International Financial Reporting Standards and Value Relevance of Financial Information: An Empirical Evaluation of Selected Nigerian Listed Companies

This study investigates the International Financial Reporting Standards (IFRS) and value relevance of financial information among Nigerian listed companies after the adoption of IFRS. 77 sample companies were randomly selected from the population. Data were collected from UUM-Data stream through the annual reports and accounts of companies, which consist of Stock price (dependent variable), Book value of equity and net income as (independent variables) for the year 2016. Ordinary Least Square Regression was the method used in analyzing the variables. The regression result revealed that there is a positive and significant relationship between book value of equity and net income on stock price. These reveal that the financial information of listed companies in Nigeria is more value relevant after the adoption of IFRS. In view of the findings, the study recommends that, Nigerian Stock Exchange should ensure that all listed companies are comply with the accounting framework issued by IFRS, in order to have full disclosure of their financial information.


Auwalu Musa and Ibrahim Muhammad
single set of accounting standards with a particular format to be used for financial statements, make it easier for public companies to compete globally, raise capital, and provide financial details (Kaiser, Schmid, Sheward & Bennett, 2014). The objective of the standards is to present a unique and comparable accounting framework for public companies on how to prepare and disclose their financial statements globally. Most significant financial accounting and reporting changes in the history of accounting was the adoption of IFRS across the countries by public companies (Cotter, Tarca & Wee, 2012). Soderstrom and Sun (2007) states that over one hundred (100) countries around the world today have implemented IFRS and others have taken steps to adopt the standards in a near future. European Union countries mandate all public traded companies' to implement IFRS in preparing and consolidating their financial statements. United States Security and Exchange Commission (SEC) has allows non-U.S. companies to prepare their financial statements in accordance with IFRS (SEC, 2007).
To meet the international accounting standard by developing countries, Nigeria through the Federal Government has converse the impact of new development with all stakeholders in the country before it finally decided to adopt IFRS on a gradual basis. The then Minister of Commerce and Industry disclosed on September 2010, that new accounting standards, the International Financial Reporting Standards (IFRS) would be adopted in 2012 (Ezeani & Rotimi, 2012;Edogbanya & Kamardin, 2014). The implementations in Nigeria were organized in three phases; in the first phase, public listed entities were mandated to prepare their financial statement in accordance with IFRS framework by 1st January, 2012. The second phase consists of public interest entities whose were required to adopt for statutory purposes by 1st January, 2013. Similarly, Small and Medium Enterprises (SMEs) as the third phase required to be implemented by 1st January, 2014 (Report of the committee on Road Map to the Adoption of IFRS in Nigeria, 2010).
Several researchers around the world have discussed different issues on the impact of IFRS adoption in different countries. In Spain for instance, Callao, Jarne and Lainez (2007) opined that companies required to mandatorily report consolidated accounting information in accordance with IFRS as of January 1, 2005, and found that the adoption of IFRS in the country at the same time with local accounting standards have adversely affected the local comparability. Gassen and Sellhorn (2006) found that IFRS firms have more persistent, less predictable and more conditionally conservative earnings in Germany after the adoption of the standards. Christensen, Lee, Walker and Zeng (2015) reports that after the voluntary adoption of IFRS in German firms with incentive, accounting quality through multiple construct of earnings management, timely loss recognition and value relevance improved.
Dimitropoulos, Asteriou, Kousenidis and Leventis, (2013) found that IFRS implementation in Greece was convincingly contributed to less less-earnings management, timely loss recognition and value relevance of accounting numbers compared to the local accounting standard.

Concept of Financial Reporting Quality
The Statement of Financial Accounting Concepts No. 8 (2010) reveals that the objective and general purpose of financial reporting "is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions on entities resources". These decisions involve buying, selling or holding equity and debt instruments, and providing or settling loans and other forms of credit. The general purpose financial reports is a focal view for most of the current and potential investors, creditors and other lenders for providing the financial information that they need in their decision making (Francis & Schipper, 1999). Similarly, financial reports do not disclose all the information that current and Tanimu   4 potential investors need. They must consider relevant information from other sources, such as economic conditions and expectations, industry and company outlooks.

Auwalu Musa and Ibrahim Muhammad
According to Wells (2011), financial reports are based on estimates, judgments, and models rather than exact depictions. The conceptual accounting framework establishes the concepts that underlying those estimates, judgments and models. These concepts are the goal towards which the board of directors and preparers of financial reports to strive to fulfill. Perfect financial reporting is often doubtful to be achieved in full because that reporting takes time to understand, accept, and implement new ways of analyzing transactions and other events.

