The Impact Of International Financial Reporting Standard On Stock Valuation In Public Companies In Nigeria

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The Impact Of International Financial Reporting Standard On Stock Valuation In Public Companies In Nigeria


Abstract


The purpose of this research work is to investigate the impact of international financial reporting standard on stock valuation in public company in Nigeria using stock or inventory, total asset, profit are taxes and share capital from 2000-2014. The researcher made use of ex-post factor research design with data obtain from annual report of an account of five company quoted on the flow on the stock Exchange. A total of 134 respondents were selected from the population figure out of which the sample size was determined. The primary source of data collected was mainly the use of a structured questionnaire which was designed to elicit information on the impacts of IFRS adoption on the value relevance of financial statement in the manufacturing firms on the Nigeria Stock Exchange. The data collection was analyzed using frequency distribution table, percentage and mean score analysis while the nonparametric statistical test (Chi-square) was used to test the formulated hypothesis. The findings of this study are as follows. (1) Compared with the pre-IFRS period, the number of shares of listed consumer goods firms in Nigeria stock exchange increased significantly. (2) The number of book value of shares and earnings per share of listed firms in the Nigeria stock Exchange increased significantly after the adoption of the International Financial Reporting Standard (IFRS) in Nigeria.


Chapter One


Introduction

1.1 Background of the Study

The purpose of this research work is to investigate the impact of international financial reporting standard on stock valuation on public company in Nigeria using stock or inventory, total asset, profit are taxes and share capital from 2000-2014. To investigate the level of difference in stock valuation during the pre IFRS and post IFRS period. To measure the extent to which valuation of asset differs in the pre-IFRS and post IFRS etc. the researcher made use of ex-post factor research design with data obtain from annual report of an account of five company quoted on the flow on the stock Exchange. Frequency distribution table and descriptive statistics was used for data presentation and analysis while paired sample T-test was used to test the hypothesis. It was discovered that the adoption of IFRS significantly affect stock valuation of public companies. On these note, it was recommended that the government should amend the Company’s Act in Nigeria for improving compliance, culture, provide guidelines on paper. Implementation of IFAC code of ethics for professional accountant and practitioners.


1.2 Statement of Problem

Masud, (2013) disclosed that in the accounting and finance sector, companies cook figure and manipulate financial statement, tax avoidance is the norm of the day while persistent earning management is left unchecked by the authorities because of weak and ineffective regulation.

Most of Nigeria statement of accounting standard (SASS) or NG-GAAP issued by the NASB are out data and considered insufficient to provide the necessary guidance in the preparation of qualitative financial statement.
The following challenges exist premeditated this research;

  1. Apparent lack of global unifying reporting standard stock valuation assessment of companies in and outside the country. Thus giving rise to disparity in accounting reportage.
  2. Presence of fraudulent preaches by corporate entities as regards under valuation of profit for tax purpose with particular emphasis on the use of LIFO method.
  3. Increases investment protectial of corporate entity in the country and this heavely tied to adoption of local accounting standard (GAAP) generally investor are often time regarded financial statement prepared with local GAAP as inferior and lacking integrities.

The researcher noted that adoption of IFRS particular for stock valuation help to address the above challenge. To help confirm these assession, this research is carry out to determined if the adoption IFRS will approve valuation of public companies in Nigeria.


1.3 Objective of the Study

The purpose of carrying out the research work is to investigate the impact of international financial reporting standard on stock valuation in public company in Nigeria. The following strategies objective come to play.

  1. To investigate the level of difference in stock valuation during the pre-IFRS and post IFRS period.
  2. To measure the extent to which valuation of asset differs in the pre-IFRS and post IFRS.
  3. To ascertain the different in capital valuation in pre-IFRS and post – IFRS.
  4. To establish weather measurement of profitability differ in pre-IFRS and post IFRS.

1.4 Research Question

  1. Is there significant difference in stock valuation in pre-IFRS and post – IFRS.
  2. To what extent does valuation of asset differ in pre IFRS and post IFRS.
  3. Would capital valuation difference in pre-IFRS and posts IFRS.
  4. Does measurement of profitability differ in pre-IFRS and post IFRS.

1.5 Statement of Hypotheses

  1. Ho: There is no significant difference in stock valuation in pre-IFRS and post IFRS.
    Hi: There is significant different in stock valuation in pre-IFRS and post IFR.
  2. Ho: There is no significant difference in asset valuation in pre-IFRS and post IFRS.
    Hi: There is significant difference in asset valuation in pre-IFRS and post – IFRS.
  3. Ho: There is no significant difference in asset valuation in pre-IFRS and post – IFRS.
    Hi: There is significant difference in capital valuation in pre-IFRS and post IFRS.
  4. Ho: There is no significant difference in measurement of profitability in pre-IFRS and post IFRS.
    Ho: There is significant difference in measurement of profitability in pre-IFRS and post IFRS.

