Olive Mu - Proposal 2 June 2013

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CORPORATE GOVERNANCE, EMPLOYEE COMPETENCE, INFORMATION

INDUCTANCE AND FINANCIAL REPORTING AMONG COMMERCIAL

BANKS IN RWANDA

BY:

OLIVE MUKANKWAYA

02/ 00113/ 122701

ACCA

A RESEARCH PROPOSAL SUBMITTED TO THE SCHOOL OF POST

GRAGUATE STUDIES AND RESEARCH IN PARTIAL FULFILLMENT FOR

THE REQUIREMENTS FOR THE AWARD OF THE DEGREE

OF MASTERS OF BUSINESS ADMINISTRATION

OF CAVENDISH UNIVERSITY RWANDA

MAY 2013


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Declaration

I, OLIVE MUKANKWAYA, declare that this proposal is my original work and has

never been presented to any other university for award of any academic certificate or

anything similar to such. I solemnly bear and stand to correct any inconsistency.

Signature

..

OLIVE MUKANKWAYA

DATE :

.

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Approval

This is to acknowledge that this research proposal has been under my supervision as

university supervisors and is now ready for submission.

Signature Date

... .

Mr Simon Mwesigwa Supervisor

Mr Bill Nkeeto Supervisor

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ACRONYMS

ICGU: INSTITUTE OF CORPORATE GOVERNANCE

USAID: UNITED STATES AGENCY FOR INTERNATIONAL DEVELOPMENT

ICB: INTERNATIONAL CREDIT BANK

GBL: GREENLAND BANK

CEO: CHIEF EXECUTIVE OFFICER

MD: MANAGING DIRECTOR

CLERP: CORPORATE LAW ECONOMIC REFORM PROGRAM PAPER

PWC: PRICE WATER COPPERS

CK: CORE CAPITAL

RWAs: RISKY WEIGHTED ASSETS

NPA: NON PERFORMING ASSETS

ROA: RETURN ON ASSETS

ROE: RETURN ON EQUITY

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TABLE OF CONTENTS

ACRONYMS..................................................................................................................iii

TABLE OF CONTENTS...............................................................................................iv

1.0 Introduction ...............................................................................................................1

A minimum capital requirement is currently US$ 8.5million for establishing bankingoperations and the sector is regulated by the National Bank of Rwanda.........................1

The domestic financial sector faces a weak environment in Rwanda. Economic activityis concentrated in a few sectors and credit culture is weak. Normalized accountingstandards and appropriate auditing rules for the nonfinancial sector are lacking. Thereare limitations in the legal and judicial frameworks and corporate governance,including in some commercial banks. In addition, there is a lack of human capital inthe financial sector as well as in the accounting and auditing profession.......................1

1.9 Literature Review...........................................................................................................6

1.9.1 The relationship between Corporate Governance and Financial Reporting ..............6

1.9.1.2 Financial Reporting .........................................................................................13

1.9.2 Relationship between Corporate Governance and Employee Competence..............19

1.9.3 The Relationship between Corporate Governance and Information Inductance......21

1.10 Research Methodology..............................................................................................25

Key Informative Interviews .............................................................................................27

1.10.8 Validity and Reliability.......................................................................................27

1.10.9. Measurement of the Variables ..............................................................................27

1.10.10 Ethical Consideration............................................................................................27

1.10.11 Data Analysis....................................................................................................28

1.10.12 Limitation likely to be encountered during the study .....................................28

References: ....................................................................................................................28

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1.0 Introduction

The Rwandan financial sector comprises of insurance services and banking (commercial banks,

development bank and microfinance institutions).

The banking sector has seen tremendous growth over the past 5 years and seen increased

participation by multinational banks and foreign equity. The market capitalization of the banking

sub sector is US$200 million supporting US$1 billion in assets.

There is a Financial Sector Development Program that is aimed at deepening financial services

and increasing the reach of financial services to the Rwandan population. 14% of Rwandas adult

population is banked (518 million persons) which offers investment opportunities for investors

keen on reaching untapped markets.

Key players in the banking sector are Access Bank, Banque Commerciale du Rwanda, Banque

de Kigali,Banque Populaire du Rwanda, Ecobank, andKenya Commercial Bank.

A minimum capital requirement is currently US$ 8.5million for establishing banking operations

and the sector is regulated by the National Bank of Rwanda.

The domestic financial sector faces a weak environment in Rwanda. Economic activity is

concentrated in a few sectors and credit culture is weak. Normalized accounting standards

and appropriate auditing rules for the nonfinancial sector are lacking. There are limitations

in the legal and judicial frameworks and corporate governance, including in some

commercial banks. In addition, there is a lack of human capital in the financial sector as

well as in the accounting and auditing profession.

Privatizations and recapitalizations have strengthened the short term resilience of banks but the

system remains vulnerable to shocks, in particular a sharp decline in aid flows. Five financial

institutions out of the nine in operation in Rwanda have been recapitalized recently, two of which

have been privatized. Financial soundness indicators have improved markedly, and supervision

has been upgraded. However, asset quality remains weak; the structure of the economy results in

risk concentration; and governance problems in some banks have generated vulnerabilities.

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http://www.bk.rw/http://www.bk.rw/http://www.bk.rw/http://www.bpr.rw/http://www.bpr.rw/http://www.ecobank.com/countryinfo.aspx?cid=74075http://www.ecobank.com/countryinfo.aspx?cid=74075http://www.kcbbankgroup.com/rw/http://www.kcbbankgroup.com/rw/http://www.bpr.rw/http://www.ecobank.com/countryinfo.aspx?cid=74075http://www.kcbbankgroup.com/rw/http://www.bk.rw/http://www.bk.rw/


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Stress tests indicate that banks would have difficulties coping with the second order effects from

a prolonged decline in foreign aid inflows. Given the structure and activity of banks, credit risk is

the main source of vulnerability as banks are highly exposed to a few large borrowers.

1.1 Background to the Study

Corporate Governance has come to mean many things. Traditionally and at a fundamental level,

the concept refers to corporate decision making and control, particularly the structure of the

board and its working procedures. Jenifer, (2002) defines Corporate Governance as a set of

interlocking rules by which corporations, shareholders and management govern their behaviour.

In each country, this is a combination of a legal system that sets some common standards of

governance and systems of behaviour determined by firms themselves.

Employee competence According to Moor, Cheng & Dainty (2002) is what people need to be

able to perform a job well. Its an ability to meet reporting expectations in a role and deliver the

required results. Competencies include specific skills, knowledge, attitude, behaviors and

techniques which include expertise resulting from training and experience necessary to fulfill a

task. Pearce & Robinson (1996) noted that, a Bank is said to be competent if its management

demonstrates a good knowledge of the industry in terms of how to position the Bank in the

market, how and where to mobilize the startup and or growth capital and how to deal with

suppliers and competitors.

Information inductance is the extent to which a persons behaviour is affected by the information

they are required to communicate. For example, the directors of a company required to produce

an annual report and accounts (Pearce & Robinson, 1996) may emphasize the favourable aspects

of the financial reporting and may even adopt creative accounting.

