Growth Without Capability: Firm Expansion, Biological Asset Valuation and the Post Listing Erosion of Financial Reporting Quality in Zambia’s First Listed State-Owned Enterprise

Abstract

The governance literature treats firm size as a reliable correlate of financial reporting quality and treats stock market listing as a durable disciplining device. This article tests both propositions in a setting that has been almost entirely neglected, namely a listed state-owned enterprise in the forestry sector of a low-income African economy. Using six years of post-listing data from Zambia Forestry and Forest Industries Corporation Plc, the first state owned enterprise to list on the Lusaka Securities Exchange, the study examines the association between firm size and reporting quality and tests whether reporting quality differed between the early and later post listing periods. Reporting quality is proxied by the ratio of operating cash flow to net income. Given six annual observations, the analysis is deliberately confined to bivariate correlation and a one-way analysis of variance, supported by a qualitative reading of governance documents and stakeholder perspectives. Firm size is strongly and negatively associated with reporting quality, with a Pearson coefficient of negative 0.741 that is significant at the ten per cent level and accounts for approximately fifty-five per cent of the variation in the dependent variable. Mean reporting quality fell from 0.131 in 2018 to 2020 to 0.049 in 2021 to 2023, a difference significant at the five per cent level with an eta squared of 0.775. The two findings describe a single mechanism: rapid, valuation intensive asset growth, dominated by biological assets measured at fair value under International Accounting Standard 41, outran the accounting and audit capability that the enterprise had built at listing, detaching reported earnings from operating cash. The results qualify the conventional size effect, show that listing discipline is a stock that depreciates rather than a permanent endowment, and generate specific implications for securities regulators, government shareholders and the boards of state-owned issuers in African capital markets. Findings are indicative rather than confirmatory and are offered as a hypothesis for panel testing.