtosis of ±3. The descriptive statistic hence indicates that the data is not normally distributed since the highest kurtosis of 3.4 (LGOWNSTR) falls beyond the acceptable range of ±3. Hence the study focused on using non-parametric analysis. 4.5 DESCRIPTIVE STATISTICS OF THE CONTROL VARIABLES Table 4. 9: Descriptive Statistics of Control Variables Variable No. Min Max Mean SD Skewness Kurtosis LEV 168 -12.73 55.08 2.23 4.99 7.41 77.62 PROF 168 0 1 0.69 0.46 -0.85 1.73 CSIZE 168 12.47 19.64 16.35 1.93 -0.07 1.7 ITYPE 168 1 5 2.42 1.59 0.44 1.50 ATYPE 168 0 1 0.81 0.39 -1.57 3.48 Source: Field work, 2003-2014 Five variables were controlled for in the study and Table 4.9 presents a descriptive statistics of the variables. The descriptive statistics is first pooled for the entire period in Table 4.9 and subsequently grouped into pre and post mandatory IFRS adoption periods in Tables 4.7 and 4.8 respectively. The descriptive statistics indicates that for the entire period 81percent of the sampled firms engaged the services of the Big 4 in the audit of their financial statements. This appears to be higher than findings of Afify (2009) who realised that on 40 percent of firms engaged the Big 4. Also Habib (2015) found out that only 34 percent of the firms in China were audited by the Big 4 during the period of 2003 and 2011. This indicates that in Ghana a greater majority of sampled 74 University of Ghana http://ugspace.ug.edu.gh firms rely on the Big 4 for annual audits of financial statements. However, it was noticed that in pre and post mandatory adoption period it was 80 percent and 82 percent respectively. The descriptive statistics indicate that leverage has a mean of 2.23 from a minimum of -12.73 to a maximum of 55.08 implying reliance of sample firms on debt capital than on equity. Despite this average over the study period, some firms financed their operations with solely equity financing however, for one company, the equity was almost negligible as a result of consisted losses over time which led to a position of almost 100 percent dependence of debt capital. These results are however in resemblance to that of Sultana et al. (2015) recording a mean leverage of 2.23 in Malaysia. The average number of the firm’s year profits for the period was 69 percent out of 168, with a minimum of 0 and a maximum of 1. The variation in a firm making profit was 46 percent. The descriptive statistics points further that size of the company recorded a minimum value of GH₵260,406.72 and a maximum value of GH₵3,487,967.73. 75 University of Ghana http://ugspace.ug.edu.gh Figure 4. 2: Descriptive Statistics of the Control Variables Pre and Post IFRS Mandate MEANS 3 2.61 2.42 2.42 2.43 2.42 2.5 2 1.71 1.5 1 0.8 0.8 0.82 0.62 0.5 0 LEV PROF CSIZE ITYPE ATYPE Pre-IFRS Mandate Post-IFRS Mandate Source: Field work, 2003-2014 From the firms that were sampled, it was quite obvious that the leverage position increased in the post-IFRS mandate period than in the pre-IFRS mandate period by 0.9 whereas the number period that firms sampled recorded profits reduced by 18 percent. This could be as a result of the somehow new recognition, measurement and valuation methods suggest by the new regulation (IFRS). Nonetheless, the size of the companies did not seem to change at all over the two periods under comparison. Also none of the companies switched industry after the mandatory adoption of IFRS meanwhile after the mandatory adoption of IFRS, 2 percent more of the sampled firms engaged the BIG4 audit firms. 76 University of Ghana http://ugspace.ug.edu.gh 4.5 TEST OF NORMALITY 4.5.1 Shapiro-Wilk test of normality From the descriptive statistics, that is, the skewness and kurtosis of the pooled ARL for the entire period and that of the pre and post IFRS mandate, it was necessary to conduct a normality test to confirm the normality of the dependent variable in order to justify the method of analysis, either a parametric or a non-parametric. As did in Ntow-Gyamfi et al., (2015) the Shapiro-Wilk test of normality was conducted and the result is displayed in Table 4.6 below. Table 4. 10: Shapiro-Wilk W test for normality of ARL Shapiro-Wilk W test Variable Obs W V z Prob>z ARL 168 0.53404 59.766 9.328 0.00000 Source: Field work, 2003-2014 From statistics displayed above it is evident that the data is not normally distributed (p-value < 0.05). The test for normality rejected the null hypothesis that the ARL is normal. Due to the fact that the data breaches the assumption of normality under a parametric approach, the study employs the use of a non-parametric approach by performing the Wilcoxon-Mann-Whitney test which is the non-parametric counterpart to the Z or t test. 4.5 STATISTICAL TEST OF ARL PRE AND POST IFRS MANDATE. Univariate analysis was conducted in the form of Wilcoxon-Mann-Whitney test to ascertain whether there is a statistical difference between the means of the dependent variable (ARL) pre and post IFRS mandate. The results displayed in Table 4.6 below provides the descriptive statistics that compares the mean of pre and post IFRS mandatory adoption. 77 University of Ghana http://ugspace.ug.edu.gh Table 4. 