Dr Outa research focuses on financial accounting and corporate governance particularly topics of interest to accounting standard setters and Capital Markets. Such topics include IFRS and accounting quality, fair values and financial reporting, financial statement quality, oil and gas accounting, corporate governance disclosures and earnings management. His approaches are eclectic and without subterfuge based on interdisciplinary experience across the globe both in leadership and the profession.
The purpose of this paper is to examine the requirements and successes of the New International F... more The purpose of this paper is to examine the requirements and successes of the New International Financial Architecture (NIFA) on transparency and corporate governance from a global perspective with a special focus on Africa. In recent years, transparency, accountability and governance have become key topics with many countries around the world having adopted International Financial Reporting Standards (IFRS) and corporate governance codes. The outcomes of these initiatives have been unconvincing. Desktop research was used to gather literature and data on compliance with corporate governance codes and International Financial Reporting Standards (IFRS) and other NIFA requirements. This study established that in spite of many regional and global initiatives by the World Bank and relevant regulators, compliance with IFRS and governance in parts of Africa has yet to reach its best level and guidelines are not fully followed leading to opportunities for improvement and policy adjustments. This research has implications and uses for both global and local institutions and regulators concerned with economic stability and growth including the World Bank, central banks, capital markets and boards of companies and the government in general. The findings contribute to governance debates by providing additional perspectives from Africa on compliance with accounting standards and codes in a region where research and corporate governance and reporting issues are still confusing.
Purpose: The purpose of this paper is to develop a framework that identifies financial literacy c... more Purpose: The purpose of this paper is to develop a framework that identifies financial literacy concepts that board members in NFP’s should read, understand and apply their minds to effectively perform their duties.<br><br>Design: We address this through qualitative and quantitative methods with group and purposive sampling where we bring together experts in this area to explore, debate and identify the concepts that lead to an appropriate framework. The study builds on agency theory where the role of directors is to monitor management on behalf of the stakeholders.<br><br>Findings: From the responses and debates among experts, we provide an NFP board member definition of what a financial literate board member should read (Financial statements), understand (18 concepts) and apply his or her mind on. We provide this through a robust but simple framework that NFP members will find easy to follow.<br><br>Originality/Value: Our framework responds to the Financing Reporting Councils’ (FRC) contention that financial literacy for board members in Australia is deficient. Simultaneously, we address ASICs National Financial Literacy Strategy which suggests improving financial literacy by improving research, measurement and evaluation. The framework also addresses the needs of NFPs currently known to experience governance issues in spite of the existing resources. Such NFPs spectrum are found in indigenous communities, voluntary associations (Clubs, Churches,) and well-known sectors like local authorities, health board of hospitals, water, mines and housing boards.
This paper investigate the relative value relevance of accounting information arising from the ad... more This paper investigate the relative value relevance of accounting information arising from the adoption of converged and revised International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS) in East Africa. The results show that accounting information prepared from revised and converged IAS/IFRS display higher value relevance and also increased following the revision and convergence of IAS/IFRS. The cross-product term is more significant in the post-revision/convergence period thus providing further evidence for increased value relevance after the revision of IAS/IFRS. The results are robust to various models and show that value relevance in East Africa is relatively lower than that of the developed markets.
The purpose of this paper is to examine the capital market effects of corporate governance (CG) p... more The purpose of this paper is to examine the capital market effects of corporate governance (CG) practices of “comply or explain” on stock market liquidity in a frontier market. <br><br>Using secondary data from Nairobi Securities Exchange (NSE) liquidity position is analyzed using panel data random effects regression against CG guidelines. <br><br>The results show a negative and significant relationship between CG compliance and stock market liquidity suggesting that regulated CG practices improves market liquidity in Kenya. The results are remarkably robust to different measures of liquidity and supports agency and signaling theory. <br><br>We provide evidence that security regulation improves stock market liquidity in a frontier market whose characteristics are thought not to favor regulation. Therefore the regulators and stakeholders could be motivated by the benefits of regulation and this could lead to renewed effort to improve the current compliance from the current 61.4%, to higher levels. <br><br>Our finding shows that security market regulation through CG guidelines can improve stock market liquidity in frontier markets. This offers regulators and policy makers a strong motivation to enhance security regulation to strengthen capital market confidence.
