Accounting Conservatism and its Benefits to Shareholders in Developing Capital Market: Evidence from Nigeria

Abstract

This study investigated the relationship between accounting conservatism and shareholders value of selected quoted companies in Nigeria. The proxy for accounting conservatism was asymmetric accrual to cash-flow (AACF) and shareholders fund was the proxy for shareholders value. Exchange and inflation rates were included as control variables. This study adopted ex-post facto research design. The population of the study was all quoted companies on the Nigeria Stock Exchange from which a sample of 20 companies was chosen using judgmental sampling technique. Secondary data was obtained from annual report and accounts of the sampled companies for a period of ten years (2006 to 2015). Multiple regression analysis was used to analyze the data collected. The hypothesis was tested using F-Statistic. The result of the study revealed existence of a significant positive relationship between accounting conservatism and shareholders value with F-statistic p-value of 0.016 for all our explanatory variables. This result was validated with robustness checks and it was discovered that the relationship between conservatism and shareholders value was high for firms with higher information asymmetry. The finding implies that accounting conservatism is an efficient governance mechanism to mitigate information risk and control for agency problems. Hence, we concluded that shareholders derive benefits from accounting conservatism practice in Nigeria.