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Accounting Conservatism and Earnings Quality of Pharmaceutical Companies in Nigeria

Tonye, Ogiriki, Mac-Obegba, Basilia Ipigansi, Okrinya, Lilian

Abstract

This study examined the effect of accounting conservatism on the accrual quality of listed pharmaceutical firms in Nigeria. Using an ex post facto research design, secondary data were collected from the annual reports of seven listed firms. Measures of conditional and unconditional conservatism were computed from earnings, stock returns, and balance sheet items, while accrual quality was derived from reported accrual components. Descriptive statistics and multiple regression analysis assessed the influence of conservatism on accrual quality. The findings revealed that conditional conservatism negatively and significantly affected accrual quality (? = –0.7358, p = 0.0499), indicating that accelerated loss recognition increased earnings fluctuations. In contrast, unconditional conservatism had a positive and significant effect on accrual quality (? = 0.1779, p = 0.0103), suggesting that long-term conservative reporting enhances financial statement reliability. The study concluded that accounting conservatism plays a critical role in shaping accrual quality and recommended that firms emphasize long-term conservative practices while monitoring conditional conservatism to maintain stable earnings.

Keywords

Accounting conservatismAccrual qualityFinancial reporting

References

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