EFFECT OF THE INTERNATIONAL FINANCIAL REPORTING

STANDARDS (IFRS) ON THE PERFORMANCE OF NIGERIA STOCK

EXCHANGE

BY

OKPARA ROSEMARY O.
MOUAU/ACC/14/17986

DEPARTMENT OF ACCOUNTING
COLLEGE OF MANAGEMENT SCIENCES
MICHAEL OKPARA UNIVERSITY OF AGRICULTURE, UMUDIKE

SEPTEMBER, 2018

1
 EFFECT OF THE INTERNATIONAL FINANCIAL REPORTING
STANDARDS (IFRS) ON THE PERFORMANCE OF NIGERIA STOCK
EXCHANGE

BY

OKPARA ROSEMARY O.
MOUAU/ACC/14/17986

A PROJECT WRITTEN IN PARTIAL FULFILMENT OF THE

REQUIREMENT OF THE AWARD OF BACHELOR OF SCIENCE
(B.SC.) IN ACCOUNTING

DEPARTMENT OF ACCOUNTING
COLLEGE OF MANAGEMENT SCIENCES
MICHAEL OKPARA UNIVERSITY OF AGRICULTURE, UMUDIKE

SUPERVISOR

________________
DR. M. C. EKWE

SEPTEMBER, 2018

DECLARATION

2
This project Effect Of The International Financial Reporting Standard (IFRS) On
The Performance Of Nigeria Stock Exchange is the original work approved and
supervised by Dr. M. C. Ekwe and carried out by me Okpara Rosemary O. with
Registration number MOUAU/ACC/14/17986 in partial fulfilment of the requirements for
the award of the Bachelor degree (B.Sc.) in the Department of Accounting.

…………………………..
…………………………

Signature Date

OKPARA ROSEMARY O.
MOUAU/ACC/14/17986

CERTIFICATION

3
We certify that this project “Effect Of The International Financial Reporting
Standards (IFRS) On The Performance Of Nigeria Stock Exchange” written by
Okpara Rosemary O. has been examined and found acceptable for the award of the
Bachelor of Science degree in Accounting in the Department of Accounting.

Dr. M. C. Ekwe ………………. ………………..

Supervisor Signature Date

Dr. J. B. Azubuike ……………..... ..…….………..

Head of Department Signature Date

Prof. J.U. Ihedinihu …..…………... ………………..

Dean COLMAS Signature Date

…………………………… …………..….. …….………….

External Examiner Signature Date

4
 DEDICATION

This work is dedicated to the Almighty God for His Love towards me and to my lovely sister,
Mrs. Jennifer C. E. kalu, for her financial and moral support throughout the course of this
research work.

5
 ACKNOWLEDGEMENTS

My gratitude goes to God Almighty whose provision has seen me through to this level.

My Sincere appreciation goes to my supervisor Dr. M. C. Ekwe for his assistance,

supervision and also in organizing my work. My gratitude goes to the Head of Department
(HOD), Dr. J. U. B. Azubuike for the smooth running of the programme. I would not forget
to thank my course adviser Mr. C.E. Nwawuru, my lecturers, Dr. E. Jones, Dr. A. T. Tapan,
Dr. I. Nworgu, Mrs. S. N. Onyedikachi for their Academic guidance.

Furthermore, my sincere gratitude goes to my lovely sister, Mrs. Jennifer C. E. kalu and her
husband, Mr. Emmanuel kalu, who made my dream a reality, and to my mom, Mrs. Mercy
Okpara, for her earnest prayer, love, support and advice and my siblings, Mr. Obi Okpara,
Mr. Benjamin Okpara, Mr. Innocent Okpara, and Miss Vivian Okpara, for their love and
supports.

I would also like to appreciate my lovely Niece and Nephews, Daniel, Michael, Gabriel and
Rosemary, I love you all.

And to my Reverend, J.O. Chukwuma, and to my roommate, Miss Happiness Ndubuisi, and
my friends Engr. Innocent C. Okoroafor, for his support and contributions in the course of
this work. Miss Miracle Ifeanyi and Mr. Isaac Akpan for their encouragement.

I am grateful to Mr. Frank Okeoma for his contribution towards the success of this work and
the staff of Speedy Computers MOUAU, for typesetting and printing of this work.

6
 TABLE OF CONTENTS

Title page i

Declaration ii

Certification iii

Dedication iv

Acknowledgement v

Table of content vi

List of Tables ix

Abstract x

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study 1

1.2 Statement of the Problem 7

1.3 Objectives of the Study 7

1.4 Research Questions 7

1.5 Research Hypotheses 8

1.6 Significance of the Study 8

1.7 Scope of the Study 9

1.8 Operational Definition of Terms 9

CHAPTER TWO

REVIEW OF RELATED LITERATURES

2.1 Conceptual Framework 12

2.1.1 The Nigerian Stock Exchange 12

7
2.1.2 Institutions Fostering IFRS Adoption in Nigeria 13

2.1.3 Developing a strong institution framework for IFRS Adoption 14

2.1.4 An overview of the concept of Harmonization,

Convergence and Adoption of IFRS 17

2.1.5 Challenges of IFRS on the business of NSE 19

2.1.6 Solutions to the challenges of IFRS on the business of NSE 22

2.2 Theoretical Framework 24

2.2.1 Agency Theory 25

2.2.2 Information Asymmetry Theory 27

2.2.3 Decision Usefulness Theory 29

2.2.4 Stakeholder Theory 31

2.3 Empirical review 31

2.4 Summary of Empirical Review 37

CHAPTER THREE

3.0 Research Methodology 39

3.1 Research Design: 39

3.2 Area of Study 39
3.3 Sources of Data 39

3.4 Population of the Study 40

3.5 Sample Size and Sample techniques 40

3.6 Validity and Reliability of the Instrument 41

3.7 Method of Data Analysis 42

3.8 Model Specification 42

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CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND DISCUSSION OF FINDINGS

4.1 Questionnaire Return Rate 43

4.2 Data Presentation 52

4.3 Testing of hypotheses 54

4.4 Discussion of Results 55

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary of Findings 56

5.2 Conclusion 56

5.3 Recommendations 56

References 58

Appendix 64

9
 LIST OF TABLES

Table 4.1 Return Rate of Questionnaire 43

Table 4.2 Distribution of Respondents According to Gender 43

Table 4.3 Distribution of Respondents According to Age 44

Table 4.4: Distribution of Respondents According to Years of Experience 44

Table 4.5: Distribution of respondents according to their academic Qualification 45

Table 4.6: Distribution of respondents according to their marital Status 45

Table 4.7: To identify the effect of IFRS adoption on the supervisory role of the
Nigeria Stock Exchange
46

Table 4.8: To examine the effect of IFRS adoption on

stock market of all shares index 47

Table 4.9 To ascertain the effect of IFRS adoption on total capitalization 48

Table 4.10: Regression results between IFRS adoption and supervisory role of the

Nigeria Stock Exchange 49

Table 4.11 Regression results between IFRS adoption and stock

market of all shares index 50

Table 4.12 Regression results between IFRS adoption and total capitalization 51

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 ABSTRACT

Effect of the International Financial Reporting Standards (IFRS) on the performance of

Nigerian Stock Exchange. The specific objectives of the study were to; identify the effect of
IFRS adoption on the supervisory role of the Nigeria Stock Exchange, examine the effect of
IFRS adoption on stock market of all shares index and to ascertain the effect of IFRS
adoption on total capitalization. Both primary and secondary data were used in the study.
Analyses of data and testing of hypotheses were done through the aid of statistical tools such
as tables, and multiple regression model. The population of the study consist of the entire
Onitsha Stock Exchange market, Anambra State, Nigeria as a whole. The study revealed that
there is significant effect of IFRS adoption on the supervisory role of the Nigeria Stock
Exchange. The study showed that IFRS adoption has significant effect on stock market of all
shares index. Finally, the study attested that there is significant effect of IFRS adoption on
total capitalization. The researcher recommended that investors should be interested in
understanding the components of the annual reports as a better understanding would lead to
better and more profitable investment.

Keywords: Nigeria Stock Exchange, Stock Market of All Shares Index, Total Capitalization

11
 CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Since the 1960’s, business has become more and more global. Nigerian businesses are

making more international transactions (Okoye, 2014). Cross border listing is now common

place, accounting firms are beginning to follow their growing corporate clients into other

countries in order to maintain services and governments are engaging in wide range reviews

that recognize the importance of reassuring the markets and the public at large that corporate

reporting and government framework are sufficiently robust. The expansion of international

trade and accessibility to foreign stock and debt has given impetus to the adoption of a global

set of standards. It is believed that a common set of practices will provide a level playing

field for all companies worldwide (Murphy, 2000). In the case of Nigeria, National, foreign,

and local financial experts have called for the adoption of the globally accepted standard; the

IFRS. This is to make users of financial information become more confident in the

information they are provided with, presumably this reduces uncertainty, promotes an

efficient allocation of resources and reduces capital cost (Ahmed, 2011). The process of

adoption of IFRS poses difficulties which can be overcome by concerted efforts in training

and information dissemination about the new standards. The existence of excessive volatility

in the stock market undermines the usefulness of stock prices as a signal about the true

intrinsic value of a firm, a concept that is core to the paradigm of the informational efficiency

of markets (Karolyi, 2001). The increased trading on the stock market could have affected the

volatility of the stock market. However, investors have recently been worried about the

falling stock prices on the Nigerian stock market (Olowe, 2009). Also, the Nigerian stock

market is a developing and inefficient one characterized by the time lag between information

availability about a stock and its full reflection in the price of the stock, poor infrastructural

12
facilities in the country which makes it virtually impossible for information to flow freely and

speedily to actual and potential investors, activities of corporate insiders and insider abuses.

The move towards globalization is a concern for many countries particularly developing

countries as it has the potential of having a deep impact on the economy at large. The

adoption of IFRS as a global and uniform standard is gaining ground as more countries are

adopting IFRS or have intentions of adopting the standard. In the recent time, most of the

countries including Nigeria are moving in the direction of International Financial Reporting

Standards (IFRSs). While some countries have already adopted these standards years back,

these however are new way for transition of economies like ours. Business globalization and

international convergence whose combined effects is making a ‘global village’ of the world

have posed the challenge of having in place a common financial reporting for the countries of

the world. The series of World Bank sponsored private and public sector financial

management reforms across developing economies as a prerequisite for foreign direct

investments (FDI) and foreign donor agencies intervention, has made the adoption and

implementation of international financial accounting reporting standards imperative

(Akhidime, 2010).

The increasing growth in international trade, cross border financial transactions and

investments which unavoidably involves the preparation and presentation of accounting

reports that is useful across various national borders, has brought about the adoption of IFRS

by both the developed and developing countries (Armstrong et a., 2017). The process of

adoption received a significant boost in 2002 when the European Union adopted a regulation

1606/2002 requiring all public companies in the territory to convert to IFRSs beginning in

2005 (Iyoha and Faboyede, 2011). A number of African countries including Nigeria, Ghana,

Sierra Leone, South Africa, Kenya, Zimbabwe and Tunisia among others have adopted or

declared intentions to adopt the standards. In particular, Nigeria adoption of IFRS was

13
launched in September, 2010 by the Honorable Minister, Federal Ministry of Commerce and

Industry – Senator Jubriel Martins-Kuye (OFR) (Madawaki, 2012). In the light of the

globalization and changes in financial reporting process in the capital markets, many foreign

and local investors invest in the Nigerian capital market, some that opted for an appropriate

means of investing their capital following the financial crisis that let investors lose

confidence in capital market. However, the successful adoption of IFRS will remain

indispensable in any country, including Nigeria. Countries around the world have had their

own national accounting standards which they treasured so much, most likely due to the pride

of national sovereignty (Mirza and Holt, 2011). However, due to the advent of globalization,

the falling of the erstwhile insurmountable trade barriers between nations, and more recently

the much-awaited response to the global financial crisis, together with calls by world leaders,

things have changed dramatically in terms of the preferred set of standards for capital market

operations globally. This clarion call for a single set of accounting and financial reporting

standards that would be used by most, if not all, the nations around the globe has given birth

to the International Financial Reporting Standards (IFRS). International Financial Reporting

Standards (IFRS) is a set of standards promulgated by the International Accounting Standard

Board (IASB) an international accounting-setting body based in London, United Kingdom.