11: Wilcoxon Rank-Sum (Mann-Whitney) test of Mean ARL for Pre and Post IFRS Mandate Group Obs Rank Sum Expected Pre IFRS Mandate 70 5597 5915 Post IFRS Mandate 98 8599 8281 Combined 168 14196 14196 Z=-1.024 Prob>/z/ = 0.3059 Source: Field work, 2003-2014 The results suggest that there is no statistically significant difference between the mean ARL pre IFRS mandate and post IFRS mandate (z = -1.024, p = 0.3059). The results show that, even though the post IFRS mandate mean ARL is higher than those of the pre IFRS mandate the difference is not statistically significant. 4.5 CORRELATION ANALYSIS The study undertook a correlation analysis in order to test the presence of multicollinearity among the dependent, independent and control variables. The Pearson correlation bivariate analysis was undertaken to check the presence of a possible linear relationship between two or more predictor variables. Gujarati (2003) posits that an 0.8 or less degree of correlation between the two or more explanatory variables increase the reliance on regression output hence used as the benchmark to detect multicollinearity among the predictor variables. Similarly, Belsley (1980) advocates that multicollinearity may be a problem when the correlation amongst the independent variables is 0.90 or above. Nevertheless, Emery (1982) considered correlation more than 0.80 to be problematic. 78 University of Ghana http://ugspace.ug.edu.gh Table 4.12 show the Pearson correlation coefficients for the association between the ARL and all the independent and control variables included in the study. The results show that ARL has a positive relationship with the IFRS mandate, type of auditor, size of company and board independence. Of these variables that have a positive relationship with ARL, board independence is significant at 99 percent while IFRS mandate is significant at 90 percent. However, the ARL is significantly negatively associated with board size and profitability at 99 percent and 95 percent respectively. The study found highest correlation between ARL and profitability (41 percent) and followed by board independence (33 percent) while the lowest correlation was realized between ARL and ownership structure (1.65 percent) In relation to the correlation between the independent variables the study found the highest correlation between the size of the board and the effectiveness of the audit committee (54percent). Again, there is also a high correlation between the type of auditor and the type of industry a firm finds itself. Even though these correlations seem high, they all fall within the threshold of 80 percent as posited by Gujarati (2003). Therefore, according to the test of Pearson’s correlations, it can be resolved that multicollinearity does not appear to be a present in the model since all the correlations are found to be significantly below the proposed threshold. 79 University of Ghana http://ugspace.ug.edu.gh Table 4. 12: Pearson’s Correlation Matrix of Audit Report Lag and All Independent and Control Variables. ARL ifrs bdsize bdindi Ownstr aceff atype lev prof itype csize ARL 1.0000 ifrs 0.1493* 1.0000 bdsize -0.1717** -0.0377 1.0000 bdindi 0.3399*** 0.1977** 0.0390 1.0000 ownstr -0.0165 0.0954 0.1739** 0.0526 1.0000 aceff -0.0421 0.0187 0.5462*** 0.2128*** -0.0755 1.0000 atype 0.0619 0.0205 -0.1159 0.0923 -0.1729** 0.0168 1.0000 lev -0.0328 0.0891 0.3294*** 0.0665 0.0795 0.1440* -0.1870** 1.0000 prof -0.4184*** -0.1904** 0.0768 -0.2905*** 0.2263*** 0.0293 0.0424 -0.0899 1.0000 itype -0.1806 -.0000 0.0643 -0.2511*** -0.0111 -0.0642 -0.4506*** 0.1650** 0.2023*** 1.0000 csize 0.0293 0.1533** 0.3435*** 0.1781** -0.0442 0.3143*** -0.0713 0.1454* -0.1581* -0.0596 1.0000 ***, ** and * means correlation is significant at the 1%, 5% and 10% level, respectively. Source: Field work, 2003-2014 80 University of Ghana http://ugspace.ug.edu.gh In addition to the Pearson’s correlations the variance inflation factor (VIF) was computed as a robustness test to confirm the presence or absence of multicollinearity among the variables. From Table 4.13 below shows the VIF which indicates all the independent variables have values below 1.9 which is within the acceptable range of 10 hence means that multicollinearity is not a major problem (Mela., 2002). Therefore, these results validate that of the Pearson’s correlation coefficient. Table 4. 13: Variance Inflation Factor (VIF) Independent and Control Variables Variable VIF 1/VIF bdsize 1.79 0.558396 aceff 1.64 0.610277 itype 1.52 0.659613 atype 1.43 0.698506 bdindi 1.30 0.766783 prof 1.29 0.777940 csize 1.24 0.809586 ownstr 1.23 0.814723 lev 1.19 0.840357 Mean VIF 1.40 Source: Field work, 2003-2014 4.6 MULTIPLE REGRESSION ASSUMPTION VERIFICATION In the chapter relating to methodology it was stated emphatically the panel regression technique was adopted as a result of the nature of the data. However, panel regression technique assumptions need to be verified and satisfied in order not to generate misleading result thereafter similar conclusions. These assumptions which includes the fact that; there is no multicollinearity among 85 University of Ghana http://ugspace.ug.edu.gh the explanatory variables, there is no heteroskedastic and autocorrelation among the predictor variables, sufficient number of cases and normality in the distribution of the predictor variables data set. The study tested the assumption for multicollinearity in the correlation analysis discussed above. 