VALUE RELEVANCE OF FAIR VALUE HIERARCHY INFORMATION OF NIGERIAN NON-FINANCIAL FIRMS

Abstract

Switch from Statement of Accounting Standard (SAS) to the International Financial Reporting
Standards (IFRS) in Nigeria requires reporting entities to mark-to-market financial assets and
liabilities and to recognise holding gains and losses as items of other comprehensive income.
The objective of this study is to examine the value relevance of fair value hierarchy information.
A total of 205 annual firm-year observations of non-financial firms listed in the Nigerian
Exchange Group (NGX) spanning 2018 to 2022 was used. The result of multiple regression
indicates that fair value gains and losses measured based on Level 1 and Level 2 were value
relevant, but Level 3 inputs was not. This suggests that investors valued holding gains and
losses quoted in an active market (Level 1) and indirect observable inputs (Level 2). No
evidence to suggest that investors are using unobservable inputs (internally generated, Level
3). It is therefore recommended that reporting entities should ensure best disclosure practice
relating to financial assets and liabilities to enhance reliability of subjective accounting
earnings.