Effect of International Financial Reporting Standards Adoption on Value Relevance of Accounting Information of Nigerian Listed Firms

Abstract

This study investigates effect of IFRS adoption on vale relevance of accounting information issued by Nigerian listed firms with specific attention on bottom-line items of three contents of financial statement and level of compliance with the standard. Aside from rapid increase in adopting IFRS by several countries of the world due to its assumed intrinsic quality, studies have documented confounding empirical submissions regarding probable improved quality of accounting information issued based on accounting methods and principles of the standard. Thus, the position of stock market efficiency, and information asymmetry crusades by signalling theory become unclear especially from the Nigerian Stock Exchange (NSE) context where IFRS became mandatory for listed firms since 2012. Descriptive research design approach was adopted which is built on mixed research paradigm. Purposive sampling technique was used to draw sixty-nine sample firms from 128 targeted Nigerian quoted companies over a period of eight years (i.e. 2008 – 2015). The study relied on balanced panel data sourced from the NSE as well as audited annual financial reports of the quoted firms, and self-developed compliance index to assess the level of compliance with IFRS mandatory disclosure requirements. Panel least square regression based on modified Ohlson price valuation model was employed. Based on results of inferential statistics performed, the study rejects null hypothesis that there is no significant effect of IFRS adoption on value relevance and finds out that IFRS adoption has positive and significant effect on value relevance of income statement and financial position accounting information from the NSE. Nevertheless, there was no sufficient statistical evidence to reject the hypothesis that IFRS adoption has no significant influence on cash flows accounting data. The study also documented 91 percent level of compliance with IFRS by the Nigerian listed firms which is positively and significantly value relevant but more for low compliant firms. In addition, the study confirmed moderating influence of firm size and industry category factors on value relevance of the IFRS-based accounting data but more for large firm and financial industry. The findings provided empirical evidence based on Nigerian financial reporting environment with conclusion that IFRS is of higher quality and its accounting data are relatively and incrementally more value relevant than erstwhile Nigerian SAS. Consequently, IFRS adoption could reduce information asymmetry, improves market informational efficiency, reduces potential agency cost that could emanate from non-compliance with mandatory requirements of the standards, and enhances stakeholder interest. The study therefore recommends that listed firms should keep themselves updated periodically on improved knowledge of IFRS demands that could result in enhanced compliance especially by non-financial industry category. Stock markets regulators are also encouraged to structure out all-inclusive measures that engender improved compliance with IFRS by the listed firms. However, this study is not exhaustive as it is constrained by four-year post-adoption period examined, targeted listed firms and value relevance based accounting quality measure adopted. Hence, future studies should explore these areas.