Effect Of Fair Value And Historical Cost Measurement On The Financial Performance Of Manufacturing Firms In Nigeria

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Jadi, Maitala B , Inyang, Ethel O , Inyang, Ochi I & Eyo Rose & Uzoma, Ihendinihu J


For decades, policymakers and professional experts have debated over the relative merits of Fair Value Accounting and the quality of the information that it provides to investors and other key users of financial statements as against the traditional historical cost method, in terms of adequacy of information disclosure. The objective of this study is to examine the differential effect of fair value accounting and historical cost measurements on firm value and financial performance of manufacturing companies in Nigeria. Data was collected from ten companies’ financial statements from 2005-2014, to measure ROE, ROA and TOTAL ASSETS which are proxies for firm value and financial performance. Data were analyzed using t- test statistic. Results show that fair value measurement increases asset value and equity of a company, thereby guarding against unnecessary erosion caused by overstating profit under the HCA, while ROE and ROA do not significantly differ under the two measurement approaches. The study recommends that more policy (practical approach than paper principles) may be easier, while the need for fair value measurement to be extended to other aspect of income statement than limiting it to balance sheet items may equally be sufficient in measuring performance.

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