Empirical Discourse on Accounting Conservatism and Financial Performance of Multinational Companies in Nigeria
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Abstract
This study aims at finding out how accounting conservatism influences the financial performance of multinational companies (MNCs) in Nigeria. In particular, it investigates the impact of unconditional and conditional conservatism on the return on equity (ROE) of MNCs in Nigeria. It also considers how financial leverage and size of the firm moderate this relationship. The study takes a positive research approach and collects data from eight cross-sectional entities represented by 120 observations over 15 years (2006 – 2022). During the investigation, information was sought from the sample of eight MNCs that were used. The panel-corrected standard error regression (PCSE) was employed to deal with potential parameterization problems. In conjunction with the regression analysis, several diagnostic tests were conducted including multicollinearity testing, correlation analysis, and descriptive statistics. The statistical software Gretl was used to evaluate the regression results. The results indicate that conditional conservatism enhances the financial performance in terms of the ROE of the sampled MNCs which is significantly higher. On the other hand, unrestricted conservatism has an adverse effect on ROE reducing it. While higher levels of conditional conservatism positively affect the financial performance of MNCs, larger degrees of unconditional conservatism lower their return on equity (ROE). Given these findings, suggestions are given to the management that multinational company managers should opt for conditional conservatism so as to lower information asymmetry in financial reporting since it enhances financial performance as well as operational effectiveness.
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