4.6.1 Heteroscedasticity and Autocorrelation Check The Breusch-Pagan test as suggested by Gujarati (2003) was conducted to test the presence of heteroscedasticity among the predictor variables while the Wooldridge test for autocorrelation was also conducted. The Breusch pagan test indicated the presence of heteroscedasticity (p < 0.05) and the Wooldridge test for autocorrelation also reveal the presence of autocorrelation (p < 0.05) among the predictor variable data set. 4.6.2 Sample Size Check As posited by Field (2005), the number of cases needed for regression should be, at least, 10 cases of data for each predictor in the model. Also, Green (1991), asserted that the smallest sample should be 104 + k, where k is the number of explanatory variables. In this regard the sample size for the study taking in consideration ten explanatory variables should be 100 as per Field (2005) and 114 as per Greene (1991). Based on Greene (1991) and Field (2005) the sample size for the study meets the assumption of sufficient sample size for regression analysis. 4.6.3 Normality Check for Independent and Control Variables. The normality of the distribution of the independent and control variables was checked, by conducting the Shapiro-Wilk test for normal data and the result displayed in Table 4.14 below. The Table also report V which are median values and when they are one or close to one, they represent samples from normal population. Large values indicate non-normality. Tables 4.14 86 University of Ghana http://ugspace.ug.edu.gh shows that with the exception of profitability, all the other variables’ figures are under “V” column are above one. This advocates that majority of the data are not normal and as such the pooled OLS regression model is inappropriate. Table 4. 14: Shapiro-Wilk W Test for Normal Data Variable W V z Prob>z bdsize 0.97048 3.728 2.998 0.00136 aceff 0.97746 2.891 2.421 0.00773 itype 0.96604 4.356 3.356 0.00040 atype 0.96784 4.124 3.231 0.00062 bdindi 0.97363 3.382 2.779 0.00273 prof 0.99079 4.124 3.231 0.00062 csize 0.93956 7.752 4.670 0.00000 ownstr 0.92150 10.069 5.267 0.00000 lev 0.41497 75.038 9.847 0.00000 Source: Field work, 2003-2014 Based on the various checks on the assumption of panel regression techniques, it is evident that not all the assumptions have been met hence the pooled OLS regression will not be appropriate. Hence the Panel Corrected Standard Errors (PCSEs) which also corrects for heteroscedasticity and autocorrelation was adopted for the study. 4.7 EMPIRICAL RESULT OF THE PCSEs REGRESSION This section presents the panel data regression results. A positive coefficient from the regression results indicates that a change in the independent variable will lead to an increase in the ARL whilst a negative one will lead to a reduction in the ARL. Specifically, section 4.7.1 reports the 87 University of Ghana http://ugspace.ug.edu.gh PCSEs regression results of the test hypotheses two to five. This is followed by the results of the lagged effect of corporate governance variables on ARL post IFRS mandate. The measure used to indicate the fitness of the model is the R-Square which refers to the proportion of the sample variation that is explained by the predictors. Nonetheless, the adjusted R-square is a more suitable indicator of a fit model since it takes into consideration the number of explanatory variables in the model. From the first regression model, the R-square and adjusted R-square reported was 32 percent and 28 percent respectively while the second model reported an R-square and adjusted R-square of 16 percent and 11 percent respectively. This means that the first regression model explains about 28 percent of the variation in ARL, which is higher than the adjusted R-square reported by Wei (2012). Knechel et al. (2001) reported an adjusted R-square of 12 percent and Habib (2015) reported an adjusted R-square of 9 percent. Meanwhile some studies also report an adjusted R-square of more than 20 percent (Ettredge et al., 2006; Munsif et al., 2012). However, low R-square in regression are not unusual especially in social science studies (Wooldridge, 2003). This does not mean that the model is not fit since it did not exceed the 50 percent benchmark. 4.7.1 PCSEs Regression Model- ARL, IFRS Mandate and Corporate Governance The results indicate that there is a statistically significant positive association between the ARL and board independence (p ≤ 0.05), Likewise, the results specify that there is positive association between the ARL and ownership structure, IFRS and type of auditor, however, this relationship is not statistically significant. On the other hand, the results show that ARL has a statistically significant negative relationship with the size of the board (p ≤ 0.10). Though audit committee 88 University of Ghana http://ugspace.ug.edu.gh effectiveness was also negatively related to ARL, the result found it not to be statistically significant. Concerning the firm’s characteristics, the study discovered that there was a negative association between the ARL and profitability and industry type. However, it was only profitability that was statistically significant (p ≤ 0.05). The study also found a statistically insignificant positive relationship between leverage and the size of the company. The first hypothesis predicts that the mandatory adoption of IFRS