Purpose The purpose of this study is to examine the capital market effects of corporate governanc... more Purpose The purpose of this study is to examine the capital market effects of corporate governance (CG) practices of a “comply or explain” environment on stock market liquidity in a frontier market. Design/methodology/approach Using secondary data from Nairobi Securities Exchange, the liquidity position is analyzed using panel data random effects regression against CG guidelines. Findings The results show a negative and significant relationship between CG compliance and stock market liquidity, suggesting that regulated CG practices improve market liquidity in Kenya. The results are remarkably robust to different measures of liquidity and supports agency and signaling theory. Practical implications The authors provide evidence to show that security regulation improves stock market liquidity in a frontier market whose characteristics are thought not to favor regulation. Therefore, regulators and stakeholders could be motivated by the benefits of regulation, and this could lead to rene...
Purpose The purpose of this paper is to investigate whether banks use commission and fee (CF) inc... more Purpose The purpose of this paper is to investigate whether banks use commission and fee (CF) income to manage reported earnings as an income-increasing or income smoothing strategy. Design/methodology/approach The authors employ the regression methodology to detect real earnings management. Findings The authors find that banks use CF income for income smoothing purposes and this behaviour persists during recessionary periods and in environments with stronger investor protection. The implication of the findings is that bank non-interest income which achieves diversification gains to banks is also used to manipulate reported earnings. Research limitations/implications The findings show that real earnings management is prevalent among banks in Africa. Further research into earnings management should examine real earnings management among non-financial firms in developing regions. Practical implications From an accounting standard setting perspective, the evidence suggests the need for...
Purpose The purpose of this paper is to examine the determinants of the use of loan loss provisio... more Purpose The purpose of this paper is to examine the determinants of the use of loan loss provisions (LLPs) to smooth income by banks in South Africa. More specifically, the authors examine the influence of ownership, IFRS disclosure rules and economic fluctuation on the income smoothing behaviour of South African banks while controlling for the traditional determinants of bank income smoothing via LLPs. Design/methodology/approach The study employs fixed effect regression methodology to estimate the determinants of discretionary LLPs. Findings The authors find that South African banks do not use LLPs to smooth income when they are: under-capitalised, have large non-performing loans and have a moderate ownership concentration. On the other hand, income smoothing is pronounced when South African banks are rather more profitable during economic boom periods, well-capitalised during boom periods and is pronounced among banks that adopt IFRS and among banks with a Big 4 auditor. The auth...
This presentation highlights the global financial crisis of 2008 and looks at its causes, effects... more This presentation highlights the global financial crisis of 2008 and looks at its causes, effects and opportunities. It addresses the context of the crisis i.e it is always happening so we must be alert all the time. The crisis does not mean doom, it is just one of the economic cycles.Finally, it provides some suggestions to manage through the crisis referred to as financial weapons of mass destruction.
The purpose of this paper is to examine empirically whether corporate governance disclosure requi... more The purpose of this paper is to examine empirically whether corporate governance disclosure requirements have reduced earnings management for companies listed in the East Africa Securities Exchanges. Discretionary Accruals (DA), regarded as a proxy for earnings management, was calculated using the modified Jones model and corporate governance disclosure indices developed from the disclosure guidelines. It was hypothesized that corporate governance disclosures have a negative relationship with earnings management and this association was tested using multivariate regressions of the proxies on the disclosure requirements. Using a census of annual reports of 34 companies with 232 firm year observations, the study found that corporate governance disclosure requirements are associated to various degrees with earnings management and the guideline score of 57% is inadequate. It was also established that board independence drive earnings management downwards. The research also provided addi...