Value Relevance
The concept of value relevance in accounting is that the information provided by an accounting process should influence users' ability for meaningful decision making (Beisland, 2009;Bonham et al., 2009;Tracy, 2013).
This concept is therefore turning round the content of the accounting information which can greatly impact on decision making. Users' are considered to have an increased level of relying with the financial information when it has ability of presenting value relevance. Precisely, relevance implies a situation that modifies substantial decision making process. To measure the company performance one has to examine the content of financial reports presented.
Value relevance is the relationship between accounting numbers and security market values (Barth, Beaver & Landsman, 1998). Value relevance investigates the relationship between a stock price and a set of accounting variables (Beaver, 2002). Scott (2003) claimed that accounting information is value relevant if it leads investors to rely with the information content in order to be relevant in making economic decision.
Value relevance is often used to measure accounting numbers association. Book value serves as one of a general proxy for value relevance of financial information which is expected normal future earnings for loss firms, and also as a proxy for abandonment options for loss firms that were likely to cease operations and liquidate (Kwon, 2009). Similarly, Francis and Schipper (1999) stated that financial statement information affects stock prices by capturing intrinsic share values toward which stock prices drift. Takacs (2012) opined that value relevance is seen as proof of the quality and usefulness of accounting numbers and as such, it can be interpreted as the usefulness of accounting data for decision making process of investors and its existence brings positive correlation between stock price and book values.
After the adoption of IFRS, empirical studies on the relationship between value relevance and financial reporting quality, exclusively to assess the quality of financial reporting are numerous. For instance, Francis et al., (2004) stated that value relevance is one of the essential attributes of financial reporting quality. According to Umoren and Enang (2015) states that value relevance is the ability of financial statement to contained information that clarifies the stock market measures. If the figures contained in the financial statement would guide investors in their stock pricing is said to be value relevance.
Martinez, Martinez and Lin (2014) conducts a study on IFRS disclosures in the transition period in Spain, where the aggregated numbers of accounting differences are disclosed, and the individual adjustments on book value of equity and earnings. Their findings reveals that no evidence of increased value relevance post IFRS adoption. Thus, investors consider the individual reconciliation adjustments to be more valuable and significant.
Maigoshi (2014) empirically evaluates the impact of mandatory adoption of IFRS on accounting quality in Nigeria. The study revealed that mandatory adoption of has significantly increased in the publicly quoted companies' with value relevance of financial information.

Research Methodology
The study adopts descriptive research design were one hundred and seventeen (117) companies quoted on the Nigerian stock exchange as of December 2016 have been considered as sample size. The sectors were selected due to inadequate research on the relationship between IFRS and financial reporting quality among firms listed on Nigerian stock exchange, specifically with respect to value relevance of financial information. 77 companies were randomly selected from the target population. These represent all the industries except financial industry, as their structure and accounting practices are largely differed.

Industry Description
No. of Firms

Regression Analysis
The equations were used to test the hypothesis which represents the value relevance of financial information using the stock price based on Ohlson (1995) price model. The regression results presented in Table 3 shows a significant positive relationship between stock price, which represents the dependent variable in the model, and book value of equity at 1% significant level. In addition, the results had reports a beta co-efficient of 0.188 and a p-value (sig.) at 0.009. The p-value of 0.009 was at <0.01 significance ( Similarly, the results further demonstrate that net income and stock price was positive and significantly associated at the 1% significant level, where stock price is the dependent variable in measuring value relevance. The result shows a beta coefficient of 0.541 and a p-value (sig.) was at 0.000. The p-value (sig.) 0.000 was at <0.01 significance (2-tailed). This result shows that an increase of 0.541 in net income contributes to 3.535 increases in stock price on sampled companies after the adoption of IFRS. Similar studies findings are (Chalmers et al. 2011;Iatridis & Rouvolis, 2010;Callao et al., 2007). Hence the result shows that book value and net income are positive and significantly contributed to stock price.

Findings of the Research
The value relevance of financial information has been examined based on the coefficient of determination (R2) which is consistent with several studies in evaluating the value relevance of accounting numbers. The assessment shows that stock price has a significant positive relationship at 0.000 significant levels. Similarly, accounting proxy i.e. book value of equity presents a beta co-efficient of 0.188 and a p-value of 2.677 at 0.009 sig. This shows a significant positive relationship between the stock price and book value of equity. Meaning Tanimu   8 book value is able to explain about 98% of the systematic variation in stock prices after the adoption of IFRS.

Auwalu Musa and Ibrahim Muhammad
Likewise, other accounting proxy i.e. net income shows a beta coefficient of 0.541 and a p-value of 3.535 at 0.000 sig. This indicates that an increase of 0.541 in net income contributes to 3.535 increases in stock price on sampled companies after the adoption of IFRS.
Accordingly, considering the analyses result, the positive association between book value of equity and net income on stock price lead to value relevance of financial information. Meaning that book value of equity and net income are multiples and incremental explanatory power of value relevance of financial information across the selected sampled companies after IFRS adoption in Nigeria. This finding is consistent with the study of (Umeron & Enang, 2015;Agostino, Drago & Silipo, 2011;Chalmers et al. 2011;Karunarathne & Rajapakse, 2010). This suggests that the market participants (both current and potential investors) may convince to increase their investment hence the company's stock price is significantly associated with book value of equity and net income.

Conclusion and Recommendation
The value relevance of accounting information as one of the qualitative characteristic of financial information stated by IFRS was assessed by applying accounting proxies of price model (BVE and NI on SP). This study being relative study on value relevance of financial information on 77 sampled companies listed in Nigerian stock exchange for the year 2016 from all sector except financial sector. The study found that the financial information disclosed by the sample companies in these sectors are value relevant, and can therefore influence the stock price of that companies.
In view of the aforementioned findings and conclusion, the study recommends that, Nigerian Stock Exchange should ensure that all listed companies are comply with the accounting framework issued by IFRS, in order to have full disclosure of their financial information. Considering the number of sampled companies were only seventy seven companies disclosed the information required by this study. These would attract and influence potential investors to have confidence on earnings than book value in making economic decisions to invest in this sample companies. The study further recommends that appropriate measures needs to be taking to ensure that companies are listed on stock exchange in order to have comparable accounting standards across the world to attract more Foreign Direct Investment (FDI), which in turn would increases government revenue.