With the transformation of our world into a global village, the magical phenomenon of

globalization has led to eh emergence of a “global village” that we all live in now. According

to Holt and Mirza (2011), “accounting is the language of business”, and business around the

world can no longer afford to be speaking in different language with each other while sharing

and exchanging results of their international business activities. After all, the objective of

financial statements is to provide information about the financial position, performing and

financial adaptability of an enterprise that is useful to a wide range of users in making

economic decisions (Agyei-Mensah, 2013). The above assertion is in line with the IFRS

14
framework. The International Accounting Standards Board’s (IASB) IFRS Framework states

that; “The objective of financial statements is to provide information about the financial

position, performance and changes in financial position of an entity that is useful to a wide

range of users in making economic decisions”, (IASB, 2010). The statements prepared also

show the results of the management’s stewardship. According to (Soan, 2001), the financial

statement is the first source of independent and true communication about the performance of

managers. To be able to meet the needs of investors and Nigerian Stock Exchange operators,

the Nigerian Stock Exchange must not only comply with the International Financial

Reporting Standards (IFRS), but also conduct its operations under the guideline of IFRS. The

Stock market indices are used as a general measure of the performance of Nigerian stock

exchange in term of price appreciation or depreciation. These indices are important economic

indicators, as they gauge the health and, very often, can predict the future direction of

economic activity. In addition to the Nigerian Stock Exchange’s (NSE) All-Share Index, the

Central Bank of Nigeria (CBN) regularly analyses performance in the most prominent stock

indices in seventeen other nations in Africa, North America, South America, Europe and

Asia. Besides movements in the overall indices, investors and policymakers are also attuned

to the performance of the different sectors of the economy which are represented by sectorial

indices. (Standard and Poor’s, 2011). Financial information embedded within the Framework

for the Preparation and Presentation of Financial Statements issued by International

Accounting Standards Board (IASB 2010). These qualitative characteristics are relevance,

faithful representation, comparability and understand ability. According to the (IASB 2010)

relevance and faithful representation are the fundamental qualities, whilst comparability and

understand ability are enhancing qualities. The Framework states that the qualitative

characteristics are the attributes that make the information provided in financial statements

useful to users. Accounting information has the quality of relevance when it makes a

15
difference in a business decision; it provides information that has predictive value and has

confirmatory value (IASB 2010). Accounting information has the quality of faithful

representation when it accurately depicts what really happened; nothing important has been

omitted (i.e complete); and is not biased toward one position or another (i.e. neutral) (IASB

2010). An enhancing quality of the information provided in financial statements is that it

should be presented in such a way that it is readily understandable by users, i.e. it should be

presented in a clear and concise fashion (Agyei-Mensah, 2013). This study is aimed to

investigate the effect adoption and implementation of IFRS on the performance of Nigerian

Stock Exchange.

The Nigerian Stock Exchange (NSE) was established in 1960 as the Lagos Stock Exchange.

In 1977, its name was changed to the Nigerian Stock Exchange. As at March 7, 2017, it has

176 listed companies with a total market capitalization of about N8.5 trillion. All listings are

included in the Nigeria Stock Exchange all shares index. In terms of market capitalization,

the Nigeria Stock Exchange is the third largest stock exchange in Africa. It is regulated by the

Securities and Exchange Commission, which has the mandate of surveillance over the

exchange of forestall breaches of market rules and to deter and detect unfair manipulations

and trading practices. The Nigerian Stock Exchange services the largest economy in Africa,

and is championing the development of Africa’s financial markets. The Exchange offers

listing and trading services, licensing services, market data solutions, ancillary technology

services, and more. The Nigerian Stock Exchange continues to evolve to meet the needs of its

valued customers, and to achieve the highest level of competitiveness. It is an open,

professional and vibrant exchange, connecting Nigeria, Africa and the world. The NSE is

committed to adopting the highest levels of international standards. To support this

commitment, the Exchange belongs to a number of international and regional organizations

that promote the development of standards and best practices in everything that we do,

16
including the International Organization of Securities Commission (IOSCO), the World

Federation of Exchanges (WFE), the SIIA’s Financial Information Services Division (FISD)

and the Inter-market Surveillance Group (ISG). IFRS adoption by NSE became effective in

the year 2012. However, before the period of 2012, companies in Nigeria were expected to

report based on the Nigerian domestic accounting reporting (SAS). A few have written or

studied the effect of the adoption of IFRS by developing countries. It is in this spirit that this

study tends to assess the effect of IFRS on the performance of Nigerian Stock Exchange. The

study is structured in such away to be able to address the main objective and answer the

research questions outlined in below. The next section is a brief statement of this research

problem.

1.2 Statement of the Problem

The Nigerian Stock Exchange is not void of problems: the limited numbers of available

instruments traded in the market were discriminated in favour of large firms; the problems of

unclaimed dividends among others have been able to hinder or draw back the swift/function

of the NSE. Also, considering the underdeveloped state of the Nigerian Stock Exchange,

what could be done to position it strongly as its western counterparts? As the Nigerian Stock

Exchange moves towards becoming more globally competitive, the institution directed every

company listed on the NSE to adopt IFRS accounting standards by the end of 2012.

Thus, the study focuses, on the assessing the effect of the adoption and implementation of

IFRS on the performance of Nigerian Stock Exchange.

1.3 Objectives of the Study

The general purpose of this research is to investigate the effect of IFRS on the performance of

Nigerian Stock Exchange. The specific objectives of the study are as follows:

i. To identify the effect of IFRS adoption on the supervisory role of the Nigeria Stock

Exchange

17
 ii. To examine the effect of IFRS adoption on stock market of all shares index

iii. To ascertain the effect of IFRS adoption on total capitalization

1.4 Research questions

The study seeks to provide answers to the following questions:-

i. What are the effect of IFRS adoption on the supervisory role of the Nigeria Stock

Exchange?

ii. What are the effect of IFRS adoption on stock market of all shares index?

iii. What are the effect of IFRS adoption on total capitalization?

1.5 Research Hypothesis

As an aid to answering the question raised, the following hypotheses are formulated:

H01: There is no significant effect of IFRS adoption on the supervisory role of the Nigeria

Stock Exchange

H02: IFRS adoption has no significant effect on stock market of all shares index

H03: IFRS adoption has no significant effect on total capitalization

1.6 Significance of the Study

The findings of this study are expected to be of benefit to investors and stakeholders of

Nigerian Stock Exchange, Government and Economic policymakers, corporate organizations,

research institute and Librarians.

It is also expected to be an eye opener for the stakeholders in Nigerian Stock Exchange. To

government and policy makers, it is hoped that the findings of this study will expose the need

for proper monitoring and implementations of their policies. To the researchers in related

fields, it will serve as a reference tool for further research in these areas. This means the

findings will expose them to more areas that are yet to be covered. To the field of Liberian

and Information managers, this study is hoped to add to the existing literature on the effect of

IFRS on the performance of Nigerian Stock Exchange. It is hoped that at the completion of

18
this study, the importance of complying with the regulations of IFRS in the NSE operations

would be better understood by the stakeholders. In addition, the study will help future

students to read and know much about the effect of IFRS on the performance of Nigerian

Stock Exchange. It will also serve as a reference material for future researchers.

1.7 Scope of the Study

The study focuses on effect of IFRS on the performance of Nigerian Stock Exchange. The

study is limited to the role of IFRS in the performance of Nigerian Stock Exchange, NSE

compliance with IFRS regulations and the consequences of IFRS adoption on the vital

function performed by Nigerian Stock Exchange.

Finally, the scope of this study is restricted to the Nigerian Stock Exchange.

1.8 Operational Definition of Terms

IFRS: International Financial Reporting Standards. These are a set of accounting principles

that is rapidly gaining acceptance on a worldwide basis.

NSE: Nigerian Stock Exchange. It’s a capital market organization which provides facilities

for trading in securities by its member and also sets rules for the admission and trading of

existing securities as well as to guide the business conduct of members.

Globalization: The process of making world Economy dominated by capitalist models.

Capital Market: This is a network of specialized financial institutions that in various ways

bring together supplies and users of fund in a long term purpose.

Securities: Securities are written or reported document by which chain of holders in

specified property are secured, this could be stock, shares or bonds.

Company Capitalization: This is the total amount of equity investment in a company that

could also include long-term debt that is considered by the company and debt holders as an

investment in the company.

19
Market Operators: Consisting of the issuing houses, (Merchant bank) stock broking firms,

trustees, registrars, etc.

Automate Trading System: A security trading arrangement whereby transaction on the

stock exchanges are achieved through network of companies.

20
 CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1 Conceptual Framework

The existence of excessive volatility in the stock market undermines the usefulness of stock

prices as a signal about the true intrinsic value of a firm, a concept that is core to the

paradigm of the informational efficiency of market (Karolyi, 2011). The increase trading on

the stock market could have affected the volatility of the stock market. However, investors

have recently been worried about the falling stock prices on the Nigerian stock market

(Olowe, 2009). Also, the Nigerian stock exchange is a developing and inefficient one

characterized by the time lag between information availability about a stock and its full

reflection in the price of the stock, poor infrastructural facilities in the country which makes it

virtually impossible for information to flow freely and speedily to actual and potential

investors, activities of corporate insiders and insider abuses.

2.1.1 The Nigerian Stock Exchange

The Nigerian Stock Exchange was established in 1960 as the Lagos Stock Exchange. In

December, 1977, it become Nigerian Stock Exchange, with branches established in some of

the major commercial cities of the country. At present, there are 9 (Nine) branches of the

Nigerian Stock Exchange. Each branch has trading floor. The branch in Lagos was opened in

1961; Kaduna, 1978; Port Harcourt, 1980; Kano, 1989, Onisha, 1990 and Ibadan, August,

1990; Abuja, October, 1999 and Yola, April, 2002. The exchange started operation in 1961

with operatives listed for trading. Today there are about 300 securities listed on the floor of

the Nigerian Stock Exchange; 15 Government stocks, 53 industrial loan stocks and 208,

equity. Integrity is the watchword of the exchange, confidence is essential in this business

and the public trust in the Nigerian Stock Exchange has grown tremendously with over a

million and a half individual investors and hundreds of institutional investor (including

21
foreigners who own 40-60% of the quoted companies) using the facilities of the exchange.

The stock exchanges 40 years history has been devoid of fraud, shocks scandals or insider

dealings. Its operations are automated specifically, there is central securities clearing system

(CSCS), which takes care of clearing from the manual call over system to automated trading

system (ATS) a computerized system. The exchange has in 2002 installed e-business

platform. Source: International research journal of finance and economic issue (2006). And

internet portal that enable investors and other stakeholders monitor the market on line and

real time already, the exchange has commenced full remote trading. By this, stockbrokers can

now trade from their offices or outside the country.

2.1.2 Institutions Fostering IFRS Adoption in Nigeria

On the international front, the World Bank, the International Monetary Fund (IMF), the G8,

the G7 Finance Ministers and Central Bank Governors, International Organization of

Securities Commissions (IOSCO), Basel Committee on Banking Supervision, the United

Nations (UN) and the Organization for Economic Co-operation and Development (OECD)

have publicly recommended the adoption of a single set of global accounting standards or the

IAS. The US SEC Concept released in 2000 on the International Accounting Standards also

encouraged the convergence towards a high quality global financial reporting framework

internationally that will enhance the vitality of capital markets. The European Commission

saw in 2002 a common set of accounting standards as a critical pillar in building a united

capital market in Europe (MC Creevy, 2006). On the national level, many government and

tax authorities want a global accounting standards to regulate and tax businesses that operate

within their countries. In Nigeria, besides the government’s readiness, the Nigerian

Accounting Standards Board (NASB) now the Financial Reporting Council (FRC), Nigerian

Stock Exchange, (NSE) and Central Bank of Nigeria (CBN) were among the major agents for

IFRS adoption in 2012.

22
Basically, a country’s accounting and disclosure system is part of its financial system and

more generally its institutional infrastructure. This is geared towards the informational and

contracting needs of the key parties in the economy and its role in corporate governance and

the capital market. Since the accounting system is complementary to other elements in the

institutional framework, a fit between them is likely what result in different accounting

system and infrastructural regimes across countries (Obasee, 2007). The institutional

framework impacts on the form and content of financial reporting (Zeff, 2006) and the use of

international standard (Nobes & Parker, 2008, Zarzeski, 2006). Stock exchange requirements

form part of the institutional framework which impacts on the use of international standards;

others are company’s choice of foreign exchange and level of disclosure. Cross-border listing

makes reporting with IFRS very necessary for companies listed in stock exchanges under

IFRS jurisdictions.