This presentation highlights the global financial crisis of 2008 and looks at its causes, effects... more This presentation highlights the global financial crisis of 2008 and looks at its causes, effects and opportunities. It addresses the context of the crisis i.e it is always happening so we must be alert all the time. The crisis does not mean doom, it is just one of the economic cycles.Finally, it provides some suggestions to manage through the crisis referred to as financial weapons of mass destruction.
... For that, I explain existing differences between UK GAAP based and IFRS-based accounting stan... more ... For that, I explain existing differences between UK GAAP based and IFRS-based accounting standards as well as differences between UK GAAP ... 2. The impact of IFRS Adoption on Accounting Figures ... perceptions (information contained in financial statements must be neutral). ...
Bank Loan Loss Provisions Research: A Review, 2017
We review the recent academic and policy literature on bank loan loss provisioning (LLP) to ident... more We review the recent academic and policy literature on bank loan loss provisioning (LLP) to identify several advances in the literature, to highlight some challenges in LLP research and suggest possible directions for future research with some concluding remarks. Among other things, we observe some major advancement in country-specific and crosscountry analyses and substantial interaction between LLPs and existing prudential, accounting, institutional firm characteristic, cultural, religious, tax and fiscal framework. We observe that managerial discretion in provisioning does not necessarily generate LLP estimates that reflect the true and underlying economic reality of banks' credit risk exposure but rather managerial discretion in provisioning is strongly linked to income smoothing, capital management, signalling and other objectives. We also address several issues including the ethical dimensions of income smoothing, motivations and constrains to income smoothing, methodological issues in the bank loan loss provisions literature and the dynamic loan loss provisioning experiment. Moreover, we suggest several avenues for further research such as: finding a balance between sufficient LLPs which regulators want versus transparent LLPs which standard setters want; the sensitivity of abnormal (specific and general) LLPs to changes in equity; the persistence of abnormal LLPs following CEO exit; country-specific interventions that induce LLP procyclicality in emerging countries; investigating LLP behaviour in the post-financial crisis sample period; the impact of Basel III on banks' provisioning discretion; LLP behaviour among systemic and non-systemic financial institutions; etc. We conclude that, because provisioning models are only as good as the assumptions underlying such models as well as the accuracy of the inputs included in such models, regulators need to pay attention to how much discretion banks and lending institutions should have in determining reported provision estimates, and this has been a long standing issue.
The purpose of this paper is to examine the requirements and successes of the New International F... more The purpose of this paper is to examine the requirements and successes of the New International Financial Architecture (NIFA) on transparency and corporate governance from a global perspective with a special focus on Africa. In recent years, transparency, accountability and governance have become key topics with many countries around the world having adopted International Financial Reporting Standards (IFRS) and corporate governance codes. The outcomes of these initiatives have been unconvincing. Desktop research was used to gather literature and data on compliance with corporate governance codes and International Financial Reporting Standards (IFRS) and other NIFA requirements. This study established that in spite of many regional and global initiatives by the World Bank and relevant regulators, compliance with IFRS and governance in parts of Africa has yet to reach its best level and guidelines are not fully followed leading to opportunities for improvement and policy adjustments. This research has implications and uses for both global and local institutions and regulators concerned with economic stability and growth including the World Bank, central banks, capital markets and boards of companies and the government in general. The findings contribute to governance debates by providing additional perspectives from Africa on compliance with accounting standards and codes in a region where research and corporate governance and reporting issues are still confusing.
Purpose: The purpose of this paper is to develop a framework that identifies financial literacy c... more Purpose: The purpose of this paper is to develop a framework that identifies financial literacy concepts that board members in NFP’s should read, understand and apply their minds to effectively perform their duties.<br><br>Design: We address this through qualitative and quantitative methods with group and purposive sampling where we bring together experts in this area to explore, debate and identify the concepts that lead to an appropriate framework. The study builds on agency theory where the role of directors is to monitor management on behalf of the stakeholders.<br><br>Findings: From the responses and debates among experts, we provide an NFP board member definition of what a financial literate board member should read (Financial statements), understand (18 concepts) and apply his or her mind on. We provide this through a robust but simple framework that NFP members will find easy to follow.<br><br>Originality/Value: Our framework responds to the Financing Reporting Councils’ (FRC) contention that financial literacy for board members in Australia is deficient. Simultaneously, we address ASICs National Financial Literacy Strategy which suggests improving financial literacy by improving research, measurement and evaluation. The framework also addresses the needs of NFPs currently known to experience governance issues in spite of the existing resources. Such NFPs spectrum are found in indigenous communities, voluntary associations (Clubs, Churches,) and well-known sectors like local authorities, health board of hospitals, water, mines and housing boards.
