Income Smoothing and Firm Value of Quoted Non- Financial Firms in Nigeria: Moderated by Market Risk

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 behaviors 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 non-financial firms quoted on the Nigerian Exchange group as at December 31st, 2021. However, a sample size of 51 companies were sampled using 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 shares prices in 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.