FAIR VALUATION HIERARCHY AND EARNINGS QUALITY OF LISTED NIGERIAN DEPOSIT MONEY BANK
Gimba A. Keni, Ahamad Bello Ph.D and Abdulkadir Madawaki Ph.D
Volume 3 Issue 2
Abstract
The study investigated the effect of fair value hierarchical measurements on the quality of earnings reported in Nigerian Deposit Money Banks (DMBs), given the magnitude of managerial discretion allowed in Fair value accounting standards that can be opportunistically used to manipulate earnings via the disclosure of financial instrument’s fair value measurement. The study used a sample of thirteen listed DMBs on the NSE website with audited annual reports between 2016 and 2021. A multiple regression analysis via SPSS is used to explore the possible effects of fair value hierarchical measurements on the earnings quality of DMBs. The results revealed that fair value level one measurement which is based on observable market information has a positive and significant effect on the earnings quality of DMBs. On the other hand, the fair value levels two and three measurements which are respectively based on adjusted observable market inputs and unobservable bank inputs are negatively associated with the quality of earnings reported in Nigerian DMBs. By implication, the findings corroborate the arguments in some literature that fair value level 2 & 3 enables opportunistic use of discretion allowed to manage earnings. Therefore, the study recommends the need for regulatory authorities to facilitate an active market for financial instruments and organise effective training via workshops to reduce the complexity around the estimation of fair value level 3 & 2 financial instruments. The study advises further examination of CG mechanisms variables’ roles in the relation between FVA and earnings quality in DMBs. Keywords: Fair Value Hierarchical Levels, And Earnings Quality
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