Fair Value Accounting and Financial Performance of Manufacturing Companies in Nigeria
- October 26, 2019
- Posted by: RSIS
- Categories: Accounting, IJRISS
International Journal of Research and Innovation in Social Science (IJRISS) | Volume III, Issue X, October 2019 | ISSN 2454–6186
Fair Value Accounting and Financial Performance of Manufacturing Companies in Nigeria
Gospel Chukwu J. Ph.D1, Akpeekon, Barisua2
1,2Department of Accountancy, Ken Saro-wiwa Polytechnic, Bori, Rivers State, Nigeria
Abstract: – The paper examined the relationship between fair value accounting and financial performance of manufacturing companies in Nigeria. The study adopted a descriptive and quasi-experimental design in a bid to achieve a holistic evaluation of the effect of fair value accounting on the financial performance of manufacturing companies in Nigeria. The data employed in the study was generated from the annual reports of ten (10) selected manufacturing companies listed on the Nigeria Stock Exchange from 2008-2010 (representing historical cost regimes) and 2014-2016 (representing fair value regimes). The paper formulated four hypotheses. It tested the hypotheses using least square method of multiple regression. The result showed that fair value accounting has a positive and significant impact on both profit before tax and return on assets. It is therefore recommended that fair value accounting should be adopted in order to achieve a more realistic measurement of financial performance the one under the historical cost basis.
Key words: Fair value accounting, financial performance, manufacturing companies, financial statements and return on asset.
I. INTRODUCTION
The manufacturing sector plays a critical role in the economic performance of a nation. This is because it produces the goods that are needed to enhance human welfare, provide employment opportunities for both skilled and unskilled manpower as well as being strategic in the quest for self-reliance. It is in recognition of these that the sector has benefited from a catalogue of efforts, particularly the mandatory credit and concessionary interest rate policies from the government and monetary authorities. However, the continued existence of the sector is hinged on its ability to meet its accruing liabilities profitably. As a going concern, business firms are set up basically with the aim of making profit; which is measured by certain parameters, such as return on assets, return on equity and earnings per share. Nwanyanwu (2014) opined that financial performance are measured when comparisons of information contained in the financial statements are made with profits earned using accounting ratios. Tests of profitability focus on measuring the adequacy of income by comparing it with one or more primary activities or factors that are measured in the financial statements (Libby et al, 2001; Dyekman et al, 1998 & Van home, , 2002). Owolabi and Obida (2012) defined profitability as the ability to make profit from all the business activities of an enterprise. It measures the efficiency of management of an organization’s scarce resources in creating value to the organisation.
