EFFECT OF MANDATORY IFRS ADOPTION ON VALUE RELEVANCE AND PRO-CYCLICALITY OF DEPOSIT MONEY BANKS IN NIGERIA

Abstract

Accounting manipulations in the banking industry has brought about the debate on the need for better accounting standards that are internationally comparable and can ensure transparency in financial reporting so as to reflect the true picture of the performances of banks and thus reform global economies. This study examines the effect of mandatory IFRS adoption that started in Nigeria in year 2012, on the value relevance of financial reports and pro-cyclicality of 14 selected deposit money banks in Nigeria. The study formulates three hypotheses and applies correlational design, using panel data set to analyze the relationship between value relevance and IFRS, and the relationship between pro-cyclicality and IFRS. The study utilized secondary data extracted from the financial statements of the banks and the World Bank database over the period 2006 through 2016. The result of the fixed effect GLS provides evidence that both the value relevance of earnings and book value improved after IFRS was mandatorily adopted by the selected DMBs, and the result of the random effect GLS for pro-cyclicality provides evidence that the lending behavior of the selected banks did not become more pro-cyclical after IFRS adoption. The study concludes that adequate information do actually boost investors‟ confidence in the financial reporting of DMBs after mandatory adoption of IFRS. Based on the findings, the study recommends among others that there is need for the managers of Deposit Money Banks in Nigeria to further implement monetary policies that aims at enhancing investors‟ confidence in their reported earnings and book value.