has a positive association with ARL. From the regression results in Table 4.15, the coefficient of the mandatory IFRS adoption measure ‘ifrs’ is positively associated with the ARL as expected but not statistically significant. This result shows that mandatory adoption of IFRS in Ghana, which is generally thought to be of higher quality than the GNAS (the predecessor GAAP), should result in an increase in the audit reporting lag. Accordingly, the results of the panel regression analysis agree with the research hypothesis regarding the existence of positive relationship but not with the significance of the relationship between ARL and the mandatory adoption of IFRS in Ghana. This is in contrast with finding from Habib (2015) who found a positively statistically significant relationship between ARL and China Accounting Standards which was model after the IFRS. 89 University of Ghana http://ugspace.ug.edu.gh Table 4. 15: PCSEs Regression Model 1 Results Variables Coefficient z-value lev 0.38 0.47 prof -34.62 -2.16** csize 2.76 0.73 itype -4.05 -0.77 atype 13.31 0.80 bdsize -7.28 -1.90* bdindi 110.48 2.31** ownstr 28.87 0.37 ifrs 3.86 0.37 aceff -0.02 -0.00 _cons 50.302 0.41 R-Square 0.3239 Estimated Covariances 14 EstimatedAutocorrelations 14 Observations 165 Wald Chi-square (15.48) P > Chi-square 0.1154 ** and * denote significance is significant at the 5% and 10% levels, respectively. Source: Field work, 2003-2014 4.7.2 PCSEs Regression Model – ARL, IFRS mandate and Lagged Corporate Governance Variables As noted earlier, the study sought to determine the effect of lagged corporate governance variables on ARL post IFRS mandate in Ghana. As a result, the individual corporate governance variables were lagged by a year to determine the relationship between the ARL and the lagged variables post IFRS mandate. As evidenced by the results of the second model, the relationship between the ARL and the lagged corporate governance variables mimicked the initial result reported in section 4.7.1 above. IFRS mandate still remain statistically and positively insignificant. The only lagged corporate governance variable which showed a significant association with ARL is board independence. 90 University of Ghana http://ugspace.ug.edu.gh Table 4. 16: PCSEs Regression Model 2 Results Variables Coefficient z-value lev 0.73 0.91 prof -38.83 -2.30** csize 0.85 0.25 itype -0.93 -0.19 lgatype 27.59 2.09** lgbdsize -5.39 -1.41 lgbdindi 135.20 2.44** lgownstr 77.43 0.95 ifrs 5.78 0.49 lgaceff -3.96 -0.78 _cons 3.95 0.03 R-Square 0.17 Estimated Covariances 14 Estimated Autocorrelations 1 Observations 152 Wald Chi-square (19.70) P > Chi-square 0.0323 ** and * denote significance is significant at the 5% and 10% levels, respectively. Source: Field work, 2003-2014 4.8 DISCUSSION OF FINDINGS FROM REGRESSION In order to measure the trend in ARL post IFRS and the effect of corporate governance on ARL post IFRS mandate among sampled listed firms in Ghana, a variety of statistical tests and analyses, including descriptive statistics, correlation analysis and a panel corrected standard errors regression analysis were conducted. The results of the individual statistical analyses are discussed and conclusions drawn from the findings bearing in mind the theoretical framework adopted for the study. 91 University of Ghana http://ugspace.ug.edu.gh 4.8.1 ARL and IFRS Mandate From the regression results in Table 4.15, the coefficient of the mandatory IFRS adoption measure ‘ifrs’ is not significant but positively associated with ARL. This result is in contrast with findings from Habib (2015) who found statistically significant positive association between China Accounting Standards and ARL. This contrast is not surprising since majority of firms on China’s stock market are audited by local audit firm unlike Ghana were the Big4 dominate the audit market. As a result of the dominance of the local audit firms, China maintains a strong regulatory environment in order to control the activities of these local firms. However, in Ghana, the Big4 audit firms dominate the audit market hence the regulatory environment is weak (Assenso-Okofo et al., 2011) since its assumed that their international partners tend to regulate their activities in order to protect their image. 4.8.2 ARL and Corporate Governance Variables post IFRS mandate The regression analysis suggests that board size is significantly negatively associated with the ARL, which is in contrast with the findings of Habib (2015). This means that an increase in size of the board will cause a reduction in the ARL. This reason for this inverse relationship could be the appointment of members with broader set of qualities such as knowledge and “connections” who impact tends to cause a decrease in ARL (DeZoort et al., 2003). Board independence is found to be positively associated with ARL and significant at 5 percent. This is an indication that a high proportion of non-executive directors on the board increase the delay in the release of the audit financial information to the market. This finding is in contrast with studies of Afify (2009) and Habib (2015). The finding is also not supported by the resource dependency theory. The reason ascribe to the positive relationship could be as a result conflicts among executive and non-executive members on the