2.1.3 Developing a Strong Institution Framework for IFRS Adoption

A large pool of researchers, mainly dwelling on compliance, implementation issues, market-

based, the consequences of the implementation, have been conducted on IFRS adoption using

data from countries where IFRS has been adopted or started implementation. Areas

investigated include relevance of accounting data, accounting reporting quality in pre and

post IFRS adoption, impact on cost of capital and market liquidity, market reactions to IFRS

adoption, impact on group accounting and the net profit and equity of companies, comparison

between local and IASB/IFRS (at least Deloitte has conducted extensive, comparative studies

of many countries), economic consequences and stock market Outcomes of voluntary or

mandatory disclosures and adoption etc (Barth et at.2008; Daske, Hail, Leuz & Verdi, 2007;

Negash, 2008; Epstein, 2009, Negash,). Leuz & Wysocki (2008:71-72) suggest that reporting

quality is shaped by numerous factors in countries ‘institutional environments and

interactions between these elements. Also, Irvine & Lucas (2006;13) has called for research

23
to examine challenges involved in actually implementing IFRS in emerging economics.

Along this line, Hail, Leuz & Wysoki (2009) highlight unique institutional features of U.S.

markets to assess the potential impact of IFRS adoption on the quality and comparability of

U.S. reporting practices, ensuing stock market effects, and potential costs of switching from

U.S. GAAP to IFRS. They show that decision to adopt IFRS mainly involves a cost benefit

trade-off between:

1. Recurring, albeit modest, comparability benefits for investors

2. Recurring future cost savings that will largely accrue to multinational companies,

and

3. One-time transition costs borne by all firms and the U.S. economy as a whole,

including those from adjustments to U.S. institutions.

Daske, Hail, Leuz & Verdi (2007) also examine the impact of IFRS adoption in 26 countries

on market liquidity, cost of equity capital and Tobin’s q. They find that, on average, market

liquidity and equity valuations increase around the introduction of mandatory IFRS in a

country. However, these market benefits exist only in countries with strict enforcement

regimes and institutional environments that provide strong reporting incentives. Malriat

(2009) argues that the best results countries with strict enforcement regimes and institutional

structures that provide strong reporting incentives. These countries are more likely to have

discernable capital-market effects when using IFRS reporting. A “serious “commitment to

IFRS has shown larger cost of capital and market liquidity benefits compared to adopting

IFRS as a “label”. Weak institution structures result in polarized non-compliance with IFRS

especially in developing and transitional economies (Street et al., 2006; Street & Gray, 2007;

Abd-Elsalam & Weetman, 2009) the inappropriateness of IFRS in developing and transitional

countries has reflected in the high level of non-compliance with these standsards (Abayo et

al., 2003; Solas, 2004; Street et al., 2009; Street et al., 2011; Street & Gray, 2011; Abd-

24
Elsalam & Weetman, 2013). The reasons adduced include shortage of accountants and skill

gap. Irvine & Lucas (2006) argue that emerging economy such as United Arab Emirate in

embracing globalization and adopting IFRS, will need to develop appropriate regulatory

systems to overcome cultural issues relating to secrecy and fraud. It is argued that developing

countries and emerging economies, in pursuing the global economic benefits offered by the

adoption of IFRS, face challenges in adapting their regulatory infrastructure and culture to

western-oriented accounting standards.

Solas (1994) examined the extent of financial information disclosure by Jordanian companies

according to the requirements of IFRS. He concluded that disclosure was at unacceptable

level. Using a world sample of companies, Street & Gray (2011) found a significant extent of

non-compliance with IFRS in France and Africa. The objective of their research was to

examine the financial statements and footnotes of a worldwide sample of companies referring

to the use of International Accounting Standards (IAS), to explore further the extent of non-

compliance, and most importantly to provide information about the factors associated with

non-compliance. They find a significant extent of non-compliance with IAS and that key

factors associated with levels of compliance include listing status, being audited by a Big 5+2

firm, the manner of reference to IAS, and country of domicile. The decision of the Egyptian

government to mandate an immediate implementation of IFRS in 1997 allowed neither the

listed companies nor the accounting profession adequate time to adapt to the ‘new’ standards.

The result was low non-compliance with their requirements by the listed companies (Kholeif,

2008, Abd-Elsalam & Weetman, 2003) due to relative unfamiliarity with IFRS requirements

and non-availability of an authoritative transition or language effect. This made listed

companies in Egypt ‘selective in their choice of what to comply with. Sucher &

Jindrichovska (2004) consider the issues that arise when implementing new accounting

regulations like IFRS reporting in Czech Republic such s the method of implementation, the

25
scope of IFRS, particular issues with local accounting practice and IFRS, the issue of

enforcement of compliance with IFRS and its relationship with audit, the link between IFRS

reporting and taxation and the provision of education and training as well as a review of the

state of Preparedness and local groups. Armstrong et al (2007) found that investors expected

net benefits to IFRS adoption in Europe associated with increases in information quality,

decreases in information asymmetry more rigorous enforcement of the standards and

convergence. Despite the lofty benefits being envisaged from IFRS adoption by countries all

over the world including Nigeria, a critical issue that needs consideration is the weak

institutional framework. Ball (2006) argues that implementation is the Achilles heel of IFRS

and the possibility of uniform application of IFRSs across different jurisdictions has been

questioned because of differences in compliance and enforcement mechanisms and different

cultural and institutional contexts (Ball, 2006; Nobes, 2006; Larson & Street, 2004;

Soderstrom & Sun, 2007; Zeff, 2007).

2.1.4 An Overview of the Concept of Harmonization, Convergence and Adoption of

IFRS

The concerns for harmonization of accounting standards and later, convergence in the 1990s

with IFRS are due to the globalization of the Nigerian stock exchange. In fact, it is believed

that accenting harmonization is necessary for the globalization of capital markets (Quigley,

2007). Investors now seek investment opportunities all over the world. Many business entities

continue to expand their operations across national borders. Companies are seeking capital at

the lowest cost anywhere. Securities markets are crossing national boundaries (and increasing

cross-border capital flow). Merger talks among some of the world’s largest stock exchanges

continue and the glowing investment transactions via the internet. There is need for

transparency in the company reports so that investors, lenders and other users of financial

information of companies could compare their performance from one country to another.

26
Also there is the need to provide information that are relevant, reliable and understandable to

meet the needs of investors, for easy comparability of companies’ performance and the

decision to buy, hold or sell made easy through reduction or elimination of difference in

accounting policies and principles between countries.

The term harmonization means “the reconciliation of different accounting and financial

reporting systems by fitting them into common broad classifications, so that form becomes

standard while content retains significant difference” (Matthews & Perera, 2006, p. 322).

Convergence means the process of converging or bringing together international standards

issued by the IASB and existing standards issued by national standard setters, with the aim of

eliminating alternatives in accounting for economic transactions and events. The ultimate

objective of convergence is to achieve a single set of internally consistent, high quality global

accounting standards, issued by the IASB and adopted by all the national standard setters

(IASB, 2003).

The need for global convergence of stock exchange markets or for an international standard

setter is to:

1. Recognize the growing need for international market standards.

2. Ensure no individual standards setter has a monopoly on the best solutions to stock

market problems.

3. Ensure no national standard setter is in a position to set market standards that can gain

acceptance around the world.

4. Clarify that there are many areas of stock market operations in which a national

standards setter finds it difficult to act alone.

Convergence is the process by which standard setters across the globe discuss accounting

issues drawing on their combined experiences in order to arrive at the most appropriate

solution. Obazee (2007) suggests that convergence could be either by adoption (a complete

27
replacement of national accounting standards with IASB’s standards) or by adaptation

(modification of IASB’s standards to suit peculiarities of local market and economy without

compromising the market standards and disclosure requirements of the IASB’s standards and

basis of conclusions). Convergence was meant to bring standards like the US GAP and IFRS

closer or harmonize them; to IFRS adoption around the world: convergence and endorsement

approaches. SEC (2010) classifies jurisdictions which do not adopt IFRS as issued by the

IASB as following the convergence approach. They keep their local standards but make effort

to converge with IFRS over time e.g. China. Endorsement approach is where jurisdictions

incorporate individual IFRSs into their local standards e.g. countries in the EU. But adoption

of IFRS means full scale implementation or usage of IFRS without any variation.

Convergence may facilitate adoption over a transition period but it is not substitute for

adoption. Therefore countries must resist the temptation of converging and go for full IFRS

adoption. IFRS adoption is believed to have the most significant impact on stock exchange

market operations, functions, enhance greater transparency and disclosures in financial

statements, etc (Ball, 1995, 2006; Epstein, 2009, Adam, 2009). However, clear empirical

evidences of the economic consequences from mandatory adoption of IFRS have been

limited (Daske et al., 2008).

2.1.5 Challenges of IFRS on the Business of NSE

The principal impeding factors in the adoption process of IFRS in Europe, America and the

rest of the world are not necessarily technical but cultural issues, mental models, legal

impediments, educational needs and political influences (Obazee, 2007). According to Rong-

Ruey Duh (2006), the implementation challenges include: timely interpretation of standards,

continuous amendment to IFRS, accounting knowledge and expertise possessed by financial

statement users, preparers, auditors and regulators, and managerial incentive (Ball, Robin &

Wu, 2008). The historical differences in accounting thought, context, ethos and practice in

28
the broad divides: Anglo-Saxon, Continental Europe and Southern American (Nobes, 2003.,

Ball, 2005) make harmonization and moving from one tradition to another difficulty.

Although IFRS has the potentials to facilitate cross-border comparability, increase reporting

transparency, decrease information costs, reduce information asymmetry and thereby increase

the liquidity, competition and efficiency of markets (Ball, 2006; Choi & Meek, 2005),

Armstrong et al., (2007) and Soderstrom & Sun (2007) have found that cultural, political and

business differences may also continue to impose significant obstacle in the progress towards

a single global financial communication system because a single set of accounting standards

cannot reflect the differences in national business practices arising from differences in

institutions and cultures. The perception of IFRS quality by users is critical to IFRS adoption.

For instance, in a recent survey by McEnroe & Sullivan (2011), individual investors felt

satisfied with the current US accounting model and do not desire movement towards IFRS

adoption. Similarly, Winney et al (2010) found that small businesses in the US were not

prepared for IFRS because they do not see benefits in switching from GAAP to IFRS.

Others serious challenges to IFRS adoption include:

1. IASB funding, staffing and governance structure, consistent adoption.

Adopters need assurance of IASB true independence with stable funding, expert staffing,

appropriate governance to ensure standards setting process is free from undue influence and

politicization maneuvers. This will ensure IASB legitimacy and assure the confidence of

market participants and adopting nations around the world (Saudagaran, 2006).

2. Dominance of the developed countries and political lobbying

The developed countries want to dominant the IASB structure and standards setting process

to the detriments of the developing countries. There is also strong lobbying and opposition by

these groups to IASB’s standards (Ball, 2005, Nobes & Zeff, 2008).

3. Consistent adoption, application and regulatory review

29
Presently most IFRS adoptions are in labels (Daske et al, 2007) and with various versions

which are inconsistent with IASB’s prescription (Ball, 2006). Besides there are lots of uneven

applications, breeding different IFRS versions (Tsakumis et al, 2009). Nobes (2006) has

indicated the motivations and opportunities for different IFRS to continue. There must be a

coordinated regulatory review a coordinated regulatory review and enforcement mechanism

to facilitate consistent application. The complexity of certain IFRSs and tax orientation of

most nations have been identified as the two most significant impediments to convergence

(Larson & Street, 2004).

4. Compliance issues and enforcement mechanisms

There have been varying levels of compliance with IFRS despite claims by companies that

their financial statements complying with IFRS. Equally disturbing is auditors failed to

express opinion on IFRS compliance or non-compliance (Cairns, 2001). A major challenge is

enforcement mechanisms of IFRS especially in jurisdictions with weak institutions and

enforcement agencies.

5. Cultural and structural changes in the various institutions in a country

The challenges face in adopting IFRS in terms of changing culture and developing systems of

regulation and accountability are quite enormous. There are cultural, languages, regulatory

and accounting profession challenges as well as demands for greater accountability and wider

political participation and embracing of necessary political reforms faced by countries in

adopting IFRS. In fact embracing globalization and adopting IFRS has challenges as it makes

necessary reforms to a country’s regulatory, legal and economic structures and adaption of its

culture to the West. There is increased need for training and education for investors,

accountants, auditors, preparers and users of financial reports etc, development of IFRS

curricula at the university and other levels, adjustment of the accounting training and

education to incorporate IFRS. The legal system must be conversant with the new IFRS

30
standards as it applies to tax issues and other applications of laws. The adoption of IFRS must

involve the strengthening of the various institutions which will enhance its effective

implementation such as: preparers (managers) and enforcers, auditors (status, independence,

training, compensation, tough judgement), legal systems and courts, regulators, accounting

boards, ownership structure/block shareholders, politicians, law-makers, analysts, rating

agencies, accounting professional bodies, tax authorities and capital market regulators),

corporate governance structure, the press, public, educational institutions and business

schools, financial market (structure, depth and intermediation) etc (Ball, 2006).