According to Morck, Shleifer and Vishny (1989), among the main factors that support the

stability of any countrys financial system include: good corporate governance; effective

marketing discipline; strong prudential regulation and supervision; accurate and reliable

accounting financial reporting systems; a sound disclosure regimes and an appropriate savings

deposit protection system.

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1.2 Statement of the problem

Financial reporting purport to communicate a true and fair view of the financial position,

reporting and cash flows of a business entity so that the same is useful to the stakeholders for

making proper economic decisions. The managers can however manage the financial reporting

by exploiting the flexibilities in GAAP like those in accruals, by going beyond GAAP, or even

by taking real economic decisions to mislead the stakeholders. In order to enable the

stakeholders to take correct economic decisions and to win their confidence on the business

entity, it becomes necessary to assure that its financial reporting are not managed to give them a

look as desired by the manager.

Banks act as the custodian of public deposits. Therefore, public confidence is utmost important

for their stability and growth. Any slightest loss of public confidence on a bank can bring in bank

failures, which can convert into a worldwide contagion in no time. Since loss in public

confidence can arise from any small adverse news about the financial reporting or position of

banks and the severity of its impact can be greater than that in any other industry, it becomes all

the more important to assure the credibility of the financial reporting of banks. Despite of the

financial reporting support systems provided for in the banks, reporting is increasingly declining

in most banks as profit after tax reduced by 69% to Fr. 7.2 billion from Fr. 9.2 billion in 2012

(Various annual bank reports, 2012). This could be due to poor corporate governance and poor

financial reporting among other reasons. This study therefore will investigate the relationship

between corporate governance, employee competence, information inductance and financial

reporting in commercial banks in Rwanda.

1.3 Purpose of the Study

To examine the relationship between corporate governance, employee competence, information

inductance and financial reporting of commercial banks in Rwanda

1.4 Objectives of the Study

i) To examine the relationship between corporate governance and financial reporting.

ii) To examine the relationship between corporate governance and employee competence.

iii) To establish the relationship between corporate governance and information inductance

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iv) To examine the factor structure of corporate governance, employee competence,

information inductance and financial reporting.

1.5 Research questions

i) What is the relationship between corporate governance and financial reporting?

ii) What is the relationship between corporate governance and employee competence?

iii) What is the relationship between corporate governance and information inductance?

iv) What is the relationship between corporate governance, employee competence,

information inductance and financial reporting?

1.6 Scope of the Study

1.6.1 Subject Scope

The study will concentrate on corporate governance, employee competence, information

inductance and financial reporting of commercial banks in Rwanda.

1.6.2 Geographical Scope

The study will be carried out in Kigali City, focusing on Fina Bank, Development Bank of

Rwanda, Bank commercial du Rwanda, Bank Populaire du Rwanda.The Commercial Banks are

concentrated in the City centre.

1.6.3 Time scope

The researcher will review documents from 2005 to 2012 .The timeline to conduct the study will

be from April to September, 2013.

1.7 Significance of the Study

The study will be beneficial to the following people:

i. Academic: The study will benefit to other scholars who will conduct studies in related

field in the future.

ii. Industry :The research will benefit Banking sector in Rwanda through providing

information on the influence of information inductance on internal controls,

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iii. The research will help the policy makers like government to formulate policies that will

improve on the performance of the banking sector.

1.8 Conceptual Framework

Description of the conceptual framework

The conceptual framework explains the underlying process, which is applied to guide this study.

Gavin & Geoffrey, (2004) measured corporate governance through (board size, policy and

decision making, board roles, and ownership concentration) and Parasuraman et al., (1988), used

the SERVQUAL model with five dimensions; transparency, accountability, Ethical conduct,

business culture and power, representing corporate governance and financial reporting. Munene

(2005),Employee competence operant , used dimensions like cognitive skill, skills, experience

,knowledge, attitudes, behavior to measure employee competence and financial reporting.Sejjaka (2008), information inductance and financial reporting considered four dimensions

(illegal acts, independence, smoothing and accounting system).

Corporate GovernanceTransparency

Accountability

Ethical conduct

Board size

Board roles

Ownership

concentration

Employee competenceCognitive skill

Skills

Experience

Knowledge

Attitudes

Behavior

Financial reportingAccuracy

Reliability

Comprehensiveness

Timeliness

Dependency

Consistency

Comparability

Relevance

Information InductanceIllegal acts

Smoothing

Accounting system

Window dressing

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1.9 Literature Review

1.9.1 The relationship between Corporate Governance and Financial Reporting

1.9.1.1 Corporate Governance

Corporate governance is referred to the manner in which the power of an organization is

exercised in the stewardship of the Corporations total portfolio of assets and resources with the

objective of maintaining and increasing shareholders value with the satisfaction of other

stakeholders in the context of its corporate mission (Private Sector Corporate Governance trust,

(1999). The committee on the financial aspects of corporate governance (the Cadbury

Committee), defines corporate governance as the system by which companies are directed and

controlled. Corporate Governanceis both about ensuring accountability of management in order

to minimize downside risks to shareholders and about enabling management to exercise

enterprise in order to enable shareholders to benefit from upside potential of firms Keasey and

Wright, (1993), Tricker, (1984). Gedajlovic et al., (2004) extend an agency perspective on

governance to suggest that particular blend of incentives, authority relations and norms of

legitimacy in founder firms interacts with the external environment to affect the nature and pace

of learning and capability development.

Zahra and Filatochev, (2004) argues that corporate governance systems and organizational

learning are independent, and in some cases may substitute or complement each other. Thedecision making style of the board has been linked to corporate reporting Pearce and Zahra,

(1991). Prior research has investigated the immergence of corporate governance in developing

economies in the context of corporate governance reforms, Rwegasira, (2000) has examined

Africa.

Krambia and Psaros (2006) investigated the implementation of Corporate Governance principles

in an emerging economy of Cyprus and the findings indicated only a minimal impact unless it is

supported by other initiatives. Further noted that Cyprus was making serious endeavors to

improve the corporate governance of its listed companies.

Solomon et al., (2000, 2003) argues that for developing countries to be internationally

competitive and attract foreign capital they need to adopt commonly accepted standards of

corporate governance implies standards based on the Anglo-Saxon model. Rwegasira (2000)

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states that for the Anglo- Saxon model to be effective, company shares need to be owned by

widely dispersed owners.

The Organisation of Economic Co-operation and Development (OECD), (2004) provides the

most authoritative functional definition of Corporate governance:

Corporate governance is a system by which business corporations are directed and controlled.

The 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 of attaining those objectives and monitoring reporting.

Witherell ,(2004) noted that regional roundtables on corporate governance set up in partnership

with the world Bank have allowed the OECD principles to become a widely accepted global

benchmark that is adaptable to varying social, legal and economic contexts in individual

countries.

Indeed the outcome of a survey by Mckinsey in collaboration with the World Bank in June 2000

attested to the strong link between corporate governance and stakeholders confidence (Mark,

2000).

Corporate governance is important because it promotes good leadership within the corporate

sector. Corporate governance has the following attributes; leadership for accountability and

transparency, leadership for efficiency, leadership for integrity and leadership that respects the

rights of all stakeholders, Institute of Corporate Governance of Rwanda, (2000). Lack of sound

corporate governance has enabled bribery, acquaintance and corruption to flourish and has

suppressed sound and sustainable economic decisions. Some key pillars (Private Sector

Corporate Governance trust, (1999) on which good governance is framed include;

The institution must be governed with a framework which should provide an enabling

environment within which its human resources can contribute and bring to bear their full creative

powers towards finding solutions to shared problems.