board. In the sense that group cohesion is 92 University of Ghana http://ugspace.ug.edu.gh important for the effective execution of any task (Powell & Anisc, 1997) which includes making decisions during an audit. Hence were conflict exist between executive and non-executive directors (who are perceived to be resourceful) time is spent resolving such issues which in effect results in a delay in the release of financial statements. Although ownership structure is positively related to audit report lag, the nature of the relationship appears to be insignificant. That is, pressure from large dominant shareholders result in an insignificant increase in audit report lag. Per the findings therefore, it could be concluded that the ownership structure of a company does not have a significant influence on audit report lag. In a related study, Afify (2009) and Leventis et al. (2005) found a negative yet insignificant relationship between ownership structure and ARL while Abdelsalam & El-Masry (2008) found a significantly negative relationship with ARL. Audit committee effectiveness is expected to have a significant negative influence on audit report lag. The result suggests the audit committee’s effectiveness in reducing the ARL of the companies in Ghana is not significant. The insignificant relationship between audit committee effectiveness and audit report lag may also be interpreted as the existence of audit committee in Ghana is just for window dressing but is ineffective in enhancing the release of audited financial reports on time. This finding is in contrast with DeZoort et al. (2002) who found that there is a link between audit committee effectiveness and financial reporting quality. 4.8.3 ARL and Control Variables The results show that; the type of auditor is positively associated with ARL. This means that firms that are audited by the Big4 are likely to have 13 days more in the delay of their annual financial statements that those audited by the non-Big4. This reason for this result appears to be the 93 University of Ghana http://ugspace.ug.edu.gh protection of image. In order to protect their image in a weak regulatory environment, the Big4 appears to be approaching the audit of listed firms in a substantive way so as to mitigate and reduce its audit risk to an acceptable level hence the delay in releasing audited financial statement to the public. Nonetheless contrary to literature from Afify, (2009), Sultana et al., (2015) and Habib (2015), this study reports a statistically insignificant positive relationship between the choice of a Big4 audit firm and ARL The positive coefficient of leverage shown in the regression results is contrary to the directionality that was predicted in the hypothesis. The reason for this relationship appears be caused by external auditors. Since high leverage ratios signals the probability of corporate failure which increases the chances of law suit against external auditor, they may spend more time to improve their defence against a possible law suit hence increasing ARL. Apart from the existing relationship with the ARL it is also not significant as found in a study by Sultana et al (2015), Hossain & Taylor (1998). Prior studies found a statistically positive significant relationship with ARL (Ettredge et al., 2006; Lee et al., 2008). Profitability was hypothesised to have a negative relationship with ARL. This result from the regression confirms the hypothesis showing a statistically negatively significant relationship with ARL. This means that firm are likely to report audited financial statement to the public in a timely manner when they record profits in a given year. This result is in agreement with that found by Afify (2009) and in contrast with Alkhatib & Majri (2012). The results also revealed that firm size, which is a natural logarithm of the end of year book value of total assets has a positive relationship with the ARL indicating that the bigger the firm by longer higher its ARL. This can be attributed to the relatively large inventory volumes held by big firms 94 University of Ghana http://ugspace.ug.edu.gh as against small firms. Auditors are likely to spend more time auditing a large firm’s inventory hence causing a delay in the release of financial statement. Nevertheless, this finding is insignificant in the determination of ARL among listed firms in Ghana. The studies that revealed significant relationships are (Bamber et al., 1993), (Carey & Simnett, 1995), (Leventis & Weetman, 2004), (Owusu-Ansah & Leventis,2006) (Al-Ajmi, 2008) while those with insignificant relationships include (Al-Ghanem & Hegazy, 2011) and (Owusu-Ansah, 2000). The regression result in Table 4.15 shows that industry type is statistically insignificantly and negatively associated with the ARL. This result somewhat confirms the result of Alkhatib & Majri (2012) who reported a no relationship between type of industry and ARL. However, Afify (2009) found a negatively statistically significant relationship between industry type and ARL. 4.8.4 ARL and Lagged Corporate Governance Variables post IFRS mandate Findings reported in Table 4.16, are based on contemporaneous corporate governance characteristics. Researchers argue vehemently that the effect of a corporate governance mechanism or feature is not immediate but influences forthcoming