Effect of Accounting Standardization on Cost of Equity of Listed Conglomerates Companies in Nigeria

Abstract

This study investigated the effect of accounting standardization through its core dimensions of financial disclosure, compliance disclosure, and financial statement comparability on the cost of equity capital of listed conglomerate companies in Nigeria. Using an ex-post facto research design, the study covered the entire population of six conglomerates listed on the Nigerian Exchange Group, yielding 60 firm-year observations over the period 2015–2024. Secondary data were extracted from audited annual reports. Three disclosure indices were constructed using a dichotomous scoring approach based on an IFRS-aligned checklist comprising 35 financial disclosure items, 17 comparability items, and 21 compliance items. The cost of equity was estimated following the residual income valuation approach. Panel data analysis was conducted using random-effects generalized least squares (EGLS) regression with robust standard errors, selected via the Hausman test. The results revealed mixed effects. Financial disclosure exhibits a positive and statistically significant relationship with the cost of equity. Compliance disclosure is positive but statistically insignificant. In contrast, financial statement comparability displayed a significant negative association, confirming that greater comparability reduces information asymmetry and lowers the cost of equity. Control variables (firm size and age) are insignificant. The study concludes that, among the dimensions of accounting standardization examined, only comparability consistently reduces the cost of equity for Nigerian listed conglomerates, while excessive or poorly perceived financial disclosure may inadvertently raise financing costs. The study therefore recommended that conglomerate companies in Nigeria should prioritize substantive improvements in financial statement comparability, enhancing the relevance and clarity of financial disclosures to avoid information overload, and strengthening regulatory enforcement to ensure compliance translates into credible signaling.