Rossette,(2002) carried out the extent to which board composition affects team processes,

(orientation, communication, feedbacks, coordination, leadership and monitoring), board

effectiveness and reporting of the commercial financial institutions in Rwanda.

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Matama, (2005) used three basic tenets of Corporate governance; transparency, disclosure and

trust in relation to commercial bank financial reporting in Rwanda which is a profit making

organization.

Masibo, (2005) focused on the board structure and board process in relation to state owned

corporations set for divestiture and those listed on Rwanda securities exchange which are profit

making.

In line Gavin and Geoffrey (2004), the current study focuses on board size, policy & decision

making as indicators of Corporate Governance in relation to board roles, contingency, board

effectiveness and financial reporting of banks in Rwanda.

The concept of accountability though not listed in the scope of the study the accountability

concept cannot be overlooked when reviewing corporate governance literature. Accountability

relationships occur in every sector of the society including the commercial sector (Wheelers,

2000). Where there is inadequate accountability resources will be used inefficiently and

ineffectively; thus, inadequate accountability can result in devastating consequences for millions

of people and compromising the operations of an organization (Kluver, 2001). Accountability is

multifaceted and complex, at the heart of which is the notion of one party rendering an account

of the use of resources to another party. Gray and Jenkins (1993) have the opinion that

accountability is an obligation to present an account of and answer for the execution of

responsibilities to those who entrusted those responsibilities, the principal/agent relationship

Kluver, (2001). Accountability forms the basis of the trust in organizations, so when

accountability relationships are undermined then our trust in organizations is damaged. While

accountability might at first seem to be easily defined the reality is that it is a complex

multifaceted concept. Much of the earlier researches focused on accountability as measure of

Corporate governance, this study is focused on board size, policy and decision making.

Board size

When the board has adopted a clear view of its responsibilities in governing the company, the

directors can then move to discuss and agree the most effective way of structuring the board.

Consideration could be given to the size of the board itself; is the board too small or too large to

adequately fulfill its requirements, given the size and complexity of the organization? The

balance of the executive and non-executive directors and whether independent directors are

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necessary is another structural issue to consider. Likewise does the board have the optimal skills

mix to deliver effective governance considering the nature of the company governed? Depending

on the circumstances, the board may benefit from having a member with industry experience,

legal expertise or perhaps a director representative of stakeholder. Gavin and Geoffrey, (2004).

Board size defined as the total number of directors on a board (Panasian et al., 2003), has been

regarded as an important determination of effective Corporate governance (Bonn et al., 2004).

The optimal board size according to Goshi et al., (2002) includes both the executive directors

and non executive directors.

Forbes and Daniel (1999) argued that although board size is not truly a demographic attribute, it

is unlikely to have effect on board functioning. Despite the considerable amount of effort in

research on board size for more than a decade there is still lack of consensus among researchers

on its relevancy. This inconclusive nature in board size research quality and experience of

independent directors on the board than sheer numbers of individuals (Keegen & Gilmour,

2001).

There has been considerable debate on whether large boards perform better than smaller boards.

Daily (1995) argue that greater number of directors might increase available expertise and

resource pool while Bonn et al., (2004) contends expanding the size of the Board provides an

increased pool of expertise, information and advice quality not obtained from other corporate

staff. In contrast, the difficulty inherent in coordinating the contributions of many members can

be complex, hindering them to use their knowledge and skills effectively (Forbes & Daniel 1999,

Epstein et al., 2004).

From agency perspective, increase in board increases the Boards monitoring capacity but costs

that accrue from large boards may facilitate CEO dominance over board members. For instance

large boards have difficulty in building the interpersonal relationships that further cohesiveness,

or maintain high board effort norms owing to social loafing that exists in large boards (Forbes &

Daniel, 1999). Studies such as Bonn et al., (2004) have also supported previous authors and

concluded that when the board size is very large, the disadvantages such as lack of cohesiveness,

coordination difficulties and fractionalization are most severe and they became less prevalent as

board size decreases. In contrast very small boards cannot enjoy the advantages of the pool of

expertise, information and advice of a larger board and these benefits emerge when the board

becomes larger. To date there are still wide views on an optimal board size. According to

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Leblanc & Gillies (2003), an 8-11 persons board may be considered optimal. In a recent study by

Epstein et al., (2004), a board of 9-13 members is typically right for most companies but too

small for large ones. Goshi et al., (2002) considered an average of 16 directors (3 within and 13

outside directors) to be appropriate for larger companies, though respondents in this study

believed that 12 is the most effective board size. The study by Connelly & Limpaphayom (2003)

revealed that the average board size of insurance firms in Thailand was 10 but ranged from a low

number of 4 members to a high number of 16 members. The current study is focused on Board

size in terms of the number of University Council and Senate Members as stipulated by the

Statute.

Policy and decision making

The final function that a board needs to consider is its duty with respect to delegating authority.

Given the complexity of the business environment, it is impossible for the board to be the sole

decision making body in the company. Instead, each board needs to work on developing an

appropriate method and level of delegation of authority. Obviously this will again vary with the

context facing the board but, in all circumstances, the board needs to clearly articulate and

document the delegations it makes Gavin and Geoffrey, (2004).

Board roles

Board effectiveness occurs via the execution of roles set that is conceptualized by different

researchers in different ways Hung, (1998), Johnson et al, (1996), Lipton and Lorsch, (1992).

What is clear is that the roles of the board have evolved over time. Defining a clear role set is

difficult as different disciplines concentrate on different areas of interest. Pettigrew, (1992)

identified six themes of academic research on the role of managerial elites such as chairpersons,

presidents, Chief executive Officers (CEOs) and Directors. These include the study of

interlocking directorates and the study of institutional and societal power, the study of boards

and Directors, the composition and correlation of top management teams, studies of strategic

leadership, decision making and change, CEO compensation and CEO selection and succession.

There are, however board roles that receive board support Gavin and Geoffrey, (2004) as

explained below.

Contingency, board roles and board effectiveness

While all boards are required to undertake activities within the spectrum of this roles set, they

contend that each organization will need a different emphasis among these roles. Thus, there is

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need to explicitly incorporate a contingency perspective Heracleous, (2001), Donaldson and

Davis, (1994), Johnson et al, (1996). Since a particular board composition or behavior that is

advantageous for one corporation may prove inappropriate or even detrimental in another

Heracleous, (2001). There is need to identify the control variables and gaps in understanding

how the board can impact on firm performance.

The particular contingencies that will impact on board roles corporate performance would

include organizational size Daily and Dalton, (1992), Dalton et al,(1999), diversity Siciliano,

(1996), management experience Coulson- Thomas,(1993) industry turbulence, industry lifecycle,

and firm lifecycle Johnson, (1997). It is these contingencies that moderate the relationship

between board roles and board effectiveness. Thus the current study includes external and

internal contingencies to moderate the relationship between board role execution and board

effectiveness.

