MODERATING EFFECT OF MARKET RISK ON THE RELATIONSHIP BETWEEN INCOME SMOOTHING AND FIRM VALUE OF QUOTED NON-FINANCIAL FIRMS IN NIGERIA

Abstract

The 21st century like never before is witnessing the prevalence of accounting scandals resulting
in the collapse of firms which has been attributed to the opportunistic behaviours of managers.
This seems to be adversely affecting the value of companies on the stock Market. Hence, this
study aims to examine the moderating effect of market risk on the relationship between income
smoothing and firm value of quoted non-financial companies in Nigeria. The ex post facto
research design was employed. The population of this study included the entire 116 nonfinancial firms quoted on the Nigerian Exchange group as of December 31st, 2021. However, a
sample size of 51 companies was sampled using the Taro Yamane sampling size determination
technique. The study collected data through secondary sources for a period of ten years (2012-
2021) through audited annual financial statements. Income smoothing was measured using the
accrual-based methods, while firm value was measured using share price. The quantitative
approach was also used in the study. Furthermore, the system generalized method of moments
(Blundell–Bond) panel estimation technique was used for analyzing the data. The study found
that income smoothing has a negative significant impact on firm value. The study also revealed
that market risk is a significant variable that defines the relationship between income smoothing
and firm value. The study concluded that income smoothing and market risk are veritable factors
for predicting share prices in the non-financial sector of the economy. Thus, the study
recommended that investors pay close attention to market risk when assessing the value of firms
based on the level of income smoothing carried out by managers.