THE IMPACT OF INSTITUTIONAL OWNERSHIP STRUCTURE ON EARNINGS QUALITY OF LISTED FOOD/BEVERAGES AND TOBACCO FIRMS IN NIGERIA

INTRODUCTION:Institutional ownership can be viewed as the shareholders of a firm who are corporate entities. From the extant of previous studies which concluded that the institutional shareholding is a familiar practice in companies (Miglo, 2007 and Bissessur, 2008). Since the law allows corporations (artificial persons created by law) to enter into transactions and also to own properties in their registered corporate names. Usually, such institutional owners are organised and thus have the necessary machinery in place, to constantly engage the managers. The institutional investor too have principals to report to, about the manner in which they handle their firms' resources, and as such, they will monitor their investments in other firms with due diligence (Ramsay & Blair 1993). As the argument goes, once the institutional shareholders become the majority holders, they will pursue the agency conflict which will shift from the agents (managers) versus principals (share -holder), to majority (institutional owners), and the majority will keep trying to transfer wealth to themselves at the expense of the minority (Stulz, 1988). This tendency can be said to be against the overall interest of the firm since the overall interest of the firm comprises the interest of the majority plus that of the minority shareholders. As such, the entrenchment effect can be manifested in various forms such as reporting false status of the firm's earnings figures (Ding, et'al., 2007). Considering the importance placed on earnings of any given firm as a single most important variable of the firm in which every stake-holder's fate relies upon, it is worthwhile to look at what actually preserves it, for the general benefit of stakeholders and other users.In the same vein institutional investors with relatively shareholding in a firm have incentives to intervene in corporate operations suggested by traditional agency theories. Traditional agency theories revealed that when ownership of a firm is concentrated in the hand of institutional shareholders, they should have incentive to monitor the managers' action through direct intervention to reduce agency problem Edmans & Manso (2010). In order to solve agency problem between the shareholders (principal) and management (agent), institutional shareholders was suggested as a strong monitoring mechanism in improving performance of the firms La Porta, (2002). External financing through institutional shareholders has resulted to more profit reinvestment among firms. Some scholars have demonstrated a link between credit market development and economic gr owth through the use of institutional shareholding (Demirguc -kunt & Maksimovic, 1998 and Cull & Xu ,2005).Earnings quality means the degree to which management's choice affect reported income (the discretionary aspect), while some tie it to proximity in time between revenue recognition and cash collection on one hand and expense recognition and cash expenditure on the other (i.e conservatism aspect). In Siegel (1991) elements such as the degree to which the economic reality of the firm is reflected are also mentioned as characteristics that raise the quality of profits and factors such as estimated discretion, are mentioned as characteristics which lower the earnings quality. It is thus fathomable here those factors such as management efficiency, monitoring and aligning mechanisms are important determinants of earnings quality. The fact, managers are allowed to use discretions in some aspects of earnings' estimation, which justify the fact that, these discretions need to be monitored Rowchowdhury (2006). This is so, when it is considered that the agency theory relationship that is involved. As the theory expounded, the agent (manager) will always seek to transfer wealth to himself at the expense of the company. Given the discretion allowed to the managers by the Generally Accepted Accounting Principles (GAAP), the manager uses the discretions allowed to transfer wealth to him through doing everything possible to secure his various rewards plans. …