This study will use management experience, University turbulence, University lifecycle as

contingencies that will impact on board roles and corporate performance.

Board effectiveness

Individuals perceive effectiveness partially or in different ways. The social constructionists

conception, for instance, holds that there only judgments of effectiveness, thus effectiveness are

judgmental (Herman et al., 1997). According to Triscott, (2004) effectiveness is about doing the

right things to achieve the results. In terms of measurement, Novick (1997) suggests that thecurrent approaches measure elements associated with effectiveness rather than effectiveness

rather than effectiveness itself. Board effectiveness can be conceptualized as a function of overall

contribution of the board to the organization performance, standard of support provided by the

organization, individual contribution of directors to organization performance, board dynamics,

Board performance evaluation and review Van der Walt and Ingley, (2001). Close inspection of

earlier literature revealed that board effectiveness is almost based on individual experience

Jackson & Holland, (1998). According to Higgs & Dulewicz (1998), the issue of measuring team

outcomes is a difficult one and the literature abounds with debates around team performance,

which mirror those surrounding organizational performance. However, while there are various

definitions of group effectiveness, Huat & David (2001) argue that board performance has been

measured along the dimension of the boards ability to perform its functions. Indeed, an earlier

study by Forbes & Daniel (1999) defined board effectiveness as the boards ability to perform its

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control and service tasks effectively. From empirical perspective, Bardwaji & Vuyyuri (2003)

found that overall judgments by respondents of board effectiveness were strongly related to how

effectively the boards were judged to perform various functions.

Basing on the above literature, it fairly holds that board performance has been largely defined in

terms of roles played by the BODs. These roles have been identified from various perspectives

including; agency, service, resource dependency, legal and strategic theories. However, some of

these perspectives are interrelated, for instance resource dependency, service and strategy,

agency and legal. Using these perspectives, the following roles have been identified;

Skills and knowledge

Presence and use of skills and knowledge has been identified as another important dimension of

board effectiveness. Board members must have the right mix of skills and knowledge. For

instance, they should possess both functional knowledge in traditional areas of business such as

accounting, finance, legal or marketing as well as industry specific knowledge that will enable

members to truly understand specific company issues and challenges. In addition, board

members must have enough general knowledge to provide good input on all topics of discussion,

ask questions of all special interest until they are comfortable enough to cast votes Espstein et al,

(2002). Thus, for boards to work effectively, Nicholson & Geoffrey (2004) emphasize that board

members must possess necessary knowledge and skills, given the unique nature of their tasks.

Similarly, for a board to effectively perform the supervisory role, it should be composed in amanner that enhances the presence of skills and knowledge Namisi, (2002).

Committees

Significant research effort has focused on the impact of committees, Klein , (1989), most notably

the audit committee Klein, (2002), remuneration committee Conyon and peak, ( 1989) and

nominating committee Vafeas, (1999) with findings that there is a link between the presence of

board committees and board effectiveness. A committee is a group of members to whom some

specific role has been delegated by a full board. Committees can be used to gather, review and

summarize information and report back to the full board for decision or can be delegated specific

decision making powers, Gavin and Geoffrey, (2004).

Delegation

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The final function that a board needs to consider is its duty with respect to delegation authority.

Given the complexity of the business environment, it is impossible for the board to be the sole

decision- making body in the company. Instead, each board needs to work on developing an

appropriate method and level of delegation of authority. Obviously this will again vary with the

context facing the board but, in all circumstances, the board needs to clearly articulate and

document the delegations it makes Gavin and Geoffrey, (2004).

Risk management

Risk management includes the identification of all significant risks faced by the company and

ensuring that appropriate policies are in place to moderate the impact of these risks Klein,

(2004). This study will focus on council committees like appointments board committee, staff

welfare committee, students welfare committee and Finance tender and general purposes

committee and the roles delegated by council to the committees. Appropriate policies put in

place to moderate the impact of risks in public Public Universities will be considered

Ownership concentration

This is another element of corporate governance mechanism examined in this study. It refers to

the proportion of a firms shares owned by a given number of the largest shareholders .A high

concentration of shares tends to create more pressure on managers to behave in ways that are

value maximizing .in support of this argument ,Gorton and Schmid (1996),Shleifer and Vishnu

(1997),Morck et al.(1998),and Wruck (1998)suggest that at low levels of ownership

concentration , an increase in concentration will be associated with an increase in firm value, but

that beyond a certain level of concentration ,the relationship might be negative .

Other studies such as Renneboog (2000) reported results not totally in agreement with the

hypothesis of a positive relationship. Using a set of variables suggested by Agrawal and Knoeber

(1996), the author reported no evidence to support the hypothesis of a positive relationship

between firm performance and ownership concentration .Holderness and Sheehan (1988) find

little evidence that high ownership concentration directly affects performance.

1.9.1.2 Financial Reporting

Financial soundness is a situation where depositors funds are safe in a stable banking system.

The financial soundness of a financial institution may be strong or unsatisfactory varying from

one bank to another BOU, (2002). External factors such as deregulation; lack of information

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among bank customers; homogeneity of the banbusiness, connections among banks do cause

bank failure.

The role of corporate governance has been gaining momentum over the past two centuries.

Although initially established as a legal requirement for incorporation, corporate governance has

become a critical link between firms and those who have vested interests in the firm. Vinten

(1998) states that corporate governance is needed not only to protect the interests of the

stockholders but also other stakeholders. Corporate governance is mandated to ensure the

interests of public sector and private-sector organizations are represented. In addition, corporate

governance aids in securing confidence not only for stockholders but also for other stakeholders

such as customers, suppliers, employees, and the government in ensuring that firms are

accountable for their actions.

Some useful measures of financial performance, which is the alternative term as financial

soundness, are coined into what is referred to as CAMEL. The acronym "CAMEL" refers to the

five components of a bank's condition that are assessed: Capital adequacy, Asset quality,

Management, Earnings and Liquidity. A sixth component, a bank's Sensitivity to market risk was

added in 1997; hence, the acronym was changed to CAMELS.

Note that the bulk of the academic literature is based on pre -1997 data and is thus based on

CAMEL ratings.

Ratings are assigned for each component in addition to the overall rating of a bank's financial

condition (Jose, 1999). Capital Adequacy: This ultimately determines how well financial

institutions can cope with shocks to their balance sheets. The bank monitors the adequacy of its

capital using ratios established by The Bank for International Settlements. According to bank of

Rwanda, (2002) Capital adequacy in commercial banks is measured in relation to the relative

risk weights assigned to the different category of assets held both on and off the balance sheet

items.

Asset Quality

The solvency of financial institutions typically is at risk when their assets become impaired, so it

is important to monitor indicators of the quality of their assets in terms of overexposure to

specific risks trends in non- performing loans, and the health and profitability of bank borrowers

especially the corporate sector. Credit risk is inherent in lending, which is the major banking

business. It arises when a borrower defaults on the loan repayment agreement. A financial

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institution whose borrowers default on their repayments may face cash flow problems, which

eventually affect its liquidity position.

Ultimately, this negatively impacts on the profitability and capital through extra specific

provisions for bad debts Bank of Rwanda, (2002).