2.1.6 Solutions to the challenges of IFRS on the business of NSE

The adoption of IFRS continues with many countries setting timetable or roadmap for

adoption expecting to reap the benefits of IFRS adoption. Nevertheless, there are

numerous challenges a country must confront and overcome. A critical assessment of

stock exchange markets where IFRS has been adopted and implemented reveals that

institutions like Nigerian stock exchange which has just adopted IFRS or those of

countries about to adopt or converge their local GAAP with IFRS must be adequately

prepared however for effective IFRS adoption, the following are suggested:

1. Effective implementation of IFRS requires careful planning and extensive public

education, the allocation of resources, a legal and regulatory support system and

institutional support with strong management systems. Unless the various stakeholders

are integrally involved and included in development plans and how they are affected,

they will be reluctant to support the change and IFRS adoption may not succeed.

2. The communications system for informing users of the changes in reporting

requirements must be effective and responsive. Users of financial statements have to be

able to interpret financial reports and raise questions about an entity’s performance.

Efforts to build good corporate governance and enhance corporate transparency will be

31
 successful only when the key stakeholders have the desired knowledge to understand the

financial reports and interrogate reported information. Also, the transition plans to IFRS

and its implications for preparers, users, educators and other stakeholders have to be

effectively communicated.

3. Adequate resources must be put in place to support the sustainable implementation of

IFRS. This includes having consultative groups available to respond promptly to

concerns by users and to provide for their ongoing training. Assisting key stakeholders,

including regulators with training, and possessing the required resources to interpret and

apply the requirements of IFRS is a critical element underlying the successful

implementation of IFRS.

4. Suitable standards must be developed to facilitate recognition of the small and medium

scale enterprises (SMEs) because most of the standards include complex and detailed

disclosure issues applicable to larger companies which are listed in the stock exchange.

5. Continual training of auditors, regulators, analysts and other users is an important factor

in the transition to IFRS. In fact, capacity building of the various stakeholders by the

accounting profession is a necessity.

6. Strong accounting institutional framework must be in place to champion and manage the

IFRS change process. Nigeria stock exchange had the Financial Report Council of 2011

but the other institutions frameworks were not put in place.

7. The adoption of IFRS has impact on a country’s national statistics. Data on productivity,

efficiency and stock market profitability are often times collected by the government

statistical authority for national reporting.

8. Introduction of an awareness program by government to improve the degree of

compliance with accounting requirements by specified business enterprises. Regulatory

agencies in Nigeria like the CBN, ICAN, FIRS, SEC and NSE should work jointly to

32
 design an awareness program on the importance of compliance with accounting

requirements of IFRS.

9. On the basis of proper compliance of IFRS, the regulatory authorities can provide

significant benefits for firms reporting regularly and complying with IFRS and other

necessary requirements like relaxing the listing criteria or providing incentives in either

monetary or non-monetary forms.

10. An independent oversight body like the Financial Reporting Council should be

strengthened to shoulder the responsibility of setting accounting and auditing standards,

monitoring compliance with accounting standards, reviewing auditors’ practice and

reviewing reporting practices and enforcing sanctions for violations. The government

should ensure the capacity and effectiveness of this regulatory regime to provide a real

sense of security to stakeholders because one of the critical elements in the

implementation of IFRS is the rigorous enforcement of standards.

2.2 Theoretical Framework

A stock exchange operation is founded on several theories including agency, information

asymmetry, decision usefulness theory, and stakeholder theory. For the review, I

consider agency theory and the information asymmetry paradigm the most important in

explaining business of NSE and financial reporting. The two are discussed in the section

below.

2.2.1 Agency Theory

Agency theory is founded on the economic theory; it was developed by Alchian, A. A., &

Demsetz, H. (1972). Was further advanced by Jensen, M. C. & Meekling, H. W. (1976).

Agency theory is defined in the context of the relations between the principals (shareholders)

and agents (company executives and managers). In this theory, shareholders who are the

owners or principals of the company, hires the gents to perform work. Ownership and control

33
separation leads to agency problems since the managers who act as agents may at times not

act in the principals’ interests (Jensen, M. C., & Meekling, H. W. 2006). This is attributable

to the non-alignment interests of the agent and the principal. Agency problem leads to agency

costs to firms due to the sum expenses related to monitoring activities by the principals,

agents bonding expenses and the related residual costs. The agency problems arise when the

agent is not solely acting towards maximization of shareholders wealth. They may act to

protect their personal interests and growth of the firm in place of earnings. Inefficiencies may

reduce as the management incentive to take value maximizing decisions increases (Jensen,

M. C., & Meekling, H. W. 2006). Agency cost result from divergent interests of owners and

the firm’s managers, agency cost include: costs of monitoring; costs bonding; residual losses,

free cash flow and debt costs. A monitoring cost is incurred by the principal so as to observe

and control the agent’s behaviour. Asymmetric information also contribute to the agency

problem, managers of a firm being more knowledgeable on the firm as compared to the

lenders and shareholders, if outsiders are unable to make sound judgment over an institution’s

financial results, and they term the performance of an institution as being moderate. This

results in a firm’s shares being either undervalued or vice versa. Such asymmetry among the

insiders and the outsiders of a firm create the need to incur monitoring costs which includes:

costs to undertake financial audits; preparing reliable accounting reports; contracts for

executive compensation and the costs of replacing managers if there’s need. The shareholders

who are the principals delegate the running of the business to the directors or managers who

are agents’ of the shareholders’ (Clark, T., 2004). A survey of the theory’s application to the

conflict of interest between managers, shareholder and the creditors establish that the

analyzing such conflicts and their resolution increase the knowledge of survival of various

contractual practices which may have been taken for granted or with great suspicion. It also

demonstrates that often close relation between organizational and financial practices (Jensen,

34
M. C., & Smith Jr., C. W. 2000). According to the theoretical model, value of the institutions

to the shareholders arises from regulations and agency costs. Indicators of governance are a

reflection institution’s ability in effectively supporting agency costs minimization which has

to be borne by the shareholders. These governance indicators consist of measures of

government’s stability, regulations of financial markets and corruption levels. The above

factors help shape the abilities of institutions in governing the operations of financial markets.

A well governed environment increases returns to shareholders through reduction of both

agency costs and transaction costs (Hooper D. U., Chapin, F. S., Ewel, J. J., Hector, A.,

Inchausti, P., Lavoral, S., Lawton, J. H., Lodge, D. M., Loreau, M., Neem, S., Schimid, B.,

Setala, H., Symstad, A. J., Vandermeer, J., and Wardle, D. A. 2005).

Agency theory, re-establish the importance of self-interests and incentives in organizations

(Perrow, C. 1986). Agency theory brings to light the fact that much of organization’s life is

founded on the self-interests. Agency theory emphasizes the common problems structure

across various research is now an important topics. As Burney, J., & Ouchi, W. (1986)

describe it, organizational based research is now an important topic, rather than a theory

cantered. Agency theory reminds us that common structural problems exist in different areas

of research areas. Agency theory make specific contribution to organizational research and

thinking first, is treatment of information, under agency theory, information is treated like an

item with a cost and capable of being purchased. This therefore assigns an important role to

information systems like management by objectives (MOB), budgeting and the board of

directors and the informal ones like supervision. The effect of this is that an organization is

able to invest in systems so as to control for agency opportunism. Agency theory also

generates predictions which widely differ from what one may observe externally from an

individual’s behaviour and in the structures of an organization. A positive theory therefore

arises, which is falsifiable since the potential problems identified by the theory are genuine.

35
The criticism of this theory is based on the fact that while an agent is expected to work in

congruence to the principal’s interest, this is not the case always. An agent may pursue their

own goals different from the principal’s, worsening the agency problems. Further, the view

that agency problems between the principals and the agent is the main basis firms incur

monitoring costs is not factual due to existence of other parties interested in the financial

statements.

2.2.2 Information Asymmetry Theory

Information asymmetry is founded on Akerlof’s paper about the market for lemons (Akerlof,

G. A. 2007). The paper examined traded commodities quality in markets. Results of the paper

indicated that the traded goods quality reduce in the presence of informational differences

between the buyer and the seller, thus, creating lemon problems. In America, this relates to

newly bought cars which faulty. It exists when a buyer is unable to distinguish a higher

quality car and a lemon. In such a case, the customer pays for a car they perceive to be of

high quality when in reality it is not. It is only the seller who knows whether the car is a

lemon (faulty) or not (high quality). This presents a problem of adverse selection which arises

when buyers make decisions on incomplete or incorrect information. This paradigm considers

financial markets as imperfect and parties intending to get into a financial contract are

believed not to have sufficient information useful to conclude transactions in their own

(Mwangi, L., Makau, M., & Kosimbei, G. 2014). Accounting through financial reporting is

expected provide links to parties both inside and outside the organization in relation to access

to financial information of the firm through disclosure. Financial reports may be viewed as

intermediaries between internal and external parties to an organization. Non-disclosure of

material financial information leads to an imbalance on informational position of the insiders

and the outsiders to an organization. Financial reporting therefore helps reduce the

asymmetry through prescription of minimum acceptable disclosure as provided by the

36
accounting standards. Such requirements facilitate the disclosure of all the useful information

for decision making by the user of financial statements. Accounting standards harmonization

therefore helps in lowering the information asymmetry between insiders and outsiders (Yu,

G. 2010). Information asymmetry arises in accounting out of the fact that the firm managers

are involved in the daily operations of the firm including preparation and presentation of

operational results through financial reports. Parties external to the firm are not likely to

know the true state of affairs of the firm if incorrect or incomplete financial reports are

prepared by the managers. This presents an adverse selection problem to investors as they are

likely to base their investment decisions on inaccurate information. In view of the above,

accounting standards were formulated so as to ease informational differences in financial

reporting through provision of the minimum information disclosure requirements, though it

does not totally eliminate the problem fully due to the discretion provided by the accounting

standards. This presents an opportunity to the preparers of financial statements with options

when it comes to financial reporting. This discretion may create opportunities for the

management of earnings by the firm management furthering the information asymmetry with

the outsiders to the firm. The criticism of this paradigm is that it is heavily dependent on the

regulation of financial markets this is due to the fact that the regulations provide the

minimum information to be disclosed and in some cases dictate the quality of disclosure.

Further, the paradigm is founded on the market for new cars yet there exists strong markets

for second hand vehicles. Additionally, the fact that, the buyers may have their own way of

assuring themselves of quality for their purchases is not considered.

2.2.3 Decision Usefulness Theory

This theory was formulated in 1950s (Berry, A., & Robertson, D. (2006). In the 1950s

accounting reports offered little help in relation to making economic decisions (Mardini, G.

H. (2012). Due to this, there was need for information that is useful for decision making.

37
Decision making basis in relation to economic matters relates to information obtained in the

financial reports relevant to decision making (Mardini, G. H. (2012). This theory relates to

provision of sufficient and useful information to investors so as to make judgements about

the future performance of the firm (Deegan, C. & Rankin, M. 1997). The quality of financial

information influence the user’s ability in the evaluation of performance of the firm

(Glauitier, M. & Underdown, B. (2001). The objective of preparing a financial report is to

provide information to users to make an informed choice (Deegan, C., & Rankin, M. 2007).

For financial information to be useful, it should be easy to understand, reliable, relevant and

should aid users make comparisons (Sterling, R. R. (1970). These qualities are critical in

decision making such that when one misses the information of the accounting reports

usefulness reduces (Kieso, D. E., Waygandt, J. J., T. D. (2009). Financial information needs

to bias-free, be objective and presented timely. Information is objective if at least two

independent professional persons examine same data set will get the same conclusions

(Mardini, G. H. (2012). Information is free of bias, if it is prepared and presented

impartially. Delays in financial reports diminish their relevance in decision making (Al-

khouri, R., & Balgasem, M. 2006). Financial information needs to be verifiable (Sterling, R.

