COMPARATIVE VALUE RELEVANCE OF ACCOUNTING INFORMATION FOR CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS IN LISTED FINANCIAL SERVICE FIRMS IN NIGERIA

COMPARATIVE VALUE RELEVANCE OF ACCOUNTING INFORMATION FOR CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS IN LISTED FINANCIAL SERVICE FIRMS IN NIGERIA

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CHAPTER ONE

INTRODUCTION `

1.1       Background to the study

Accounting is the measurement, processing and communication of financial information about

economic entities. It is a systematic process of providing information about the wealth and the

effects of economic events. It reveals profit or loss for a given period, and the value and nature of

a firm‘s assets, liabilities and owners‘ equity. In order for accounting information to be useful, it

must possess certain qualities – relevance, reliability, comparability and consistency; and meet

certain standards (e.g. International Financial Reporting Standard - IFRS). Accounting means

different things to different stakeholders and the conceptions held by every user may influence

the impact of accounting information on their behaviour. Accounting information is meaningfulif

it is relevant. The primary decision-specific qualities that make accounting information useful

are relevance and reliability (Barth, Beaver & Landsman,2012).

Value relevance is the ability of the information contained in the financial statement to capture

and summarize firm value; explain and reflect stock market measures. Accounting information is

measured based on how accounting numbers translate to share price. Investors are guided on the

pricing of shares to make investment decisions (Vishnani & Shah, 2008).An indication of

relevant accounting information is market reaction at the time of announcement of information

observed through the movements in stock prices (Naimah, 2012). The reaction of the stock

market to accounting information is dependent on the efficiency of such market. An efficient

market is one in which stock prices behaviour reflect publicly available information - this done

on a sophisticated manner.

1


As accounting numbers are available in the financial statements, the share price measurement are

based on two perspectives; information perspectives and measurement perspective; information

perspective measures the usefulness of accounting to individuals without much emphasis on the

structural precision of the relation between accounting data and firm value and measurement

perspective; share price movement is based on the degree of volume or price change following

the release of the information – this is rooted from theoretical framework of equity valuation

model (Ohlson, 1995). The Ohlson model expressed firm value as a function of book value and

earnings. The Ohlson model assumes that there is no information asymmetry between managers


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