financial accounting events, transactions and reports (Zahra & Pearce, 1989; Dalton et al., 1999). Thus, tests were executed again using lagged data for all four corporate governance features (e.g lgbdindi as opposite to bdindi) as predictors of contemporaneous audit report lag. Results of the re-run regression using the lagged corporate governance data (i.e., Model 2) is reported in Table 4.16. At a glance it seems the results reported in Table 4.16, closely mirrors the main findings in Table 4.15, nonetheless, they are not the same. In relation to ARL and lagged board size (i.e., lgbdsize), the regression result shows that there is still a negative relationship between the dependent and the independent variable. However, it is 95 University of Ghana http://ugspace.ug.edu.gh interesting to note that the influence of the board members after a year of serving on the board reduce hence causing the board to be ineffective. From the results, the estimated coefficient for board size in Table 4.15 is -7.28 while that of lagged board size is -5.39. This means that in the year of constituting an average of 8-member board, listed firms are likely to reduce ARL by 7 days as against 5 days in the second year. The reason for this could be the free rider effect associated with large board size. By this, new board members after influencing the corporate entity in a particular year become adamant hence total output of the board begins to diminish. Another key reason supported by resource dependency theorist could be the claim that boards are composed based on the resources and skills set that members bring on board. Hence after board members have given off such resources and connections in a particular year, they have little or nothing to offer in the subsequent year hence resulting in the declining output of the board subsequently. This notwithstanding, the finding is not significant in the determination of factors affecting ARL among listed firms in Ghana. Lagged audit committee effectiveness (i.e. lgaceff) and audit committee effectiveness were both negatively related with ARL. Nevertheless, the influence of an effective audit committee is much realized in the subsequent year of operation than in the current year. This is so because the interaction between the audit committee and the external auditors happen mostly after the end of the financial year. Hence implementation from such discussions affect the subsequent year but not the year under audit. However, from the results, this variable is not significantly related to ARL. The influence of shareholder holding shares in excess 5 percent (blockholders) is much realized in terms of increasing ARL in the subsequent year than in a current year. Owing to the fact that blockholders have superior access to inside information from managers for their individual benefits they show less interest in making sure annual reports are released on time (Owusu-Ansah 96 University of Ghana http://ugspace.ug.edu.gh & Leventis 2006). In subsequent years the delay is bound to increase since managers will only satisfy them with such insider information again in order to minimize the possible pressure in the release of annual reports on time. Nonetheless, this variable is also not significantly associated with ARL. In terms of lagged board independence and ARL, an increase in the number of non-executive directors in a current will cause the ARL to increase by 110 days in that year and 135 days in the subsequent year. The explanation for this extra 25 days could still be the issue of group cohesion. Even though Company’s Act and Corporate Governance on Best Practices issued by SEC-Ghana encourages the increment of non-executive directors on the board, where such members do not share similar views with executive directors, ARL is bound to increase due to the time spent in resolving such disagreements. It is interesting to note that this variable is the only lagged corporate governance characteristic which is significant with ARL. 97 University of Ghana http://ugspace.ug.edu.gh CHAPTER FIVE SUMMARY, CONCLUSIONS AND RECOMMENDATIONS 5.1 INTRODUCTION This study sought to investigate the relationship between the audit report lag, mandatory IFRS adoption and corporate governance in Ghana. This chapter summarizes the key findings of the study, presents the conclusions based on the findings and further makes recommendations on how to improve ARL post IFRS mandate and also through specific corporate governance characteristics. 5.2 SUMMARY OF FINDINGS The significant findings from this study on the audit report lag, IFRS mandate and Corporate Governance are highlighted below. 