1.6 Significance of the Study

This study will be of immense benefit to other researchers who intend to know more on this study and can also be used by non-researchers to build more on their research work. This study contributes to knowledge and could serve as a guide for other study.


1.7 Scope of the Study

The thrust of the research work is on the impact of international financial reporting standard on stock valuation in public company in Nigeria. The need to carry out the study is motivated bydifference in stock valuation method, lack of global reporting standard on valuation of corporate performance as well as under valuation of profit.
In view of this, the main objective of the research is to investigate the need of difference in stock valuation during the pre-IFRS and post IFRS period.

Export factor research design was adopted for use, involving the connecting of secondary data especially annual report and account of A.B.C transport company Plc, OandoPlc, Julius Berger, Nestle Nigeria Plc and Dangote Cement Plc.

The time courage from the research is year 2007-2014, while the research in Asaba metropolis. Frequency distributed table and descriptive statistic are used for data presentation and analysis, while E-view and sample t-test are used to test research hypothesis. Finding obtain with a large extend disclose variation in stock valuation in pre IFRS and post IFRS.


1.8 Limitations of the Study

The demanding schedule of respondents at work made it very difficult getting the respondents to participate in the survey. As a result, retrieving copies of questionnaire in timely fashion was very challenging. Also, the researcher is a student and therefore has limited time as well as resources in covering extensive literature available in conducting this research. Information provided by the researcher may not hold true for all businesses or organizations but is restricted to the selected organization used as a study in this research especially in the locality where this study is being conducted. Finally, the researcher is restricted only to the evidence provided by the participants in the research and therefore cannot determine the reliability and accuracy of the information provided.

Financial constraint:

Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint:

The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.


1.9 Definition of Terms

International Financial Reporting Standards:

These are sets of accounting standards developed by the International Accounting Standards Board (IASB) that is becoming the global standards for the preparation of public company financial statements.

Window Dressing:

It refers to actions taken or not taken prior to issuing financial statements in order to improve the appearance of the financial statements.

Financial Position:

This is the status of the assets, liabilities, and owners equity of an organization, as reflected in its financial statements.

Financial Performance:

This is a subjective measure of how well a firm can use assets from its primary mode of business and generate revenues.

Corporate Governance:

Broadly refers to the mechanisms, processes, and relations by which corporations are controlled and directed.


Chapter Five


Summary, Conclusion and Recommendations

5.1 Summary of Findings.

This study examines the impact of IFRS adoption on the value relevance of financial statement in Nigeria. To this end, data was obtained from eighteen (18) Listed consumer goods firms in the Nigeria Stock Exchange from 2013-2015, with 2009 to 2011 been pre IFRS adoption and 2013 to 2015 as post IFRS adoption period of three (3) years each. In relation to the study’s objectives which were set to examine the impact of IFRS adoption on the value relevance of financial statement in the manufacturing firms on the Nigeria Stock Exchange; to examine the impact of IFRS adoption on share price, the impact of IFRS adoption on book value of shares and to determine the impact of IFRS adoption on earnings per share of listed firms on the Nigeria Stock Exchange. Three null hypotheses were formulated and tested at 0.05 level of significance using paired sample test, t-test statistics. The finding of the study were as follows:

  1. IFRS adoption has a significant impact on the share prices of listed consumer goods firms in Nigeria Stock Exchange.
  2. IFRS adoption has a significant impact on the book value of shares of listed consumer goods firms in Nigeria Stock Exchange
  3. IFRS adoption has a significant impact on the earnings per share of listed consumer goods firms in Nigeria Stock Exchange

5.2 Conclusions

Based on the findings of this study, it can be concluded that IFRS adoption has significant impact on both the share price, book value of shares and earnings per share of listed consumer goods firms in Nigeria Stock Exchange. This is shown in the positive and significant relationship between the value relevance proxies (SHPRI, BVS and EPS), which 53 indicate that Nigeria firm’s financial statements were more value relevant and portray a higher quality of financial report after the adoption of IFRS in Nigeria.


5.3 Recommendations:

Based on the findings of the study, the following recommendations were made: i. Listed consumer goods firms in Nigeria should strictly adhere to IFRS as a standard of reporting as this will make their financial reports have more value relevance and ensure confidence in the investors both already existing investors and prospective investors in the financial statement presented to them, which in turn will attract more investors both foreign and local to invest more in firms listed on the Nigerian Stock Exchange. ii. With the increase in profitability due to the IFRS adoption, listed consumer goods firms should enhance and expand their assets in order to improve their business activities effectively and efficiently. iii. Due to high quality of earnings, the dividend paid out should be increased to attract more investors to ensure enough liquidity and better performance.


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