R. 2003). Williams (2007) as cited by Mardini, G. H. (2012) observed that the fundamental

objective of financial reporting is aiding in making decisions. Decision usefulness theory

generally is divided into two: those focusing on the decision makers and those focusing on

decision making models (Bebbington, J., Gray, R., Hibbit, C., & Kirk, E. 2001). Studies

focusing decision makers analyze what decision need, further it makes an assumptions that

users know what users know what they consider useful (Deegan, C., & Rankin, M. (2007).

This approach’s criticism is based on the fact that there is different information need for

different entities (Deegan, C. (2000). In decision model approach the information prepare

view user needs as secondary (Hitz, J. M. (2007). Decision model is founded on the

38
perception that the preparer perception of what information is useful to make effective

decisions therefore the preparers determines the information to be disclosed (Mathews, M.

R., & Perera, M. H. 2006). Decision model however, results to a bias in research bias by

focusing on preparers of the information and the assumption that there is uniform

information needs by the various parties.

Adoption of IFRS makes financial information more useful by providing a basis for

comparing through application of a uniform base. IFRS adoption reduces biasness by

production of high quality information relevant for making decisions.( Mardini, G. H.

(2012). IASB further strengthen the need to have higher quality information through

specification of requirements of useful accounting information IASB, (2008). This theory

has been applied by the studies of Kribat, M. (2009) of which analyses of IFRS was made.

Decision usefulness theory has gained acceptance by accounting researchers due to the lack

of a viable alternative, it is also the most important theory in explaining development of

accounting theory Staubus, G.( 2000).

This theory has been criticized, for instance, Armstrong M. S. (2007). Observes that few

accounting professionals believe accounting information primary aim is the provision of

information that is relevant to make decision. Also the theory doesn’t clearly specify the

interest groups of users in evaluation of the relevance of information Dey,

2.2.4 Stakeholder Theory

Stakeholder theory proposes that a firm possess implicit and explicit contracts drawn from

various stakeholders and they are responsible for all the contracts Freeman (R. 1984). Due to

these contracts, companies develop reputation which helps in determining its trading terms

and negotiations with its stakeholders. The relationship between firms and their stakeholders

is defined legally by explicit contracts while implicit contracts lack legal standing as a result

they are self-enforcing contracts. Implicit contracts may be breached from time to time, there

39
are self-enforcing if a firm’s present value increases as a result of its reputation being higher

than losses if the firm were to renege on its contracts. Empirically, this is deemed factual due

to the fact that organization’s stakeholders influence organizations both positively and

negatively. An organization’s activities impact on various individuals for whom their

interests are affected adversely or favourably. According to [71] stakeholder theory is

fundamentally a pragmatic concept due effective management of important relationships

regardless of the purpose. The theory is normative since it conveys a notion of important

moral principles capable of influencing activities of corporate (Deegan, C. (2000).

The balancing of diversified needs of the various stakeholders create challenges to

accountants in preparing financial reports; the pressure to satisfy various interests may result

in omission of important information due to the fact that a lot of effort id directed to the

needs of stakeholders. The need for organizations to meet the interests of all stakeholders

creates opportunities for creative accounting and corruption in firms due to offering its

agents an opportunity of diverting wealth from shareholders of a firm to others (Freeman, R.

(2004).

2.3 Empirical Review

Quite number of study has dealt with IFRS in Nigeria and its environs. In the study of

Onafalujo et al, (2011) on the “Impact of International Financial Reporting Standards on

Insurance Management in Nigeria”. The paper stated that (IFRS) is a global agenda to foster

common benchmark in financial information across international borders with the aim of

generating greater momentum for economic development. Insurance management handles a

large part of entrepreneurial risks and feedback long term capital into the economy; but

insurance accounting is driven by contingent liabilities and asset volatilities that requires

global standards. The paper concludes that financial measurement model as envisioned by

IFRS 4 and 7 are quite relevant to Nigerian financial environment. But, there is need to

40
modify to a more restrictive model in the determination of insurance accounting items to

enable future compliance to IFRS be efficient. The Granger Causality, Co-integration and

impulse response tests performed on the insurance variables suggest efficient outcome in the

long run. This paper argues that, the application of IFRS standards vide the use of

observable market inputs, unobservable market inputs and experience variance of operates

are still difficult in the short run, they are achievable in the long run. However, the paper

recommends that in view of the uniqueness of high volatilities of the Nigerian stock market,

low level of actuarial data and experience, and low demand of insurance; the adoption of

IFRS for the Nigerian Insurance could be stylized by Nigerian Accounting Standards Board

(NASB) like the FAS157 into levels 1, 2 and 3 using the ‘fair value hierarchy’ to reflect the

need for standardized measurements for assets and liabilities. This should be transited in the

long-run and not to adopt the ‘big-bang’ approach.

In a similar study on Adoption of IFRS in developing countries the case of Ghana by Akiwi,

(2010). The study aims at understanding the development of accounting in Ghana and how

accounting has evolved over the years. The main objectives of the study are: to assess the

factors the influenced the adoption of IAS/IFRS in Ghana, the benefits of the adoption of

these standards and the demerits as well. More importantly, the question as to whether

accounting standards is relevant to developing countries was subtly considered in this study.

The paper stated that the advent of companies going international or even global has given

rise to the need to develop accounting standards that ensure uniformity and standardization

of stock market information among parent companies and subsidiaries. The IASC in

capacity develop accounting standards which seeks to satisfy the need for a universal

accounting financial reporting system. However, in the year 2001, the IASB which

succeeded the IASC develop the IFRS which complement the IAS. Another study on The

Adoption and Implementation of (IFRS): Evaluation of the Roles of Key Stakeholders in

41
Nigeria by Akhidime, (2010). The paper stated that numerous challenges face the adoption

and implementation of International Financial Accounting Reporting Standards, the

foremost being fully prepared for the adoption. Considering that convergence to a single set

of globally accepted high quality standards is vital to economic growth and ultimately in the

best interest of the public, that it is imperative for all the key stakeholders to consider the

need for their cooperation in overcoming the attendant challenges that some of the adoption

and implementation of International Financial Accounting Reporting Standards. It is in these

areas and levels of cooperation expected of key stakeholders that are being critically

reviewed in this paper. The paper concludes that it is obvious that all those involved in the

financial reporting process will need to take one action or the other. Numerous challenges

face the adoption and implementation of international accounting reporting standards, the

foremost being prepared or being fully prepared for the adoption. The government and

regulators up to standard setters must provide the legal and regulatory enabling environment

that would make not only for the adoption and implementation but also for effective

enforcement of compliance support towards effective and speedy convergence, while the

education and training of professional accountants must keep pace with changing

environment of convergence of international accounting standards. Investors, analysts,

financial reporters and the general public must be kept abreast of the changes and the

attendant consequences of adopting the standards. Considering that convergence to a single

set of globally accepted high quality standards is vital to economic growth and ultimately in

the best interest of the public, it is imperative for all the key stakeholders to consider the

need for their cooperation in overcoming the attendant challenges that come with the

adoption and implementation of International Financial Reporting Standards.

In a related study by Okafor and Killian, (2011) on Potential Effects of the Adoption and

Implementation of (IFRS) in Nigeria. The objective of the study is to examine the potential

42
effects of adoption and implementation of IFRS in Nigeria from the perspective of

stakeholders. It presents the results from a questionnaire survey of a sample of accounting

lecturers, auditors and accountants. The data were analysed using the Chi Square statistical

tool. The study found that International Financial Reporting Standards have the potential for

yielding greater benefits that current GAAP, improve business performance management

and impact on other business functions apart from financial reporting. The study also finds

that IFRS adoption will add to financial reporting. The study also finds that IFRS adoption

will add to financial reporting complexities and increase compliance with accounting

standards. The study recommends that management should start making comprehensive

plans ahead of IFRS adoption.

In trying to elicit the opinion of stakeholders in financial reporting in Nigeria, regarding the

necessity for the ongoing mandatory adoption of IFRS in Nigeria, Isenmila and Adeyemo,

(2013) on “A Perception Based Analysis of the Mandatory Adoption of (IFRS) in Nigeria”

adopt the questionnaire survey method to seek respondents’ views on the subject matter.

Understanding firms’ adoption of IFRS can allow for insights into the benefits and costs

colligated with such adoption. Specifically, the study expected to be of significance to

Equity Investors’ Group, Governments and Regulators, National standard setter,

International Standards Setters and Donor Agencies, and various organizations engaged in

accounting processes. The paper therefore employed the One Way Repeated measure

Analysis of Variance, and the Likelihood Ratio Test, otherwise referred to as G-test or

maximum likelihood statistical significance test, in resolving the three hypotheses in the

paper. The results shows that there is a statistically significant difference in the perception of

the stakeholders about the desirability of the mandatory adoption of IFRS. The stakeholders

of interest were Preparers of Financial Reports, Auditors, Capital Market Operators, and

Trainers of accounting students. Capital Market Operators was found to be the most

43
optimistic about the success of the adoption of IFRS, while Auditors seem to be the least

optimistic. Additionally we found that mandatory adoption of IFRS will have significant

prospects as well as challenges on the activities of stakeholders. We recommended inter alia,

that the capacity of regulators (Corporate Affairs Commission, Securities and Exchange

Commission, National Insurance Commission, Central Bank of Nigeria to mention but a

few) must be strengthened so as to enable them to effectively deal with accounting and

financial reporting practices of the regulated concerns, so that the mandatory adoption of

IFRS in Nigeria, does not become a mere labelled or nominal one.

On the paper of Afego (2011) on the Stock Price Response to Earnings Announcements:

Evidence from the Nigerian Stock Market, This paper examines the stock market reaction to

annual earnings information releases using data on the Nigerian Stock Exchange. Using the

event study method, the speed of reaction of the market to annual earnings information

releases for a sample of 16 firms listed on the exchange is tested. Significant abnormal price

reactions around earnings announcements suggest the earnings announcements contain

value-relevant information. The paper find that the magnitude of the cumulative abnormal

returns is dominated by the significant reactions 20 days before the earnings release date

which suggests that a portion of the market reaction may be due to private acquisition and,

possibly, abuse of information by insiders. The persistent downward drift of the cumulative

abnormal returns, 20 days after the announcement, is inconsistent with the efficient markets

hypothesis, and therefore suggests that the Nigerian stock market does not efficiently adjust

to earnings information for the sample firms with in the study period.

On the study of Ajao and Wemambu (2012) on Volatility Estimation and Stock Price

Prediction in the Nigerian Stock Market. The study aimed at understanding the Nigerian

Stock Market with regards to volatility and prediction, to this effect the month end stock

prices of four major companies from the period January, 2005 to December, 2009 was used

44
as proxy. The study makes use of the Autoregressive Conditional Heteroskedasticity

(ARCH) to estimate and find out the presence of volatility. According to the study, the

presence of volatility in all the four stock prices used, while stock price volatility was then

regressed against stock prices to determine their predictability. The results however,

revealed that out of the four companies, only two companies’ stock prices were predicted by

volatility in their stock prices, while past stock prices predicted current stock prices implying

that the market does not follow a random walk. As a result of these, it is recommended that

activities of corporate insiders should be properly checked, to reduce the predictability of

stock prices, information should be known and made public to all investors. Also policy

makers are advised to review their economic policies and should be careful in their use of

the Nigerian bourse as a barometer to reflect performance in the general economy as our

findings suggests that this could be misleading.

Kenneth, (2012) on Adoption of IFRS and Financial Statements Effects: the Perceived

Implications on FDI and Nigeria Economy. He state that the IFRS adoption is already an

issue of global relevance among various countries of the world due to the quest for

uniformity, reliability and comparability of financial statements of companies. The paper

however investigated the effect of IFRS adoption on Foreign Direct Investment and Nigeria

Economy. The population used consists of quoted companies in Nigeria Stock Exchange

(Preparers) and Investment Analysts (Users). Stratified Random sampling method was

adopted and primary data used to elicit responses with 123 structured questionnaires

administered. Findings showed that IFRS has been adopted in Nigeria but only fraction of

companies has implemented with deadline for the others to comply. It is perceived that IFRS

implementation will promote FDI inflows and economic growth. It was recommended that

all stakeholders should endeavour to have full implementation to reap benefits of the global

GAAP and principle – based standards.