Earnings: The continued viability of a bank depends on its ability to earn an adequate return on

its assets and capital. Good earnings performance enables a bank to fund its expansion, remain

competitive in the market and replenish and /or increase its capital.

A number of authors have argued that, banks that must survive need higher Return on Assets,

better return on net worth/Equity, sound capital base i.e. the Capital Adequacy Ratio, adoption of

corporate governance ensuring transparency to stakeholders that is equity holders, regulators and

the public.

Liquidity: Initially solvent financial institutions may be driven toward closure by poor

management of short-term liquidity. Indicators should cover funding sources and capture large

maturity mismatches. An unmatched position potentially enhances profitability but also increases

the risk of losses according to the Rwandan Banker, (June 2001). The M represents

Management, given that this paper is hinged on financial performance, the management

component in not considered in the measure.

The National Commission on Fraudulent Financial Reporting (Treadway Commission, 1987)

performed a landmark study of fraudulent financial reporting. One of the Commissions three

major objectives was to identify attributes of the corporate structure that may contribute to the

incidence of fraudulent financial reporting. The majority of the Commissions recommendations

for the public company deal with strengthening aspects of the corporate governance structure,

particularly in the areas of internal audit and the audit committee (Treadway Commission 1987,

Chapter 2). The Committee of Sponsoring Organizations (COSO) of the Treadway Commission

supported follow-up research that investigated fraudulent financial reporting during the period

1987-1997 (Beasley, Carcello, and Hermanson 1999). Consistent with the findings of the

Treadway Commission (1987) report, this report indicates that top management involvement in

the fraud and the presence of a weak audit committee and board of directors are common fraud

factors.

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This study contributes to the corporate governance literature by analyzing descriptive corporate

governance variables that have not been thoroughly examined in prior studies. These variables

are important because they provide a more thorough description of the composition, activity, and

overall quality of the corporate governance structure. The sample period examined in this study

precedes the 1999 amendment of listing requirements made by the national stock exchanges.

This timing provides an opportunity to examine the effects of certain corporate governance

mechanisms (e.g., financial literacy, quality of corporate charter) in a period before these

mechanisms were mandated.

Relevance

Relevance makes accounting information useful for decision making .to be relevant information

must be capable of making a difference in a decision, Khomsiya(2010). It needs predictive or

feedback value presented on a timely basis.

Relevant information helps users predict the ultimate outcome of past ,present and future events,

helps users to confirm or correct prior expectations and available to decision makers before it

loses its capacity to influence their decisions, Breda 1992.

Reliability

Reliability is necessary because most users have neither the time nor the expertise to evaluate the

factual content of the information, Palepu(2001).the information is reliable to the extent that it is

verifiable, is a faithful representation and is reasonably free of error and bias. Verifiability occurs

when independent measures, using the same method obtain similar results. Representation

faithfulness means the numbers and descriptions match what really exited or happened,

Healy(2001).

Comparability

Information that is measures and reported in a similar manner for different companies is

considered comparable (Wulandari,2007).Comparability enables users to identify the realsimilarities and differences in economic events between companies.

Consistency

Companies show consistent using of accounting standards when they apply the same accounting

treatment to similar events.

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The convention of consistency means that same accounting principles should be used for

preparing financial statements for different periods. It enables the management to draw important

conclusions regarding the working of the concern over a longer period. It allows a comparison in

the performance of different periods. If different accounting procedures and processes are used

for preparing financial statements of different years then the results will not be comparable

because these will be based on different postulates. The concept of consistency does not mean

that no change should be made in accounting procedures. There should always be a scope for

improvement but the changes should be notified in the statements. The impact of changes of

procedures should be clearly stated. It will enable the readers to analyze information according to

new procedures. In the absence of any information regarding the change, it will be presumed that

old methods have been used this time also. Whenever, consistency is not followed this fact may

be fully disclosed. For example, if a change in the method of chargingdepreciation is made or a

change is made in the method of allocating overhead expenses to different products, a foot note

to the financial statements should be given indicating the extent of change. If possible, net

monetary effect of these changes should also be given. Consistency may be of three types:

vertical consistency, horizontal consistency and third dimensional consistency.

The vertical consistency is maintained within inter-related financial statements of the same

period. If a change has been made in dealing with two aspects of the same statement then it will

be vertical inconsistency. For example, if one method of depreciation is used while preparing

profit and loss account and another method is followed while preparing balance sheet, it will be a

case of vertical inconsistency. When figures of one financial year are compared with the figures

of another financial year of the same organization it will be a case of horizontal consistency.

Third dimensional consistency will arise when financial statements of two different

organizations, in the same industry, are compared. (Accounting and Financial Management;

2003)

Corporate governance has also been linked to fraudulent financial reporting. Dechow et al (1996)

determined that the incidence of fraud is highest among firms with week corporate governance

systems. Further he finds that fraud firms are more likely to have Boards dominated by insiders

and are less likely to have an audit committee to be used to predict which forms are more likely

18
http://en.wikipedia.org/w/index.php?title=Accounting_principles&action=edit&redlink=1http://en.wikipedia.org/wiki/Financial_statementhttp://en.wikipedia.org/wiki/Depreciationhttp://en.wikipedia.org/wiki/Depreciationhttp://en.wikipedia.org/w/index.php?title=Accounting_principles&action=edit&redlink=1http://en.wikipedia.org/wiki/Financial_statementhttp://en.wikipedia.org/wiki/Depreciation


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to be involved in fraudulent activities. Financial reporting constitutes an integral part of

corporate governance; can provide pressure for improved financial performance.

1.9.2 Relationship between Corporate Governance and Employee Competence

1.9.2.1 Employee competence

Employee competencies are sets of knowledge, skills, behaviors and attitudes that contribute to

personal effectiveness (Hellriegel et al., 2008). This is supported by Henderson (2000) who

defines a competency as a combination of knowledge and skills required to successfully perform

an assignment. Its attainment is evidenced by the ability of an individual to gather data, process it

into useful information, access it and arrive at an appropriate and useful decision in order to

initiate the actions necessary to accomplish the assignment in an acceptable manner.

The Hay Group (2003) puts it that, a competency is an underlying characteristic of a person

which enables him/her to deliver superior performance in a given job, role, or situation Lenssen

et al (2006) noted that, defining the competencies required for any particular job role allows

managers and those responsible for their development, to grasp what is required to reach

improved levels of excellence and performance by providing a common framework which

articulates the skills, knowledge and attitudes relevant to successful business practice. Boyatzis(1982) urged that, in the era of competitiveness, managerial competencies emerge as a basis for

competitive edge as these are underlying characteristics of a person that have casual relationship

with superior performance. Rene. S. et al (2002) states that, competencies provide a basis for

needs assessments to help programs identify areas for program improvement. They add that,

Performance indicators operationally define each competency and that these performance

indicators identify skills, behaviors, or practices that demonstrate the existence of the

competency.

Scholars like Rychen and Salganik (2003) argued that Individuals need a wide range of

competencies in order to face the complex challenges of todays world, but it would be of limited

practical value to produce very long lists of everything that they may need to be able to do in

various contexts at some point in their lives. They went ahead and argued that, Key

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competencies are not determined by arbitrary decisions about what personal qualities and

cognitive skills are desirable, but by careful consideration of the psychosocial prerequisites for a

successful life and a well-functioning society. However they observed that though competencies

are needed to help accomplish collective goals, the selection of key competencies needs to some

extent to be informed by an understanding of shared values.