This paper investigate the relative value relevance of accounting information arising from the ad... more This paper investigate the relative value relevance of accounting information arising from the adoption of converged and revised International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS) in East Africa. The results show that accounting information prepared from revised and converged IAS/IFRS display higher value relevance and also increased following the revision and convergence of IAS/IFRS. The cross-product term is more significant in the post-revision/convergence period thus providing further evidence for increased value relevance after the revision of IAS/IFRS. The results are robust to various models and show that value relevance in East Africa is relatively lower than that of the developed markets.
The purpose of this paper is to examine the capital market effects of corporate governance (CG) p... more The purpose of this paper is to examine the capital market effects of corporate governance (CG) practices of “comply or explain” on stock market liquidity in a frontier market. <br><br>Using secondary data from Nairobi Securities Exchange (NSE) liquidity position is analyzed using panel data random effects regression against CG guidelines. <br><br>The results show a negative and significant relationship between CG compliance and stock market liquidity suggesting that regulated CG practices improves market liquidity in Kenya. The results are remarkably robust to different measures of liquidity and supports agency and signaling theory. <br><br>We provide evidence that security regulation improves stock market liquidity in a frontier market whose characteristics are thought not to favor regulation. Therefore the regulators and stakeholders could be motivated by the benefits of regulation and this could lead to renewed effort to improve the current compliance from the current 61.4%, to higher levels. <br><br>Our finding shows that security market regulation through CG guidelines can improve stock market liquidity in frontier markets. This offers regulators and policy makers a strong motivation to enhance security regulation to strengthen capital market confidence.
Purpose The purpose of this study is to examine the capital market effects of corporate governanc... more Purpose The purpose of this study is to examine the capital market effects of corporate governance (CG) practices of a “comply or explain” environment on stock market liquidity in a frontier market. Design/methodology/approach Using secondary data from Nairobi Securities Exchange, the liquidity position is analyzed using panel data random effects regression against CG guidelines. Findings The results show a negative and significant relationship between CG compliance and stock market liquidity, suggesting that regulated CG practices improve market liquidity in Kenya. The results are remarkably robust to different measures of liquidity and supports agency and signaling theory. Practical implications The authors provide evidence to show that security regulation improves stock market liquidity in a frontier market whose characteristics are thought not to favor regulation. Therefore, regulators and stakeholders could be motivated by the benefits of regulation, and this could lead to rene...
Purpose The purpose of this paper is to investigate whether banks use commission and fee (CF) inc... more Purpose The purpose of this paper is to investigate whether banks use commission and fee (CF) income to manage reported earnings as an income-increasing or income smoothing strategy. Design/methodology/approach The authors employ the regression methodology to detect real earnings management. Findings The authors find that banks use CF income for income smoothing purposes and this behaviour persists during recessionary periods and in environments with stronger investor protection. The implication of the findings is that bank non-interest income which achieves diversification gains to banks is also used to manipulate reported earnings. Research limitations/implications The findings show that real earnings management is prevalent among banks in Africa. Further research into earnings management should examine real earnings management among non-financial firms in developing regions. Practical implications From an accounting standard setting perspective, the evidence suggests the need for...