5.2.1 ARL and Change in Accounting Regulation (IFRS mandate) The average number of days taken by listed firms to release audited annual reports in Ghana was found to be 109 days. This indicates that relatively, shareholders stand the chance of receiving information concerning firms’ performance later than required by the SEC-Ghana and GSE. Nonetheless there seems to be a decreasing trend in the later years of the study (i.e. 2013 to 2014) after a consistent increase in ARL from 2007 to 2012. This increment in ARL from 2007 is largely associated with the mandatory adoption of IFRS in that year. It is also worth noting that the overall post IFRS mandate ARL is higher than the pre IFRS mandate ARL. Whereas the average the ARL for the pooled sampled firms before the IFRS mandate was about 96 days it increased to about 118 days after the IFRS mandate. This finding is consistent with prior study that found out that ARL increased after a change in accounting regulation (Habib, 2015). Despite this difference in days in 98 University of Ghana http://ugspace.ug.edu.gh relation to ARL between the pre and post IFRS mandate, this difference is not statistically significant in Ghana. Similarly, the results from the regression analysis showed that the mandatory adoption of IFRS is not statistically significant with ARL which is in contrast to result found by Habib (2015) who found a statistical significant positive relationship between ARL and China Accounting Standards (CAS, modelled after IFRS). 5.2.2 ARL and Corporate Governance Variables post IFRS mandate As endorsed by the Ghana’s Company Act and the Corporate Governance Guidelines on Best Practices issued by SEC-Ghana, the number of board members of listed firms in Ghana connotes their effectiveness and efficiency in governing the firm to optimal performance in relation to the timeliness in the release of audited financial report. The descriptive statistics indicates that the overall average board size of 8 members is also slightly consistent with the results of prior studies in Ghana by Kyereboah-Coleman & Biekpe, (2006), Aboagye-Otchere et al, (2014). The multivariate analysis suggests that board size is significantly negatively associated with the ARL which goes on the reiterate why Ghana’s Company Code and the Corporate Governance Guidelines on Best Practices stresses on this corporate governance characteristic. In relation to board independence the situation appears to have improved after the mandatory IFRS adoption, where the average of the proportion of non-executive directors on the board was 65 percent before the mandatory IFRS adoption increased to 73 percent after the mandatory IFRS adoption. From the descriptive statistics that 69 percent of the directors of the board are non- executive directors which supports SEC-Ghana’s guidelines. The multivariate analysis found a statistically positive association between independence of the board and ARL. This finding does not lean towards the neither agency theory nor resource dependency theory since ARL increases as the board becomes more independent. 99 University of Ghana http://ugspace.ug.edu.gh Furthermore, ownership structure though had a positive relationship with ARL was not significant just like audit committee effectiveness which also had a negative relationship with ARL. 5.2.3 ARL and Control Variables Profitability had a negative effect on the timely release of annual reports among listed firms in Ghana. This is quite understandable since firms are mostly in a haste to get the public aware of the “good news” (profits) other than “bad news” (losses) hence leading to a reduction in the number of days it takes them to release such news. On the other hand, though leverage, size of the company and type of auditor have a positive relationship with ARL they are insignificant. Industry type also established a negative insignificant relationship with ARL. 5.2.4 ARL and Lagged Corporate Governance Variables post IFRS mandate In view of the argument that effect of corporate governance mechanisms is not immediately felt in the current financial accounting events and reports but in the subsequent ones, it was necessary to lag the corporate governance variables in order to ascertain their effect on ARL. To this end, only lagged board independence had a significant relationship with ARL out of the four corporate governance variable used in this study. Lagged board size maintained a negative relationship but became statistically insignificant with ARL. Lagged ownership structure, lagged audit committee effectiveness maintained their insignificantly positive and negative relationship respectively with ARL. 5.2.5 ARL and Control Variables Similar to the results discussed in section 5.2.3, profitability maintained its positively significant relationship with contemporaneous audit report lag. While leverage and size of the company have a positive relationship with ARL they are insignificant. Also industry type also established a 100 University of Ghana http://ugspace.ug.edu.gh negative insignificant relationship with ARL. However, type of auditor seemed to have a positively significant relationship with ARL after the corporate governance variables were lagged. 