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FIRMS’ PROFITABILITY AND FINANCIAL REPORTING QUALITY: PRE AND POST IFRS ADOPTION IN NIGERIA
Abstract: – The study examines firms’ profitability and the quality of financial reports: pre and post IFRS adoption in Nigeria. The main objective is to examine the effect of profitability on earnings quality of firms in addition to the impact IFRS has on the profitability of firms in Nigeria. The study uses the quantitative method of analysis, the multiple regression analysis to examine what effect ROE and ROA have on earnings quality and t-test of mean difference to test for difference between the mean of pre and post IFRS adoption. To analyse earnings quality, discretionary accrual is measured using the Jones’ model. The results show that the effect of profitability on the quality of earnings after adoption of IFRS is mix depending on what measure of profitability was adopted. ROE has negative (positive) effect while ROA has positive (negative) effect on discretionary accruals (earnings quality). On the impact of IFRS adoption on profitability of firms, the results show a non-significant impact on the return on equity of firms and a statistically significant impact on the return on assets of firms. Overall, IFRS adoption has had a negative impact on the profitability of firms quoted on the floor of the Nigerian stock exchange.
Key words: Profitability, IFRS, Earnings Quality, Financial Reporting Quality, Earnings Management, Discretionary Accruals