45
2.4 Summary of Literature Review

The review discussed Effect of the International Financial Reporting Standards on the stock

exchange performance of Nigeria. it sees IFRS as an important factor in the business of

Nigerian stock exchange market. The need to deregulate financial markets has created a

unified goal geared towards having uniform standards of accounting in order to help in the

smooth flow of capital across economics and across the various global capital markets. The

review observed significant efforts geared towards the harmonization of the standards of

accounting globally as evidenced by the many stock exchange markets which since adopted

and incorporated IFRS in their regulatory reporting requirements. The literature reviewed

focused on Historical Background of the internationalization of accounting standards,

Institutions fostering IFRS Adoption, Developing a strong institution framework for IFRS

Adoption, overview of the concept of Harmonization, Convergence and Adoption of IFRS,

Challenges of IFRS on the business of NSE, Solutions to the challenges of IRS on the

business of NSE, etc. from the review it was noted that majority of the studies reviewed were

mainly drawn from the developed nations, that is, European Union, United States and other

developed countries fewer studies are available for developing countries like Nigeria. the

studies indicate mixed results as to the benefits of IFRS on the business of stock exchange

markets which can be attributable to the political, economic and legal differences among

nations. The review further noted that the studies reviewed did not consider the effect of other

variable such as political, institutional, legal, firm specific and macroeconomic factors despite

the fact that they are likely to affect IFRS regulations of stock exchange markets, contributing

to varied results across nations.

It is evident that previous related studies have been carried out in this area of impact/effects

of IFRS on the business and operations of stock exchange markets and some of the works are

in this research. However, form the researcher’s best of knowledge and literature, no research

46
has been carried out on the effect of IFRS on the performance of NSE, to be precise. Such

study is very useful especially in determining the tremendous benefits arising from IFRS

adoption to stock exchange markets, which include, enhance liquidity of markets, higher

following by analysts, minimized information asymmetry, and lower costs of capital, increase

of cross listings by firms, improved foreign holdings and higher turnover of capital markets.

It is hoped that the study will fill in perceived gaps in knowledge of this subjects matter.

47
 CHAPTER THREE

3.0 Research Methodology

The aim of this chapter is to discuss the method adopted by the researcher in carrying out this

research. The chapter contains the research design, sources of data, population of the study,

sample size, validity and reliability of the instrument, model specification and method of data

analysis.

3.1 Research Design

Nachimians (2001), defined research design as the logical model of proof, which allows the

researcher to draw inferences concerning relationship among variables under investigation.

Based on the purpose of this study, a cross sectional survey design is adopted. This method

involves the normal gathering, analysis and interpretation of a set of data so as to explain the

underlying factors that surrounds the problems that trigger the research.

3.2 Area of Study

The area of study of this work is Onitsha Stock Exchange market, Anambra State, Nigeria.

3.3 Source of Data

Data used for this research were primary and secondary data.

3.3.1 Primary Source:

This is first-hand information originated by the researcher. For this study, questionnaire will

be used to collect the primary data.

The questionnaire was designed in a Likert Summation manner which was scaled thus:

Strongly agree (SA) 4

Agree (A) 3

Disagree (DA) 2

Strongly Disagree (SD) 1

48
The questionnaire was administered directly to the respondents who were the top and middle

management staff of Onitsha Stock Exchange, and was retrieved by the researcher

thereafter.

3.3.2 Secondary Source:

The secondary data used for this research were obtained from relevant textbooks, magazines,

journals, Newspapers and the internet.

3.4 Population of the Study

Population is defined as the aggregate of all elements defined prior to the selection of a

sample (Kinnear and Taylor 2002). The target population for this study consists of the entire

top and middle management staff of Onitsha Stock Exchange.

According to the information obtained from documents provided by this organization

concerning their population, we have:-

Onitsha Stock Exchange: - - - - - - 120

Total – 120

The population of this study is one hundred and twenty (120) derived from the selected

Nigerian Stock Exchange (Onitsha).

3.5 Sample Size and Sample Techniques

To arrive at the sample of study, the sampling procedure was carefully chosen. Denga and Ali

(2003) describe sampling as the procedure of selecting or drawing form some population of

possible cases with the aim of ensuring that the portion of the population being selected is

representative of the population. The sample size is determined using Taro Yamen formular

of finite population, and it is shown below:

N
n =
1 + N(e)2

49
 Where n = sample size

N = Finite population = 120

1 = constant

e = error tolerance (significant level) = 5% = 0.05

The sample size of the population is computed thus:

N
n=
1 + N(e)2

120 120 120 120

n= = = = = 92
1 + 120 (0.05) 2 1 + 120 (0.0025) 1 + 0.3 1.3

Therefore, n = 92.

As the sample size is 92, the researcher will issue 92 questionnaires to the entire top and

middle management staff of Onitsha Stock Exchange to answer. The questionnaire designed

for survey will be structured in a straight forward manner in order to reduce the time needed

by respondents to complete the questionnaire and for easy understanding of the questions.

3.6 Validity and Reliability of Instrument

According to words of Mark Easterby – Smith (2002), “reliability is primarily a matter of

stability”. If the collected data were not accurate, relevant and could not pertain to the topic

(i.e. if it were not valid, the data will be useless).However, in this research study, effort has

been to ensure that the information obtained from the respondents through administration of

questionnaire is free from bias and other external influence.

More so, an instrument is said to be reliable if it measures the same variable of different times

to the same set of respondents and obtains result which are consistently similar. So the results

50
obtained by the researcher from the administration of the instrument used are the same or

closer to being the same every time it is obtained.

3.7 Method of Data Analysis

After the data was collected it was organized and analyzed. For analysis, a computer program

called Statistical Package for Social Sciences (SPSS) was used. Multiple Regression Analysis

was used in carrying-out the analysis so as to determine the strength of both the dependent

variable and the independent variables. The formula of Linear equation is as stated below:

+++++666666666666666666666666666666666666666666666666666666666666666666666

Y = a+b1X1 + b2X2 + b3X3 + C

3.8 Model Specification

According to the stated hypothesis of the study, the multiple regression models are stated

thus:

IFRSA = f(SRNSE, SMASI, TC) ..................................................(1)

IFRSA = ᵝ0+ᵝ1 SRNSE +ᵝ2 SMASI +ᵝ3 TC +ei

Where:

IFRS = IFRS adoption

SRNSE = Supervisory role of Nigeria Stock Exchange

SMASI = Stock market of all shares index

TC = Total capitalization

ᵝ1 = Unknown constant to be estimated

ᵝ1 - ᵝ3 = Slope coefficient of the explained variables

e1 = error term

Decision Rule

If T calculated > T tabulated reject H0

Accept H0 if T calculated < tabulated.

51
52
 CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND DISCUSSION OF FINDINGS

4.1 Questionnaire Return Rate
Table 4.1: Distributed and Return of the Questionnaire
Questionnaire Frequency Percentage
Returned 80 86.9
Not Returned 12 13.1
Total 92 100
Source: Field Survey, 2018
Table above shows that is 92 questionnaire were distributed (100%) of the questionnaire were

distributed. 86.9% representing 80 respondents returned their questionnaire while 13.1%

representing 12 respondents did not returned their questionnaire. Therefore, the researcher

used 80 questionnaire.

Table 4.2 Distribution of Respondents According to Gender

Frequency Percent Valid Percent Cumulative

Percent
Male 43 51.8 51.8 51.8
Valid Female 40 48.2 48.2 100.0
Total 83 100.0 100.0
Source: Field Survey, 2018
This study sought to know the demographic characteristics of the respondents as regards to

their sex. 62.9% representing 73 respondents are male, 37.1% representing 43 respondents

are female. This study implies that the respondents are of different sex (i.e. male and

female) and that the males are the dominant gender than the female in the study.

53
Table 4.3 Distribution of Respondents According to Age
Frequency Percent Valid Percent Cumulative
Percent
25-30 23 27.7 27.7 27.7
31-35 30 36.1 36.1 63.9
Valid 36-40 25 30.1 30.1 94.0
40 and above 5 6.0 6.0 100.0
Total 83 100.0 100.0
Source: Field Survey, 2018
The study above showed the distribution of the respondents according to their age. 23

representing 27.7% of the respondents aged between 25 years and 30 years, 30

representing 36.1% of the respondents aged between 31 years and 35 years, 25

representing 19.0% of the respondents aged between 36 years and 40 years, 5 representing

6.0% of the respondents aged between 40 years and above. This study implies that the

respondents in the study area are of different age bracket. Furthermore, the majority

(36.1%) of the respondents aged between 31 and 35 years while the minority of the

respondents aged between 40 years and above respectively.

Table 4.4: Distribution of Respondents According to Years of Experience

Frequency Percent Valid Percent Cumulative
Percent
Less than one year 6 7.2 7.2 7.2
1-5 years 19 22.9 22.9 30.1
6-10 years 26 31.3 31.3 61.4
Valid
11-15 years 25 30.1 30.1 91.6
16 and above 7 8.4 8.4 100.0
Total 83 100.0 100.0
Source: Field Survey, 2018
The distribution of the respondents according to their years of experience was examined.

7.2% representing 6 respondents had less than one year experience. 19 representing 22.9%

of the respondents had between 1-5 years. 26 representing 31.3% of the respondents had

between 6 years and 10 years working experience, 25 representing 30.1% of the

54
respondents had between 11 years and 15 years working experience, 7 representing 8.4%

of the respondents had between 16 years and above working experience. The study

showed that respondents had different years of working experience. Also, the dominant

percentage of the respondents had 6-10 years of working experience.

Table 4.5: Distribution of Respondents According to their Academic Qualification

Frequency Percent Valid Percent Cumulative
Percent
WASC/GCE 6 7.2 7.2 7.2
HND 29 34.9 34.9 42.2
Bachelor’s Degree 33 39.8 39.8 81.9
Valid
Master’s Degree 9 10.8 10.8 92.8
PhD 6 7.2 7.2 100.0
Total 83 100.0 100.0
Source: Field Survey, 2018

As can be clearly seen from the table above, all the respondents in this study have one

academic qualification or the other. 7.2% representing 6 respondents had WASC/GCE.

Those with HND qualifications totaled 29 which is an equivalent of 34.9 percent. 33

respondents representing 39.8% of the respondents had B.Sc while 9% representing 10.8

respondents had M.Sc degree. Finally, 7.2% representing 6 respondents had PhD certificate.

The study above implied that the respondents came from different academic backgrounds

and that the majority of the respondents had B.Sc. certificate.

Table 4.6: Distribution of respondents according to their Marital Status

Frequency Percent Valid Cumulative

Percent Percent
Single 44 53.0 53.0 53.0
Married 31 37.3 37.3 90.4
Valid
Divorced 8 9.6 9.6 100.0
Total 83 100.0 100.0
Source: Field Survey, 2018

55
The distribution of the respondents according to their marital status is shown above. The

study revealed that 53% representing 44 respondents were single, while 37.3%

representing 31 respondents were married. 8 representing 9.6 respondents representing

9.6% were divorced. This implies that the respondents are of different marital status and

the majority of the respondents (53.0%) were single.

Table 4.7: To identify the effect of IFRS adoption on the supervisory role
of the Nigeria Stock Exchange
s What are the effect of IFRS SA A UN SD D ̅
𝑿 SD Remar
/ k
adoption on the supervisory role
n
of the Nigeria Stock Exchange?
A IFRS improves the quality of 8 27 20 20 8 3.08 1.160
Accept
Financial statements and increase
access to global capital market
B IFRS adoption ensures the use of 12 23 25 11 12 3.14 1.251 Accept
one standard for both the parent
and subsidiary companies
C IFRS has positive effect on the 17 18 19 14 15 3.10 1.393 Accept
information for control and
decision making by investors
D IFRS adoption has significant 15 17 20 16 15 3.01 1.366 Accept
effect on the supervisory role of
the Nigeria Stock Exchange
Source: Field Survey, 2018
Key
𝑋̅ = Mean
SD = Standard Deviation

The effect of IFRS adoption on the supervisory role of the Nigeria Stock Exchange was

examined with a mean criterion of 2.5. All the four (4) item statement on the effect of IFRS

adoption on the supervisory role of the Nigeria Stock Exchange was accepted by the

respondents. This was arrived based on the fact that their respective mean score were greater

than the criterion mean. All the respondents recorded a mean score range of 3.01 to 3.14.

respondents with mean score of 3.08 reported that IFRS improves the quality of Financial

statements and increase access to global capital market. Respondents with mean score of 3.14

56
submitted that IFRS adoption ensures the use of one standard for both the parent and

subsidiary companies. Respondents with mean score of 3.10 asserted that IFRS has positive

effect on the information for control and decision making by investors. finaly, respondents

with mean score of 3.01believed that IFRS adoption has significant effect on the supervisory

role of the Nigeria Stock Exchange.