Purpose The purpose of this paper is to examine the determinants of the use of loan loss provisio... more Purpose The purpose of this paper is to examine the determinants of the use of loan loss provisions (LLPs) to smooth income by banks in South Africa. More specifically, the authors examine the influence of ownership, IFRS disclosure rules and economic fluctuation on the income smoothing behaviour of South African banks while controlling for the traditional determinants of bank income smoothing via LLPs. Design/methodology/approach The study employs fixed effect regression methodology to estimate the determinants of discretionary LLPs. Findings The authors find that South African banks do not use LLPs to smooth income when they are: under-capitalised, have large non-performing loans and have a moderate ownership concentration. On the other hand, income smoothing is pronounced when South African banks are rather more profitable during economic boom periods, well-capitalised during boom periods and is pronounced among banks that adopt IFRS and among banks with a Big 4 auditor. The auth...
This presentation highlights the global financial crisis of 2008 and looks at its causes, effects... more This presentation highlights the global financial crisis of 2008 and looks at its causes, effects and opportunities. It addresses the context of the crisis i.e it is always happening so we must be alert all the time. The crisis does not mean doom, it is just one of the economic cycles.Finally, it provides some suggestions to manage through the crisis referred to as financial weapons of mass destruction.
The purpose of this paper is to examine empirically whether corporate governance disclosure requi... more The purpose of this paper is to examine empirically whether corporate governance disclosure requirements have reduced earnings management for companies listed in the East Africa Securities Exchanges. Discretionary Accruals (DA), regarded as a proxy for earnings management, was calculated using the modified Jones model and corporate governance disclosure indices developed from the disclosure guidelines. It was hypothesized that corporate governance disclosures have a negative relationship with earnings management and this association was tested using multivariate regressions of the proxies on the disclosure requirements. Using a census of annual reports of 34 companies with 232 firm year observations, the study found that corporate governance disclosure requirements are associated to various degrees with earnings management and the guideline score of 57% is inadequate. It was also established that board independence drive earnings management downwards. The research also provided addi...
This presentation highlights the global financial crisis of 2008 and looks at its causes, effects... more This presentation highlights the global financial crisis of 2008 and looks at its causes, effects and opportunities. It addresses the context of the crisis i.e it is always happening so we must be alert all the time. The crisis does not mean doom, it is just one of the economic cycles.Finally, it provides some suggestions to manage through the crisis referred to as financial weapons of mass destruction.
... For that, I explain existing differences between UK GAAP based and IFRS-based accounting stan... more ... For that, I explain existing differences between UK GAAP based and IFRS-based accounting standards as well as differences between UK GAAP ... 2. The impact of IFRS Adoption on Accounting Figures ... perceptions (information contained in financial statements must be neutral). ...
Bank Loan Loss Provisions Research: A Review, 2017
We review the recent academic and policy literature on bank loan loss provisioning (LLP) to ident... more We review the recent academic and policy literature on bank loan loss provisioning (LLP) to identify several advances in the literature, to highlight some challenges in LLP research and suggest possible directions for future research with some concluding remarks. Among other things, we observe some major advancement in country-specific and crosscountry analyses and substantial interaction between LLPs and existing prudential, accounting, institutional firm characteristic, cultural, religious, tax and fiscal framework. We observe that managerial discretion in provisioning does not necessarily generate LLP estimates that reflect the true and underlying economic reality of banks' credit risk exposure but rather managerial discretion in provisioning is strongly linked to income smoothing, capital management, signalling and other objectives. We also address several issues including the ethical dimensions of income smoothing, motivations and constrains to income smoothing, methodological issues in the bank loan loss provisions literature and the dynamic loan loss provisioning experiment. Moreover, we suggest several avenues for further research such as: finding a balance between sufficient LLPs which regulators want versus transparent LLPs which standard setters want; the sensitivity of abnormal (specific and general) LLPs to changes in equity; the persistence of abnormal LLPs following CEO exit; country-specific interventions that induce LLP procyclicality in emerging countries; investigating LLP behaviour in the post-financial crisis sample period; the impact of Basel III on banks' provisioning discretion; LLP behaviour among systemic and non-systemic financial institutions; etc. We conclude that, because provisioning models are only as good as the assumptions underlying such models as well as the accuracy of the inputs included in such models, regulators need to pay attention to how much discretion banks and lending institutions should have in determining reported provision estimates, and this has been a long standing issue.
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