The International Financial Reporting Standards (IFRS) is a high quality and principle based reporting standards that remove many accounting alternatives. It is therefore, consequently expected to limit the management’s discretion and lessen practices on earnings management. Quite the opposite, some researchers argue that the flexibility in IFRS and its fair value pre-eminence might afford greater opportunities for firms to manage earnings. It is this inaptness which incited and aggravated the conduct of this study.
This study applies a desktop review to investigate the worldwide existing empirical research evidence on the effect of IFRS on earnings management post- IFRS adoption and in relation to other reporting standards and reports whether the results are indistinguishable between developed and developing economies. Accounting research in developed economies has long identified earnings management as a means by which managers manipulate financial reports to mislead other stakeholders on the underlying economic performance of the firm. However, earnings management research did not receive much attention in developing countries such as Nigeria until recently.
The findings reveal that the existing empirical crams and conclusions there on are mixed, inconsistent and difficult to generalise. This indicates the pressing need for country, especially Nigeria to engage on studies of this nature. The study further, stumbles on the fact that IFRS can indistinctly benefit both developing and developed markets when coupled with appropriate effective enforcement machinery. Substantially, the results entail that IFRS is a critical determinant for quality reporting but not a ‘prima facie’ guarantor for quality reporting.
Inhaltsverzeichnis (Table of Contents)
- 1.0 INTRODUCTION
- REVIEW OF RELATED LITERATURE
- 2.1 Theoretical Framework
- 2.1.1 Pecking order Theory
- 2.1.2 Trade off Theory
- 2.1.3 Agency Theory
- 2.1.4 Irrelevancy Theory
- 2.1.5 Free Cash flow Theory
- 2.2 Conceptual Framework
- 2.2.1 Concept of Financial leverage
- 2.2.2 Concept of firm Performance
- 2.3 Empirical Review
- 3.0 CONCLUSION
- 4.0 RECOMMENDATIONS
- REFERENCES
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This study aims to review existing empirical research on the relationship between financial leverage and firm performance, comparing findings across developed and developing economies. The review seeks to identify inconsistencies and gaps in the literature, highlighting the need for further research, particularly in developing countries like Nigeria.
- The impact of financial leverage on firm performance.
- Comparison of leverage effects across developed and developing economies.
- Analysis of competing theories of capital structure (Pecking Order, Trade-off, Agency, Irrelevance, Free Cash Flow).
- The role of financial managers in optimal capital structure decisions.
- The conflict of interests between shareholders and debt holders.
Zusammenfassung der Kapitel (Chapter Summaries)
1.0 INTRODUCTION: This introductory chapter establishes the central research question concerning the relationship between financial leverage and firm performance. It highlights the debate sparked by Miller and Modigliani's irrelevance theorem and introduces key theoretical frameworks like the pecking order theory, agency theory, and others. The chapter underscores the importance of optimal capital structure for wealth maximization and the challenges faced by businesses in determining the ideal mix of debt and equity financing. The prevalent preference for self-financing among businesses in developed and developing countries, especially Nigeria, is presented as a significant problem motivating this research.
REVIEW OF RELATED LITERATURE: This section delves into the theoretical and empirical literature on financial leverage and firm performance. It examines various theoretical models, including pecking order theory, trade-off theory, agency theory, irrelevancy theory, and free cash flow theory, outlining their respective perspectives on the optimal capital structure. The chapter then presents an overview of existing empirical studies, highlighting their findings and inconsistencies. This forms the foundation for identifying the gaps and controversies that the study seeks to address.
Schlüsselwörter (Keywords)
Financial leverage, firm performance, capital structure, pecking order theory, trade-off theory, agency theory, irrelevancy theory, free cash flow theory, wealth maximization, debt financing, equity financing, developed economies, developing economies, Nigeria.
Frequently Asked Questions: A Comprehensive Language Preview
What is the purpose of this document?
This document provides a comprehensive preview of a research paper, including the table of contents, objectives and key themes, chapter summaries, and keywords. It serves as an overview for understanding the research's scope and findings.
What are the main topics covered in the research?
The research focuses on the relationship between financial leverage and firm performance. It explores this relationship across both developed and developing economies, paying particular attention to the situation in Nigeria. The study examines several competing theories of capital structure, including Pecking Order, Trade-off, Agency, Irrelevance, and Free Cash Flow theories.
What are the key objectives of the research?
The research aims to review existing empirical research on the relationship between financial leverage and firm performance, comparing findings across different economies. It seeks to identify inconsistencies and gaps in the literature, especially regarding developing countries. The study also analyzes the role of financial managers and the conflict between shareholders and debt holders in capital structure decisions.
Which theories of capital structure are examined?
The research explores five prominent theories of capital structure: Pecking Order Theory, Trade-off Theory, Agency Theory, Irrelevance Theory, and Free Cash Flow Theory. It compares and contrasts these theories to understand their implications for optimal capital structure.
What is the significance of the research for developing economies, specifically Nigeria?
The research highlights a significant problem in developing countries like Nigeria: a prevalent preference for self-financing among businesses. This preference contrasts with practices in developed economies and motivates the research to investigate differences and gaps in understanding the relationship between financial leverage and firm performance in these contexts.
What are the key findings summarized in the document preview?
While the preview doesn't present specific quantitative findings, it summarizes the research's approach to examining the relationship between financial leverage and firm performance. It highlights the review of existing literature, including both theoretical models and empirical studies, to identify inconsistencies and suggest areas needing further research.
What are the key chapters and their content?
The document outlines an introduction establishing the central research question and introducing key theoretical frameworks. The main body reviews related literature, examining both theoretical and empirical work. The conclusion and recommendations sections are also noted.
What are the keywords associated with this research?
Keywords include: Financial leverage, firm performance, capital structure, Pecking Order theory, Trade-off theory, Agency theory, Irrelevance theory, Free Cash Flow theory, wealth maximization, debt financing, equity financing, developed economies, developing economies, Nigeria.
- Quote paper
- John Joseph (Author), 2018, The Leverage Effect on Financial Performance. A Review of Empirical Evidence, Munich, GRIN Verlag, https://www.grin.com/document/429684
