IFRS and Its Impact on Financial Market Development in Nigeria

IFRS and Its Impact on Financial Market Development in Nigeria

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Background of the Study
Financial markets are pivotal to economic development as they facilitate capital mobilization, resource allocation, and investment growth. In recent years, the adoption of the International Financial Reporting Standards (IFRS) has been recognized as a critical factor influencing financial market development globally. IFRS enhances financial transparency, improves investor confidence, and promotes comparability of financial statements across borders. Nigeria adopted IFRS in 2012 to align with international best practices, aiming to boost its financial market development.
The Nigerian financial market, comprising capital and money markets, has faced numerous challenges, including limited transparency, low investor confidence, and suboptimal market efficiency. Before IFRS adoption, the reliance on Nigeria’s local Generally Accepted Accounting Principles (GAAP) created discrepancies in financial reporting, deterring foreign investors and undermining trust. IFRS adoption was envisioned to mitigate these issues, attracting more investors and fostering market growth.
However, the extent to which IFRS has contributed to Nigeria's financial market development remains uncertain. Existing research highlights potential benefits such as increased foreign portfolio investments and reduced cost of capital, but empirical evidence specific to Nigeria’s context is sparse. This study explores the role of IFRS in addressing the structural and operational challenges of Nigeria's financial market, evaluating its impact on market depth, liquidity, and investor participation.

Statement of the Problem
Despite Nigeria’s adoption of IFRS, its financial market continues to grapple with challenges such as limited market depth, low liquidity, and investor apathy. While IFRS aims to enhance transparency and comparability, the realization of these benefits in Nigeria’s financial market has been hindered by inconsistent implementation and poor enforcement. There is limited empirical evidence linking IFRS adoption to measurable improvements in Nigeria’s financial market development. This study seeks to bridge this knowledge gap, assessing the impact of IFRS on key indicators of market performance.

Aim and Objectives of the Study
The aim of this study is to investigate the impact of IFRS adoption on the development of Nigeria’s financial market. Specifically, the objectives are:

1. To analyze the influence of IFRS adoption on market transparency and investor confidence in Nigeria.

2. To assess the impact of IFRS adoption on market depth and liquidity in Nigeria’s financial market.

3. To evaluate the role of IFRS adoption in attracting foreign investments to Nigeria’s financial market.

Research Questions

1. How has IFRS adoption influenced market transparency and investor confidence in Nigeria?

2. What is the impact of IFRS adoption on market depth and liquidity in Nigeria’s financial market?

3. In what ways has IFRS adoption attracted foreign investments to Nigeria’s financial market?

Research Hypotheses

1. IFRS adoption significantly enhances market transparency and investor confidence in Nigeria.

2. IFRS adoption has a significant impact on market depth and liquidity in Nigeria’s financial market.

3. IFRS adoption significantly attracts foreign investments to Nigeria’s financial market.

Significance of the Study
This study provides valuable insights into the interplay between IFRS adoption and financial market development in Nigeria. The findings will assist policymakers, financial regulators, and market participants in identifying strategies to optimize IFRS implementation for sustained market growth.

Scope and Limitation of the Study
The study focuses on the impact of IFRS adoption on Nigeria’s financial market from 2012 to 2025. It examines aspects such as market transparency, depth, and foreign investment inflows. Limitations include data constraints, variations in compliance across firms, and external economic factors.

Definition of Terms

• IFRS: A global framework for financial reporting that enhances consistency and comparability of financial information.

• Financial Market Development: The growth and improvement of financial systems in terms of efficiency, accessibility, and stability.

• Market Liquidity: The ease with which financial assets can be bought or sold without significantly affecting their price.

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