Table 4.8: To examine the effect of IFRS adoption on stock market of all

shares index

s What are the effect of IFRS SA A UN SD D ̅

𝑿 SD Rem
/ adoption on stock market of ark
n all shares index?
a IFRS adoption has 3 31 20 15 14 2.93 1.177 Accept
significant impact on Share
Market Price
b IFRS adoption to a high 3 37 21 11 11 3.12 1.120 Accept
extent has impact on
Earnings per Share
c IFRS adoption affect 15 24 21 11 12 3.23 1.300 Accept
Dividend per Share
d IFRS adoption to a high 3 29 23 13 15 2.90 1.175 Accept
extent has on Profit after
Tax
Source: Field Survey, 2018
Key
𝑋̅ = Mean
SD = Standard Deviation

The effect of IFRS adoption on stock market of all shares index was examined with a mean

criterion score of 2.5 and four item statement. Based on the criterion mean score of 2.50, all

the four item statement listed was accepted as the effect of IFRS adoption on stock market of

all shares index. The respondents with mean score of 2.93 submitted that IFRS adoption has

significant impact on Share Market Price. Respondents with mean score of 3.12 reported that

IFRS adoption to a high extent has impact on Earnings per Share. Respondents with mean

57
score of 3.23 agreed that IFRS adoption affect dividend per Share Finally, respondents with

mean score of 2.90 submitted that IFRS adoption to a high extent has on Profit after Tax.

4.9 To ascertain the effect of IFRS adoption on total capitalization

s What are the effect of IFRS SA A UN SD D ̅

𝑿 SD Rema
/ rk
adoption on total capitalization?
n
a IFRS adoption influences Share 3 29 26 12 13 2.96 1.131 Accept
capital
b IFRS adoption affects retained 23 20 16 12 12 3.36 1.402 Accept
earnings
c IFRS adoption has an effect on 3 36 19 12 13 3.05 1.168 Accept
Preferred stock
d IFRS adoption impacts on 18 29 13 13 10 3.39 1.314 Accept
Treasury stock
Source: Field Survey, 2018
Key
𝑋̅ = Mean
SD = Standard Deviation

The effect of IFRS adoption on total capitalization was examined above with four item

statement and a criterion mean score of 2.50. Based on the criterion mean score, all the

four item statement listed were accepted as the Effect of Employee Knowledge Sharing on

Organizational. Respondents with mean score of 2.96 supported that IFRS adoption

influences Share capital. Respondents with mean score of 3.36 agreed that IFRS adoption

affects retained earnings. Respondents with mean score of 3.05 submitted that IFRS

adoption has an effect on Preferred stock. Respondents with mean score of 3.39 believed

that IFRS adoption impacts on Treasury stock.

58
TABLE 4.10: Regression results between IFRS adoption and supervisory
role of the Nigeria Stock Exchange

Variable Coefficient Std. Error t-Statistic Prob.

C 1.944414 0.915185 2.124612 0.1236

SRNSE 0.056049 0.015567 3.600558 0.0367

R-squared 0.812077 Mean dependent var 5.030000

Adjusted R-squared 0.749437 S.D. dependent var 1.434765
S.E. of regression 0.718190 Akaike info criterion 2.465010
Sum squared resid 1.547392 Schwarz criterion 2.308785
Log likelihood -4.162525 Hannan-Quinn criter. 2.045718
F-statistic 12.96402 Durbin-Watson stat 1.266493
Prob (F-statistic) 0.036748

Source: E Views Version 8

Model Unstandardized Standardized t Sig.

Coefficients Coefficients
B Std. Error Beta
(Constant) 1.944 .915 2.125 .124
1
SRNSE .056 .016 .901 3.601 .037
a. Dependent Variable: IFRSA
R = .901
R-Square = .812
Adjusted R-Square = .749
SEE = .17819
F – Statistic (df1=1 & df2=3) = 12.964
Durbin Watson Statistic = 1.266
Source: Researcher’s Estimation, 2018

59
 TABLE 4.11
Regression results between IFRS adoption and stock market of all shares

index

VARIABLE ESTIMATED STANDARD T- P-

COEFFICENTS ERROR Statistic Value
Constant 25.333 2.792 9.075 .000
SMP .086 .013 6.615 .000
EPS .066 .009 7.333 .000
DPS .011 .005 2.200 .000
PAT .071 .007 6.735 .002

R = 0.964
R-Square = 0.935
Adjusted R-Square = 0.874
SEE = 21.269
F – Statistic (df1=3 & df2=479) = 20.012 (P-value .000)
Durbin Watson Statistic = 2.211
Dependent variable: IFRSA

Source: E Views Version 8

Key:
SMP = Share Market Price
EPS = Earnings per Share
DPS = Dividend per Share
PAT = Profit after Tax

60
 TABLE 4.12
Regression results between IFRS adoption and total capitalization

Variable Coefficient Std. Error t-Statistic Prob.

C 2.251459 0.846950 2.658316 0.0764

TC 5.343348 1.504277 3.552103 0.0380

R-squared 0.807907 Mean dependent var 5.030000

Adjusted R-squared 0.743876 S.D. dependent var 1.434765
S.E. of regression 0.726116 Akaike info criterion 2.486960
Sum squared resid 1.581732 Schwarz criterion 2.330735
Log likelihood -4.217399 Hannan-Quinn criter. 2.067668
F-statistic 12.61744 Durbin-Watson stat 2.250950
Prob(F-statistic) 0.038034

Model Unstandardized Standardized t Sig.

Coefficients Coefficients
B Std. Error Beta
(Constant) 2.251 .847 2.658 .076
1
DPS 5.343 1.504 .899 3.552 .038
a. Dependent Variable: IFRSA

R = .808
R-Square = .808
Adjusted R-Square = .744
SEE = .72612
F – Statistic (df1=1 & df2=3) = 12.617
Durbin Watson Statistic = 2.251
Source: Researcher’s Estimation, 2018

61
4.2 Data analysis

Table 4.10 shows the regression results between IFRS adoption and supervisory role of the

Nigeria Stock Exchange. The regression results showed that the estimated coefficient of the

regression parameter have a positive sign and thus conform to our a-priori expectation. The

implication of this sign is that the dependent variable IFRS adoption is positively affected by

the supervisory role of the Nigeria Stock Exchange. The coefficient of determination R-

square of 0.901 implied that 90.1% of the sample variation in the dependent variable IFRS

adoption is explained or caused by the explanatory variable while 9.9% is unexplained. This

remaining 9.9% could be caused by other factors or variables not built into the model. The

high value of R-square is an indication of a very good relationship between the dependent

variable IFRS adoption (IFRSA) and independent variable supervisory role of the Nigeria

Stock Exchange. The value of the adjusted R2 is 0.749. This shows that the regression line

which captures 74.9 per cent of the total variation in IFRSA is caused by variation in the

explanatory variable specified in the model with 25.1 per cent accounting for the stochastic

error term. The F-statistic was also used to test the overall significant of the model. The F-

value of 12.964 is an indication that the model is statistically significant at 5 percent level of

significant at degree of freedom df1= 1 and df2= 3. Finally, the test of autocorrelation using

DW test shows that the D.W value of 1.266 falls within the inconclusive region of DW

partition curve. Hence, we can clearly say that there exists a degree of autocorrelation.

Table 4.11 shows the Regression results between IFRS adoption and stock market of all

shares index. The regression results showed that the estimated coefficient of the regression

parameter have a positive sign and thus conform to our a-priori expectation. The implication

of this sign is that the dependent variable IFRS adoption (IFRSA) is positively affected by the

62
independent variables (SMP, EPS, DPS and PAT). The coefficient of determination R-square

of 0.964 implied that 96.4% of the sample variation in the dependent variable IFRS adoption

(IFRSA) is explained or caused by the explanatory variable while 3.6% is unexplained. This

remaining 3.6% could be caused by other factors or variables not built into the model. The

high value of R-square is an indication of a very good relationship between the dependent

variable IFRS adoption (IFRSA) and independent variable (SMP, EPS, DPS and PAT). The

value of the adjusted R2 is 0.874. This shows that the regression line which captures 87.4 per

cent of the total variation in IFRS adoption (IFRSA) is caused by variation in the explanatory

variable specified in the model with 13.6 per cent accounting for the stochastic error term.

The F-statistic was also used to test the overall significant of the model. The F-value of

20.012 is an indication that the model is statistically significant at 5 percent level of

significant at degree of freedom df1= 1 and df2= 3. Finally, the test of autocorrelation using

DW test shows that the D.W value of 2.211 falls within the conclusive region of DW

partition curve. Hence, we can clearly say that there exists no degree of autocorrelation.

Table 4.12 shows the regression results between Regression results between IFRS adoption

and total capitalization. The regression results showed that the estimated coefficient of the

regression parameter have a positive sign and thus conform to our a-priori expectation. The

implication of this sign is that the dependent variable IFRS adoption (IFRSA) is positively

affected by Total capitalization (TC). The coefficient of determination R-square of 0.808

implied that 80.8% of the sample variation in the dependent variable IFRS adoption (IFRSA)

is explained or caused by the explanatory variable while 19.2% is unexplained. This

remaining 19.2% could be caused by other factors or variables not built into the model. The

high value of R-square is an indication of a very good relationship between the dependent

variable IFRS adoption (IFRSA) and independent variable Total capitalization (TC). The

value of the adjusted R2 is 0.744. This shows that the regression line which captures 74.4 per

63
cent of the total variation in IFRS adoption (IFRSA) is caused by variation in the explanatory

variable specified in the model with 25.6 per cent accounting for the stochastic error term.

The F-statistic was also used to test the overall significant of the model. The F-value of

12.617 is an indication that the model is statistically significant at 5 percent level of

significant at degree of freedom df1= 1 and df2= 3. Finally, the test of autocorrelation using

DW test shows that the D.W value of 2.251 falls within the conclusive region of DW

partition curve. Hence, we can clearly say that there exists no degree of autocorrelation.

4.3 Test of hypotheses

Hypotheses one

H01: There is no significant effect of IFRS adoption on the supervisory role of the Nigeria

Stock Exchange

H1: There is significant effect of IFRS adoption on the supervisory role of the Nigeria

Stock Exchange

With reference to table 4.10, the calculated t-statistics of 3.601 is greater than the critical

value (i.e.1.96), the null hypothesis is rejected and the alternative accepted. This means that

there is significant effect of IFRS adoption on the supervisory role of the Nigeria Stock

Exchange

Hypotheses Two

H02: IFRS adoption has no significant effect on stock market of all shares index

H2: IFRS adoption has significant effect on stock market of all shares index

With reference to table 4.11, the f-statistic value of 20.012 with a probability of 0.000 is

significant. This implies that the null hypothesis is rejected and the alternative accepted

meaning IFRS adoption has significant effect on stock market of all shares index.

Hypotheses three

64
H03: IFRS adoption has no significant effect on total capitalization

H3: IFRS adoption has significant effect on total capitalization

With reference to table 4.12, the calculated t-statistics of 3.55 is greater than the critical value

(i.e.1.96), the null hypothesis is rejected and the alternative accepted. This means that IFRS

adoption has significant effect on total capitalization

4.4 Discussion of Findings

Based on the analysis and the empirical results the study revealed that the estimated

coefficient of the regression parameter have a positive sign and thus conform to our a-priori

expectation. The implication of this sign is that the dependent variable IFRS adoption

(IFRSA) is positively affected by supervisory role of the Nigeria Stock Exchange, stock

market of all shares index. Finally, the study revealed that IFRS adoption has significant

effect on total capitalization.

65
66
 CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary of Findings

Following the research conducted on the topic “effect of IFRS on the performance of
Nigerian Stock Exchange”. The following were discovered;

i. There is significant effect of IFRS adoption on the supervisory role of the Nigeria

Stock Exchange

ii. IFRS adoption has significant effect on stock market of all shares index.

iii. There is significant effect of IFRS adoption on total capitalization

5.2 Conclusion

As every financial report is published to provide accounting information to external users, it

does not guarantee a success in their investment. However, adequate understanding of

financial report and the application of this accounting report would result to favorable

investment. It can therefore be concluded that IFRS adoption has a significant effect on the

performance of Nigerian Stock Exchange based on their reliance, understanding and

application of this information.

5.4 Recommendations

On the basis of the findings, the following recommendations were made:

i) Investors should be interested in understanding the components of the annual reports

as a better understanding would lead to better and more profitable investment.

ii) Investors should not only rely on the annual report but should also strengthen their

knowledge and understanding of their investment through newspapers, magazines,

stock exchange market and even from advice of stock brokers.