5.3 CONCLUSION This study examines whether the change in accounting regulation i.e. mandatory adoption of IFRS and corporate governance features are associated with the timeliness of financial reporting (i.e., audit report lag) by Ghanaian publicly listed firms. It also offers statistical evidence for a number of variables which determine or influence ARL. Overall, the study makes the following conclusions; Companies listed on the GSE do not release audited annual reports on time. However, the trend seemed to be worsen after the adoption of IFRS in 2007 and later started recovering in 2013. This could be attributed to the learning curve that firms needed to go through. IFRS mandatory adoption did not affect ARL, even though listed firms issued audited annual report later post IFRS mandate. This finding is in contrast with prior study in China (Habib, 2015). Also, the size of the board significantly influences the timeliness of the release of audited annual reports to stakeholders. This means that as firms focus on releasing audited annual reports on time they need to increase their board size in order to be successful. This finding lends to the resource dependence theorists who assert that larger board sizes enable the appointment of members with a broader set of qualities such as expertise, experience, knowledge and connections (DeZoort et al., 2003). Similarly, the analysis points that a more independent board causes an increase in audit report lag significantly. Both the Agency theory and the Resource Dependency theory does not seem to explain this finding. Intuitively the effectiveness of the board comes as a result of team cohesion hence even though non-executive directors bring on board expertise and experience, 101 University of Ghana http://ugspace.ug.edu.gh where there are diverse opinions among members, this could in effect cause delay in the release of annual report. Other corporate governance variables like ownership structure and audit committee effectiveness did not significantly affect the ARL of listed firms in Ghana. It also became very evident that where firms make profit in a particular financial year, shareholders are certain to receive audited annual report which contains the “good news” earlier than usual. Finally, evidence from the analysis prove that the type of auditor, that is the engagement of a BIG4, a more independent board in a current year will cause the late release of audited financial statement in the forthcoming year. This could be associated to the necessary time need to be consumed by the BIG4 to understand the firm’s business environment. 5.4 CONTRIBUTION TO LITERATURE This study contributes to existing literature in the determinants of ARL in the following way: that the difference in ARL pre and post IFRS is not statistically significant thus the change in accounting regulation does not significantly affect the timely release of financial statements to the public in the Ghanaian market. Again the presence of more non-executive directors on the board as suggested by the SEC-Ghana and the Company’s Act will affect the release of financial information of firms by increasing the ARL. More so, the independence of the board does not only contribute to the instantaneous delay of annual audited financial statements in a current year but also in the subsequent year. Furthermore, several studies on ARL have been hinged on the agency theory however this study illustrates with empirical evidence how resource dependency theory could be used to explain the relationship between ARL, IFRS mandate and corporate governance characteristics. 102 University of Ghana http://ugspace.ug.edu.gh Furthermore, in determining the influence of corporate governance characteristics on ARL, the study contributes to literature by incorporating a composite variable for audit committee effectives which was not included in similar studies conducted by Habib (2015) and Afify (2009). 5.5 RECOMMENDATIONS Based on the findings and conclusions the study recommends the following: 1) Since board size, board independence and profitability has significant instantaneous influence on ARL, the study recommend that firms in Ghana increase the size of their boards in the bid to reduce the waiting period for which shareholder get access to audited financial statements in the current year. However, increasing the board size, care should be taken not to make majority non-executive directors so as to improve the boards efficiency and effectiveness. Management, based on the findings, haste to report “good news” (profitability) to stakeholders faster than “bad news” (losses), should come up with strategies to always record profits at the end of each financial year since that would help get information to shareholders faster. 2) Government and regulatory bodies like the SEC-Ghana should put in stringent mechanisms that will urge firms to release audited financial statement within the stipulated period endorsed in the listing rules since the change in accounting regulation doesn’t seem to have any significant influence of ARL. Also the Companies Act and Corporate Governance Guidelines on Best Practices issued by SEC-Ghana should be revised since clearly some pieces of information they provide do not meet the current and dynamic business environment in Ghana. 103 University of Ghana http://ugspace.ug.edu.gh 3) It is also recommended that academic and business researchers should investigate why some corporate governance variables used in this study did not have a significant influence on ARL through a qualitative study. 4) Finally, it is recommended that future studies should concentrate on the relationship between the change in accounting regulation and ARL among sub-Saharan countries since literature in the developing economies appears to be scant in this area of study. 104 University of Ghana http://ugspace.ug.edu.gh REFERENCES Abbott, L. J., Park, Y., & Parker, S. (2000). The effects of audit committee activity and independence on corporate fraud. Managerial Finance, 26(11), 55-68. 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