According to ACCA (2006 b), the level of managerial skill is gauged based on the level of not

only education but also natural administrative talent and practical experience possessed by an

enterprises managers in the given business area. Whereas administrative talent is measured

using the managers innate managerial capacity (Aaron & Warren, 2004), the level of education is

established basing on the educational qualification possessed by the manager and employees

(Kayongo 2005). The practical experience, which indicates the level of the SMEs industrial

knowledge, is determined in terms of period of time spent in the business which is usually

measured in terms of number of month or years spent by the SMEs in a given business

(Kayongo, 2005). The enterprise is considered to be competent if its managers are educated in

the relevant field of the enterprises business and if the managers have accumulated enough

practical experience in the field (Myers, 1997).

In a more globalized, interconnected and competitive world, the way that environmental, social

and corporate governance issues are managed is part of companies overall management quality

needed to compete successfully. Companies that perform better with regard to these issues can

increase shareholder value by, for example, properly managing risks, anticipating regulatory

action or accessing new markets while at the same time contributing to the sustainable

development of the societies in which they operate. Moreover these issues can have a strong

impact on reputation and brands, an increasingly important part of company value. Company

boards of directors are bodies entrusted with power to make economic decisions affecting the

well-being of investors capital, employees security, communities economic health, and

executive power and perquisites (Banks, 2004). Hence, boards of directors have the ultimate

internal authority within a company (Renton,

1994).

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The history of boards of directors came to the forefront of corporate life in the mideighteenth-

century in Britain, when the state or the crown created them to ensure business stability (Tricker,

1984). Prior to that time, the only way to do business was as a sole trader or partnership. Within

this simple structure, when a business became insolvent, the owner and family held all liabilities

(Tricker, 2003). When the concept of joint-stock limited companies with separate legal entities

between the owner and the company (called separation of ownership and control) was

introduced, the owner or shareholders were able to elect a manager of a firm (Garratt, 1997).

There is a relationship between corporate governance and employee competence in the sense that

the board is responsible for elaborating the human resource manuals, different organizations

policies, recruiting the competent staff who will implement the board decisions. And if these

decisions havent been done in good faith, it will affect a competent staff and can lead to this one

departure.

1.9.3 The Relationship between Corporate Governance and Information Inductance

1.9.3.1 Information Inductance

Information Inductance is a process whereby the behavior of and individual is affected by the

information he is required to communicate, Prakash et al (2009).

Since employment is viewed primarily in terms of its economic instrumentality, values that canbe realized through economic outcomes are more likely to influence work related behaviour

(Shafer, Morris and Ketchand, 2001). Academic literature is replete with studies of the

relationship between personal values and their influence on personal decisions, especially in the

organizational context (see Finegan, 1994; Akaah and Lund, 1994; Fritzsche, 1995). There is

also growing consensus that unethical behaviour in the organizational context may be understood

by examining cultures effects on peer reporting (Zhuang, Thomas and Miller, 2005; Hodge,

Hopkins and Pratt, 2006).It is expected that the more an individual values a comfortable life

and/or pleasure, and the less self respect is valued, the more likelihood that the individual would

choose a fraudulent response/course of action (Brief, Dukerich, Brown and Brett, 1996).

Using personalist phenomenology, it can be shown how the development of technical and moral

values is crucial to the long-run survival of organizations. The process of discovering peoples

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values and helping to develop their technical potential is a substantial part of the organizations

internal mission (Rosanas and Velilla, 2005), which essentially consists of building unity and

mutual trust between the members of the organization. The control process must appeal to work

(moral) values, as it is crucially important that people learn about the actions that are desirable to

the organization itself as well as to its customers. In order for us to execute an efficient control

system, we must have a reasonable understanding of the real needs of the persons responsible for

manning the accounting information system of the organization. In the personalist

phenomenology referred to by Rosanas and Velilla (2005), we begin to see a nexus between

work values and the control environment. Empirical research in self determination theory (SDT)

has also shown that that holding an extrinsic, relative to an intrinsic, work value orientation was

associated with less positive outcomes and more with negative outcomes (Vansteenkiste et al. ,

2007).

Values are an organized set of preferential standards that are used in making selections of

objects and actions, resolving conflict, invoking social sanctions, and coping with needs or

claims for social and psychological defences of choices made or proposed. Values are an

enduring belief that a specific mode of conduct or end-state of existence is personally or socially

preferable to an opposite or converse mode of conduct or end-state of existence (Rokeach,

1979, p. 5). They may be held collectively within firms, subcultures and occupational groups. It

is thus assumed that values are homogenous within groups, even though this would not preclude

conflict between different value domains. If values are viewed from the context of specific

domains, then they have a more specific meaning within that context. Values influence the way

employees see the organization and how they conform to shared perceptions. Thus in the work

domain we talk about work values which we consider to be salient, basic and influential to the

control process of the organizations accounting information environment/system. They are a

source of motivation for individuals in performing organizational roles. Work values include

intrinsic (personal growth, autonomy, interest, and creativity), extrinsic (pay and security), social

(contact with people and contribution to society) and power (prestige, authority, influence). They

are more specific than individual values in the way that they refer to goals in the work place

(Schwartz, 1999). The pursuit of power and extrinsic values is more likely to be associated with

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favourable reporting to gain influence, while intrinsic and social values would be associated with

a more professional attitude (autonomy) and openness.

Accounting systems, on the other hand, are considered to be uncertainty-reducing rituals, which

are used to construct reality through generally accepted accounting principles (GAAP). However

if accountants find themselves operating outside such a structured and measurable framework,

would their response be an effort to distort the information to suit the desired ends? The

conditions that determine the behaviour and nature of outputs depend on the ability to anticipate

the extent to which the anticipated outcomes would be desirable to the person distorting the

information (also referred to as information inductance herein). If the individual/manager can

affect the operations of the accounting information system in one or more ways, he/she can alter

the impact of the control process on him/herself. The manager will use the existence of the

information system to affect the behaviour of his superior by manipulating the nature of the

message received by the superior. It is assumed by the manager that certain messages will yield

particular behaviour by the superior, either on the basis of prior formal agreements (incentive

systems) or upon assumptions about the superiors expectations. As long as information is

generated for evaluative purposes, users and producers will attempt to manipulate it to suit their

own purposes. The behavioral responses related to information manipulation are divided into six

broad categories. These are smoothing, biasing, focusing, gaming, filtering and illegal Acts

(Birnberg, et al., 1983).

Smoothing

Smoothing occurs when employee affect the pre planned flow of information without alerting the

actual activities of the organization. Messages can be accelerated when in fact the event reported

does not even occur until some future period. While biasing suggests those situations where the

manager selects from a set of possible messages, the signal that is likely to be accepted and is

most favorable to him/her. (Goddard, 1997).

Illegal acts

Illegal acts violate private (organizational rules) or public laws. Where administrative rules can

prevent securing a more beneficial position, managers can manipulate reported data to achieve

their reporting goals. (Ssejjaka,2010).

