EFFECT OF FAIR VALUE ACCOUNTING ON EARNINGS PREDICTABILITY OF LISTED COMMERCIAL BANKS IN NIGERIA
Author(s): Faculty of Management Sciences, University of Calabar . Alphonsus Kechi Kankpang; Joseph Enyam Nkiri
Abstract
This study examined the effect of fair value accounting on earnings predictability of listed Commercial banks in Nigeria. It aimed to evaluate the effect of fair value intensity as well as fair value measurement hierarchy level two on the earnings predictability of listed Commercial banks in Nigeria. Correlational research design was used to assess the effect of fair value accounting on earnings predictability of listed Commercial banks in Nigeria. The population and sample of the study consist of all 16 listed Commercial banks in Nigeria as at 2022. Panel data regression was adopted for the study and the random effect model was selected as the Hausman specification test showed a non-significant result. The study specifically found that fair value intensity has a significant positive association with earnings predictability of listed banks in Nigeria, indicating that the higher the proportion of assets at fair valued, the higher the predictive power of earnings of listed banks in Nigeria. Fair value level two has significant negative relationship with earnings predictability of listed commercial banks indicating that high use of fair value level two measurement input lowers the predictive ability of earnings of listed commercial banks in Nigeria. From the findings it is recommended that Security and Exchange Commission and Central Bank of Nigeria should create enabling environment for active corporate debt instruments market to improve the reliability of fair value measurements. Financial Reporting Council of Nigeria should develop and impose stiff penalties against entities that abuse fair value measurement levels to serve as a deterrent. Auditors and regulatory staff of CBN should be adequately trained to detect sharp practices involving fair value measurement. CBN should put in place robust supervisory and regulatory policies that ensure reliable measurement of fair values of financial instruments.
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