International Financial Reporting Standards (IFRS) Adoption and Short-Term Liquidity of Firms in Nigeria
- February 8, 2020
- Posted by: RSIS
- Categories: Accounting, IJRSI
International Journal of Research and Scientific Innovation (IJRSI) | Volume VII, Issue I, January 2020 | ISSN 2321–2705
Lucky Izobo ENAKIRERHI1, Emmanuel A. L. IBANICHUKA2 & Clifford O. OFURUM3
1,2,3Department of Accounting, Faculty of Management Sciences, University of Port Harcourt, Choba, Rivers State, Nigeria
*Corresponding Author
Abstract: – The study has the primary aim of examining the impact of IFRS adoption on the liquidity position of firms quoted on the floor of the Nigerian Stock Exchange. Short-term liquidity is measured by current ratio and the paired sample t-test measures the statistical difference between the mean of liquidity in pre-IFRS and mean of liquidity in post-IFRS periods. Using descriptive statistics to measure the mean of both periods, the results show that the mean of liquidity is lower in post-IFRS adoption period indicating a negative impact of International Financial Reporting Standards adoption in Nigeria. Furthermore, the paired sample t-test shows that there is difference between the mean of both periods and the difference is significant at 1% level. Thus, the study concludes that the adoption of IFRS has had a significant but negative impact on the short-term liquidity position measured by current ratio of firms. The study, therefore, recommends that managers should find a way to improve the liquidity position of firms and as adoption should have led to more transparency, openness and greater flexibility, there should be a new study to examine whether the reduction in liquidity is solely caused by adoption of IFRS or the economic recession which hampered the Nigerian economy in the year 2015.
I. INTRODUCTION
Business survival especially in the short term depends on the liquidity position of the firm. To be able to meet the day to day business activities of the firm, a reasonable part of the assets of a firm is expected to be held in liquid form. This is because firms facing liquidity problems are likely heading towards crises. Aljifri, Alzarouni, Ng and Tahir (2014) argue that liquidity is not only important to lenders and investors but to regulators and that firm facing liquidity challenges may be heading towards bankruptcy. They asserted that one of the key measures of a firm’s ability to survive and remain solvent is liquidity. This further emphasizes the important of liquidity in the management of firms and hence, firms’ managers are usually careful when presenting liquidity information to investors, lenders, regulators and other stakeholders especially a firm with weak liquidity position. In the case of firms with weak liquidity position and in an attempt to present desired information to investors, lenders, regulators and other stakeholders, earnings manipulation is inevitable.