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Window dressing

A strategy used by mutual fund and portfolio managers near the year or quarter end to improve

the appearance of the portfolio/fund performance before presenting it to clients or shareholders.

To window dress, the fund manager will sell stocks with large losses and purchase high flying

stocks near the end of the quarter. These securities are then reported as part of the fund's

holdings. (Investopedia,2nd May 2013 )

Accounting system

Accounting is the art of recording, summarizing, reporting, and analyzing financial transactions.

An accounting system can be a simple, utilitarian check register, organized set of manuals,

computerized accounting methods, procedures and controls established to gather, record, andclassify financial transactions.

There is a relationship between corporate governance and information inductance because it is

the governance which influences the quality of the records if they compromise on the quality of

the financial statement, there will be information inductance. (Sejjaaka, 2010).

1.9.4. The Factor Structure of Corporate governance, employee competence, information

inductance and Financial ReportingCorporate governance is increasingly becoming a global concern because organizations with

good governance are likely to focus on the competencies of their employees to give them

competitive advantage since it is the employees who are in charge of the organization operations

(Rychen and Salganik ,2003; Krambia and Psaros,2006; Triscott,2004). Organizations with good

corporate governance, work values and ethics minimize information inductance which in most

cases affects the financial reporting, company image (Sejjaka ,2010, Shafer, Morris and

Ketchand, 2001). Corporate governance is needed not only to protect the interests of thestockholders but also other stakeholders. Corporate governance is mandated to ensure the

interests of public sector and private-sector organizations are represented. In addition, corporate

governance aids in securing confidence not only for stockholders but also for other stakeholders

such as customers, suppliers, employees, and the government in ensuring that firms are

accountable for their actions (Vinten ,1998,) .

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There is a relationship between corporate governance, employee competence, information

inductance and financial reporting since worldwide businesses thrive, attract resources, markets

because of the sound financial practices (Jose, 1999).

1.10 Research Methodology

1.10.1 Research Design

The research design will be a cross sectional, descriptive using qualitative and quantitative

approaches. Qualitative approaches will be used to have a deep understanding of the

phenomena under the study. The importance of quantitative techniques will be to generate

numerical data using the questionnaire

1.10.2 Area of Study

The study will be carried out in Kigali among headquarters of the Commercial Banks .

1.10.3 The study population

All employees of Commercial Banks departments comprising marketing and PR, Internal Audit,

account clerks, customers, secretaries, drivers, security officers and messengers

constituted the target population.

1.10.4Sampling techniques

Stratified sampling technique will be used in selecting the departments to participate in the study

and simple random sampling will be used in selecting the respondents from stratified

departments. Purposive sampling will be used in selecting the managers to participate in the

study.

1.10.5 Sample size

A sample size of 343,000 customers, 172 bank staff members will be used as determined from

Krejcie and Morgan (1970) table. Proportionate stratified random sampling will be used to selectthe sample of 406 respondents in 4 commercial banks as shown in Table 2 below.

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Table 2: Proportionate Stratified Random Sampling

Bank/ Stratum No. of staff banks Sample

Size

No. of customers

'000

Sample

SizeFina Bank Rwanda 30 27 45 34

Development Bank of

Rwanda

35 29 50 42

Bank Commercial du

Rwanda

62 50 98 75

Bank Populaire 95 36 150 113

Total 222 142 343 264

Source: primary data

1.10.6 Sources of Data

The researcher collected/got data from both primary and secondary sources.

Primary Data

This data will be collected from the respondents using the research tools.

Secondary data

The data will be collected will be got from journals, books, magazines, internet, news papers and

any other information that is talking about training and employees reporting.

1.10.7 Research instruments

Questionnaire

The researcher will use both closed ended and open-ended questionnaires to collect data from

respondents.

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Key Informative Interviews

Unstructured questions will be used by the researcher in interviewing key respondents like

managers who are gate keepers of information.

1.10.8 Validity and ReliabilityTo ensure the validity and reliability of the instrument, the researcher will employ expert

judgment method. After constructing the questionnaire, the researcher will contact experts in this

area to go through it to ensure that the instrument is clear, relevant, specific and logically

arranged. Also a pre-test will be conducted in order to test and improve on the reliability and

validity of the instrument.

A formula for Lawshe will be used to measure the validity of research, as indicated below:

CVR = (n - N/2) / (N/2)

CVR= Content Validity Ratio, n= number of respondents indicating essential, N total number

of respondents.

Inter-rater reliability will be employed. To calculate this kind of reliability, the researcher will

report the percentage of agreement on the same subject between his raters and that of the

assistants.

1.10.9. Measurement of the Variables

Corporate governance will be measured using the 5 Likert Scale using strongly disagreeto strongly agree , Allan & Meyer (1990),MacDonald (1970)

Employee competency will be measured using Munene 2005 Competence Operant

which measures it using 5 Likert scale of strongly disagree to strongly agree

Information inductance will be measured using a 4 point interval Likert scale ranging

from strongly disagree to strongly agree ,Thurston (2006)

Financial Reporting will be measured using 5 Likert scale of strongly disagree to strongly

disagree, Burke (2010).

1.10.10 Ethical Consideration

Before embarking on the data collection process, the researcher will obtain an introductory letter

from Cavendish University. This letter will be then presented to the Banks of concern. After

getting the clearance from the Banks human resource managers, the researcher will obtain the

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knowledgeable consent from the respondents and inform them about the purpose of the study.

The data will be aggregated to avoid having data being related to an individual and the

questionnaires will be destroyed after data analysis.

1.10.11 Data AnalysisThe data will be collected from the field coded, edited and analyzed using descriptive analysis

options of SPSS version 11.0. The data will then be presented using Pearsons correlations

statistical techniques which are used to test and establish whether there exists a relationship

between corporate governance, employee competence, information inductance and financial

reporting while multiple regression analysis was used to test the potential predictors of the

dependent variable.

1.10.12 Limitation likely to be encountered during the study

i) Confidentiality and data sensitivity: some respondents declined to give information for fear of

releasing personal and confidential information.

ii) Time constraints: The problem may arise from the respondents who dont have the

researchers time to attend to interviews and even fill in the questionnaires. This may lead to

limited information from the respondents.

iii) Some respondents may be unable to complete the questionnaire by themselves because of

failure to interpret the questions.

iv) Attritions: some respondents may interpret questions differently and others may have their

own biases which may affect the quality of the responses

References:

Abowd, J. M. and Kaplan, D. S. (1999), Executive Compensation: Six Questions That Need

Answering,Journal of Economic Perspectives, Vol.13, pp: 145-168.

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ACCA. (2002).Audit and internal review.London: BPP Holdings Plc

Advisory Group on corporate governance (AGCG) (2001), Report on corporate governancen

and International Standards, Reserve Bank of India

Allen, F. and Gale, D. (2000), corporate governance and Competition in Xavier Vives (ed :)

corporate governance: Theoretical and Empirical Perspectives, Cambridge: Cambridge

University Press.

Arun, T.G and Turner, J. D. (2002c), Financial Liberalization in India, Journal of

International Banking Regulation (Forthcoming)

Basel Committee on Banking Supervision (BCBS) (1999) Enhancing corporate governance for

Banking Organizations, Bank for International Settlements, Switzerland.

