ACCOUNTING ESTIMATES AND CORPORATE VALUATION OF QUOTED FOODS AND BEVERAGES MANUFACTURING FIRMS IN NIGERIA

Abstract

There are growing concern that the level of accounting estimates done by management in financial statements, could either enhance or impair investors and stakeholder’s perspective towards corporate valuation. Hence, this study empirically investigated the relationship between accounting estimates and corporate valuation of quoted foods and beverages manufacturing firms in Nigerian. Panel data were extracted from the published financial statements of foods and beverages manufacturing firms quoted in the Nigerian Exchange Group, spanning 2012-2021.  To evaluate the relationship between accounting estimates and corporate valuation, the study employed provision for depreciation, provision for tax,  and provision for bad debt as proxies of accounting estimates whereas price to book value ratio (PBVR), book value per share (BVPS) and return on investment (ROI) were used as measures of corporate valuation, while firm size serve as a variable of the relationship between accounting estimates and corporate valuation The convenient sampling technique was used to determine the sample size while ex-post facto research design was adopted for the study. The study was built on agency and stakeholders’ theories. Research questions and hypotheses were formulated based on the study objectives; and were tested at 5% level of significance. Four study models were developed and analyzed using descriptive, correlation and panel multiple regression techniques. The results of the analyses showed that all dimensions of accounting estimates and measures of corporate valuation correlated positively and inversely. Specifically, this study concluded that there was a statistically significant relationship between the measures of corporate valuation- price to book value ratio, book value per share, and return on investment with the following accounting estimates variables: provision for depreciation, provision for tax and provision for bad debt. While provision for depreciation exhibited non statistically significant relationship with book value per share and return on investment. Similarly, both provision for tax and provision for bad debt showed non statistically significant relationship with price to book value ratio. The results of Hausman test revealed that accounting estimates measures determine 60.48%, 74.17%, 32.69%, and 45% of the variations in price to book value ratio, book value per share, return on investment and firm size respectively. Similarly, the F-statistic of 3.66, 27.11, 5.41, and 8.81, with p-value of 0.000, is statistically significant at 1%, and indicates that the models have a very high goodness of fit. Furthermore, there was non statistically significant relationship between provision for depreciation and book value per share as well as return on investment. Also, provision for tax and provision for bad debt revealed non statistically significant relationship with price to book value ratio respectively. Moreso, accounting estimates measures except provision for tax and provision for bad debt maintained a strong and significant relationship with price to book value ratio. The result also revealed that firms size have positive and significant moderating effect on valuation and accounting estimates.  The study concluded that accounting estimates have a strong influence on price to book value ratio and book value per share than return on investment of the sampled firms. The study recommends amongst others robust regulatory framework by IASB that will totally eliminate any element of subjectivity in making accounting estimates, as well as ensuring that accountants adhere strictly to the existing provisions of IFRS that bothers on recognition and measurement criteria for making accounting estimates in order to reduce material misstatement and hence help users of accounting information make informed financial decisions.