67
iii) The researcher also recommends that there should be adequate and proper regulation

of accounting reported by relevant capital market authorities, increased investors awareness

through increased knowledge of financial analysis, reassurance of safeguard of investment by

the Nigerian Government, better accounting information disclosure and improved and

quality financial reporting and ethical standards in the preparation and presentation of

accounting information.

iv) There is no doubt based on the findings of this study that Nigeria investors and policy

makers might forecast changes in firms‟ stock market values with changes in financial

reporting sometime in future. The importance of the quality of information sourced

from accounting statements cannot be overemphasized. It is therefore recommended that

there should be consistency in financial reporting of entities.

68
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74
 APPENDIX A

Department of Accounting

College of Management Sciences,

Michael Okpara University of Agriculture,

Umudike.

P.M.B. 7267, Umuahia, Abia State, Nigeria.

August, 2018.

Dear Respondent,

REQUEST FOR COMPLETION OF QUESTIONNAIRE

This is a field survey questionnaire of an undergraduate of the above named department and
institution.

I am currently conducting a research work on “effect of IFRS on the performance of Nigerian

Stock Exchange”. The questionnaire is designed to collect relevant information that will
enable the researcher to carry out a realistic and detailed study on the above mentioned topic.

Please kindly fill up this information and return. Any information obtained for this purpose
will be kept strictly confidential and will only be used for academic purpose. Your
cooperation will be highly appreciated in this regards. Thank You!

Yours faithfully,

Okpara Rosemary O.

MOUAU/ACC/14/17986

75
 QUESTIONNAIRE

Instruction: Please tick (√) as it is applicable to you. Please tick only one respond to a
question.

DEMOGRAGHIC:

1. Gender: Male ( ) Female ( )

2. Age group: 25-30 ( ) 31-35 ( ) 36-40 ( ) 40 and above (
)
3. How many years of experience do you have? Less than one year ( ) 1-5 ( )
6-10 ( ) 11-15 ( ) 16 and above ( )
4. Qualification(s): WASC/GCE ( ) HND ( ) Bachelor’s Degree ( ) Master’s
Degree
( ) PhD ( )
5. Marital Status: Single ( ) Married ( ) Divorced ( )
Guide: Strongly Agree (SA), Agree (A), Neutral (N), Disagree (D), Strongly Disagree (SD).

i. To identify the effect of IFRS adoption on the supervisory role of the

Nigeria Stock Exchange

S/No What are the effect of IFRS adoption on the supervisory SA A N D SD

role of the Nigeria Stock Exchange?
1. IFRS improves the quality of Financial statements and
increase access to global capital market
2. IFRS adoption ensures the use of one standard for both the
parent and subsidiary companies
3. IFRS has positive effect on the information for control and
decision making by investors
4. IFRS adoption has significant effect on the supervisory role
of the Nigeria Stock Exchange

ii. To examine the effect of IFRS adoption on stock market of all shares index

S/No What are the effect of IFRS adoption on stock market SA A N D SD

of all shares index?
6. IFRS adoption has no significant impact on Share Market
Price
7. IFRS adoption to a high extent has no impact on Earnings
per Share
8. IFRS adoption does not affect Dividend per Share

76
9. IFRS adoption to a high extent has no impact has no effect
on Profit after Tax

iii. To ascertain the effect of IFRS adoption on total capitalization

S/No What are the effect of IFRS adoption on total SA A N D SD

capitalization?
11. IFRS adoption influences Share capital
12. IFRS adoption affects retained earnings
13. IFRS adoption has an effect on Preferred stock
14. IFRS adoption impacts on Treasury stock

77
Frequency Table

distribution of respondents according to gender

Frequency Percent Valid Percent Cumulative Percent

Male 43 51.8 51.8 51.8

Valid female 40 48.2 48.2 100.0

Total 83 100.0 100.0

distribution of respoondents according age group

Frequency Percent Valid Percent Cumulative Percent

31-35 67 80.7 80.7 80.7

36-40 11 13.3 13.3 94.0

Valid
40 and above 5 6.0 6.0 100.0

Total 83 100.0 100.0

distribution of respondents accprding to years of experience

Frequency Percent Valid Percent Cumulative Percent

Less than one year 6 7.2 7.2 7.2

1-5 years 19 22.9 22.9 30.1

6-10 years 26 31.3 31.3 61.4

Valid
11-15 years 25 30.1 30.1 91.6

16 and above 7 8.4 8.4 100.0

Total 83 100.0 100.0

distribution of respondents according to level of management

Frequency Percent Valid Percent Cumulative Percent

top management 16 19.3 19.3 19.3

middle management 50 60.2 60.2 79.5

Valid
low management 17 20.5 20.5 100.0

Total 83 100.0 100.0

distribution of respondents according academic qualification

Frequency Percent Valid Percent Cumulative Percent

WASC/GCE 6 7.2 7.2 7.2

HND 29 34.9 34.9 42.2

Valid
Bachelor’s Degree 48 57.8 57.8 100.0

Total 83 100.0 100.0

78
 distribution of respondents according to marital status

Frequency Percent Valid Percent Cumulative Percent

Single 52 62.7 62.7 62.7

Valid Married 31 37.3 37.3 100.0

Total 83 100.0 100.0

What are the effect of IFRS adoption on the

supervisory role of the Nigeria Stock Exchange?

Frequency Percent

Missing System 83 100.0

IFRS improves the quality of Financial statements and increase access to global capital market

Frequency Percent Valid Percent Cumulative Percent

disagree 8 9.6 9.6 9.6

strongly disagree 20 24.1 24.1 33.7

neutral 20 24.1 24.1 57.8

Valid
Agree 27 32.5 32.5 90.4

strongly agree 8 9.6 9.6 100.0

Total 83 100.0 100.0

IFRS adoption ensures the use of one standard for both the parent and subsidiary companies

Frequency Percent Valid Percent Cumulative Percent

disagree 12 14.5 14.5 14.5

strongly disagree 11 13.3 13.3 27.7

neutral 25 30.1 30.1 57.8
Valid
Agree 23 27.7 27.7 85.5

strongly agree 12 14.5 14.5 100.0

Total 83 100.0 100.0

IFRS has positive effect on the information for control and decision making by investors

Frequency Percent Valid Percent Cumulative Percent

disagree 15 18.1 18.1 18.1

strongly disagree 14 16.9 16.9 34.9

neutral 19 22.9 22.9 57.8

Valid
Agree 18 21.7 21.7 79.5

strongly agree 17 20.5 20.5 100.0

Total 83 100.0 100.0

79
 IFRS adoption has significant effect on the supervisory role of the Nigeria Stock Exchange

Frequency Percent Valid Percent Cumulative Percent

disagree 15 18.1 18.1 18.1

strongly disagree 16 19.3 19.3 37.3

neutral 20 24.1 24.1 61.4

Valid
Agree 17 20.5 20.5 81.9

strongly agree 15 18.1 18.1 100.0

Total 83 100.0 100.0

What are the effect of IFRS adoption on stock market of all shares index?

Frequency Percent Valid Percent Cumulative Percent

disagree 16 19.3 19.3 19.3

strongly disagree 17 20.5 20.5 39.8

neutral 17 20.5 20.5 60.2

Valid
Agree 16 19.3 19.3 79.5

strongly agree 17 20.5 20.5 100.0

Total 83 100.0 100.0

IFRS adoption has no significant impact on Share Market Price

Frequency Percent Valid Percent Cumulative Percent

Disagree 14 16.9 16.9 16.9

strongly disagree 15 18.1 18.1 34.9

Neutral 20 24.1 24.1 59.0

Valid
Agree 31 37.3 37.3 96.4
strongly agree 3 3.6 3.6 100.0

Total 83 100.0 100.0

IFRS adoption to a high extent has no impact on Earnings per Share

Frequency Percent Valid Percent Cumulative Percent

disagree 11 13.3 13.3 13.3

strongly disagree 11 13.3 13.3 26.5

neutral 21 25.3 25.3 51.8

Valid
Agree 37 44.6 44.6 96.4

strongly agree 3 3.6 3.6 100.0

Total 83 100.0 100.0

80
 IFRS adoption does not affect Dividend per Share

Frequency Percent Valid Percent Cumulative Percent

disagree 12 14.5 14.5 14.5

strongly disagree 11 13.3 13.3 27.7

neutral 21 25.3 25.3 53.0

Valid
Agree 24 28.9 28.9 81.9

strongly agree 15 18.1 18.1 100.0

Total 83 100.0 100.0

IFRS adoption to a high extent has no impact has no effect on Profit after Tax

Frequency Percent Valid Percent Cumulative Percent

disagree 15 18.1 18.1 18.1

strongly disagree 13 15.7 15.7 33.7

neutral 23 27.7 27.7 61.4

Valid
Agree 29 34.9 34.9 96.4

strongly agree 3 3.6 3.6 100.0

Total 83 100.0 100.0

What are the effect of IFRS adoption on total capitalization?

Frequency Percent Valid Percent Cumulative Percent

disagree 13 15.7 15.7 15.7

strongly disagree 14 16.9 16.9 32.5

neutral 19 22.9 22.9 55.4

Valid
Agree 18 21.7 21.7 77.1

strongly agree 19 22.9 22.9 100.0

Total 83 100.0 100.0

IFRS adoption influences Share capital

Frequency Percent Valid Percent Cumulative Percent

disagree 13 15.7 15.7 15.7

strongly disagree 12 14.5 14.5 30.1

neutral 26 31.3 31.3 61.4

Valid
agree 29 34.9 34.9 96.4
strongly agree 3 3.6 3.6 100.0

Total 83 100.0 100.0

81
 IFRS adoption affects retained earnings

Frequency Percent Valid Percent Cumulative Percent

disagree 12 14.5 14.5 14.5

strongly disagree 12 14.5 14.5 28.9

neutral 16 19.3 19.3 48.2

Valid
agree 20 24.1 24.1 72.3

strongly agree 23 27.7 27.7 100.0

Total 83 100.0 100.0

IFRS adoption has an effect on Preferred stock

Frequency Percent Valid Percent Cumulative Percent

disagree 13 15.7 15.7 15.7

strongly disagree 12 14.5 14.5 30.1

neutral 19 22.9 22.9 53.0

Valid
agree 36 43.4 43.4 96.4

strongly agree 3 3.6 3.6 100.0

Total 83 100.0 100.0

IFRS adoption impacts on Treasury stock

Frequency Percent Valid Percent Cumulative Percent

disagree 10 12.0 12.0 12.0

strongly disagree 13 15.7 15.7 27.7

neutral 13 15.7 15.7 43.4

Valid
agree 29 34.9 34.9 78.3

strongly agree 18 21.7 21.7 100.0

Total 83 100.0 100.0

Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

distribution of respondents
83 1.00 2.00 1.4819 .50271
according to gender
distribution of respoondents
83 2.00 4.00 2.2530 .55969
according age group
distribution of respondents
83 1.00 5.00 3.0964 1.07765
accprding to years of experience
distribution of respondents
83 1.00 3.00 2.0120 .63427
according to level of management

82
distribution of respondents
83 1.00 3.00 2.5060 .63194
according academic qualification
distribution of respondents
83 1.00 2.00 1.3735 .48667
according to marital status
What are the effect of IFRS
adoption on the supervisory role of 0
the Nigeria Stock Exchange?
IFRS improves the quality of
Financial statements and increase 83 1 5 3.08 1.160
access to global capital market
IFRS adoption ensures the use of
one standard for both the parent 83 1 5 3.14 1.251
and subsidiary companies
IFRS has positive effect on the
information for control and decision 83 1 5 3.10 1.393
making by investors
IFRS adoption has significant
effect on the supervisory role of the 83 1 5 3.01 1.366
Nigeria Stock Exchange
What are the effect of IFRS
adoption on stock market of all 83 1 5 3.01 1.418
shares index?
IFRS adoption has no significant
83 1 5 2.93 1.177
impact on Share Market Price
IFRS adoption to a high extent has
83 1 5 3.12 1.120
no impact on Earnings per Share
IFRS adoption does not affect
83 1 5 3.23 1.300
Dividend per Share
IFRS adoption to a high extent has
no impact has no effect on Profit 83 1 5 2.90 1.175
after Tax
What are the effect of IFRS
83 1 5 3.19 1.383
adoption on total capitalization?
IFRS adoption influences Share
83 1 5 2.96 1.131
capital
IFRS adoption affects retained
83 1 5 3.36 1.402
earnings
IFRS adoption has an effect on
83 1 5 3.05 1.168
Preferred stock
IFRS adoption impacts on
83 1 5 3.39 1.314
Treasury stock
Valid N (listwise) 0

83