Boot, A.W.A and Thakor, A.V (1993) Self-Interested Bank Regulation American Economic

Review, Vol.83, No.2, pp.206-212.

Cadbury, A. (2002, 1999). Corporate Governance and Chairmanship. Oxford University Press

Capiro, G, Jr and Levine, R (2002), Corporate Governance of Banks: Concepts and

International Observations,paper presented in the Global Corporate Governance Forum

research Network Meeting, April 5.

Claessens, S., Demirguc-Kunt, A. and Huizanga, H. (2000), The Role of Foreign Banks in

Domestic Banking Systems in S. Claessens and M.

Delloitte,(2003) Meeting new standards regarding governance and supervision. London:

Delloitte and Touche.

Jansen, (eds.) The Internationalization of Financial Services: Issues and Lessons for Developing

Countries, Boston, MA: Kluwer Academic Press. Demsetz, R. S., Saidenberg, M. R. and

Strahan, P. E. 1996.Banks With Something to Lose: The Disciplinary Role of Franchise

Value,Federal Reserve Bank of Minneapolis Quarterly

Millstein, &Avoy, M. (2003).The recurrent crisis in corporate governance.Carlifinia: Stanford

Business books.

Sejjaaka,S(2010) Work values and inductance of accounting

information in an emerging market, Makerere Business Journal ,2010, Vol 10,No.1,p72

Shleifer, A. and Vishny, R. (1997), A Survey of Corporate Governance, Journal of Finance,

Vol.52, pp: 737-783.

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Stiglitz, J. E. (1994), The Role of the State in Financial Markets, Proceedings of the World

Bank Annual Conference on Development Economics 1993, pp.19-52

Stiglitz, J.E (1999) Reforming the Global Financial structure: Lessons from Recent Crises,

Journal of Finance, Vol.54, No.4, pp.1508-22.

Vives, X. (2000) Corporate Governance: Does it Matter, in Xavier Vives (ed.) Corporate

Governance: Theoretical and Empirical Perspectives, Cambridge: Cambridge University

Press.

Appendix I - Research Instrument

1. QUESTIONNAIRE TO RESPONDENTS

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Dear Sir/ Madam

I am a candidate for Masters Degree of Business Administration at Cavendish University

Rwanda and currently pursuing a Thesis entitled corporate governance, employee competence,

information inductance and financial reporting among Commercial Banks in Rwanda. In view of

this empirical investigation, may I request you to be part of this study by answering the

questionnaires? Rest assured that the information that you provide shall be kept with utmost

confidentiality and will be used for academic purposes only.

As you answer the questionnaire, be reminded of respond to the items in the questionnaire thus

not leave any item unanswered. Further, may I retrieve the filled out questionnaire within 5 days

from the date of distribution?

Thank you very much in advance

Yours faithfully

CPA Olive Mukankwaya

SECTION A: PROFILE OF RESPONDENTS

Please fill in and use a tick() to indicate your response, (where applicable)

1. Age:

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2. Sex: ..

3. Qualification

Masters

Degree

Bachelors

Degree

Diploma Secondary

school

Primary

School

Other specify

1 2 3 4 5 6

4. Professional training (e.g.)

CIPS CPA CPS ACCA NEVI Other specify

1 2 3 4 5 6

5. How long have you worked with the company?

Please rate /indicate/ tick() appropriately your response with respect to the importance

of the statements below:

1.

I strongly disagree

2.

I disagree

3.

Not sure

4.

I agree

5.

I strongly agree

SECTION B: CORPORATE GOVERNANCE

5 4 3 2 1

OpennessBank managers do not tell clients what is really going on in the

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bank

The MD/CEO openly shares personal information with managers

CompetenceManagers in the bank are competent in doing their work

Bank believes that its clients are competent in bank services

Benevolence/kindnessThe MD does not show concern for managers

Managers in this bank typically look for each other

HonestyManagers have faith in the integrity of the MD

MD keeps his/her word

When managers tell you something you can believe it.

ReliabilityThe MD in this bank typically acts in the best interests of bank

mangers

Mangers in this bank can rely on the MDCustomers are reliable.

C. EMPLOYEE COMPETENCE

To what degree do you use the listed aspects in doing your

work?

5 4 3 2 1

Professional accounting theoretical knowledge

Professional Accounting methods and techniques

Recent developments and trends in accounting fieldInformation Communication Technology including computer use

Legal regulations in Accounting Field

Operational Management ( organizational, financial,

Administrative)


work?Quantitative Skills being able to deal with figures or numbers

Gathering and documenting information and data management

Communication Skills: writing, Speaking and Oral presentationsCooperating: working in a team and negotiating skills

Problem solving and ability to work automatically

Planning, coordinating and organizing activities


work?

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Independent in decision making

Initiative and creativity

Working under pressure and dealing with changes

Accuracy and carefulness

Loyalty and integrity

Adaptability

D. INFORMATION INDUCTANCE

Accounting rules are violable if necessary 5 4 3 2 1

Organizational rules can be violated to achieve reporting

objectives

Critical aspects of information we report are usually lost through

aggregation

There is inadequate concern with compliance with reporting

Our reporting downplays certain aspects of information

Reports are sometimes delayed if they contain unfavorable

information

When reporting attention is directed to certain aspects of

financial reporting

Managers can take decisions without financial analysis

Annual reports may contain items that were never discovered

Managers can interfere with data flow

Accounting options that convey the best messages are alwaysselected

SECTION E: FINANCIAL REPORTING

Performance indicator 5 4 3 2 1

CapitalizationStrong capital level

The bank is Satisfactory

Deficient capital levelAsset qualityBanks have strong asset quality

Satisfactory asset quality

Deficient liquidity

EarningsBanks have Strong earnings

Satisfactory earnings

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Deficient liquidity

LiquidityStrong liquidity

Satisfactory liquidity

There is Deficient liquidity in the bank

Thank you for your time and kindheartedness in filling this questionnaire.Appendix II - Proposed Budget

Budget estimate

ACTIVITY ITEMS REQUIRED COST(Rwf)Proposal writing 1 ream of foolscaps 1,700

6 Bic pens 300Transport 10,000

Typesetting costs 15,000

Photocopying costs 5,000

SUB-TOTAL 32,000Pre-testing 5,000

SUB-TOTAL 37,000Data Collection Making enough copies of research

instruments

10,000

Transport to the field 20,000

Refreshment to respondents 10,000

SUB-TOTAL 40,000Reporting of

findings

Typesetting 20,000

Binding 3 copies of the thesis 10,000

Contingency 5,000

SUB-TOTAL 35,000Viva Transport to and from the university 50,000

Accommodation 150,000

Meals 50,000

SUB-TOTAL 250,000GRAND TOTAL 394,000

Appendix III Work Plan

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ACTIVITIES MAY

2013

JUNE

2013

JULY

2013

JULY

2013

AUG

2013

SEP

2013Proposal

writing

X

Pretestingresearch

Instruments

X

Data

Collection

X X

Data Analysis X

Compilation of

report /

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Presentation

of report for

examination

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Documents

Olive Mu - Proposal 2 June 2013