Original Research Article | OPEN ACCESS

Accounting Conservatism and the Risk of Bankruptcy in the Nigerian Food and Beverage Firms

For correspondence:-    

Received: June 19, 2016        Accepted: December 21, 2019        Published: December 31, 2019

Citation: Accounting Conservatism and the Risk of Bankruptcy in the Nigerian Food and Beverage Firms. Account Tax Rev 2004; 3(4):32-49 doi:

© 2004 The authors.
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Abstract

This study examined the effect of accounting conservatism on the bankruptcy risk in the Nigerian foods and beverages sector, from 2008 – 2018. The study used the ex-post facto research design. It thus used the documentary data which were obtained from the annual reports and accounts of the eight sampled firms which were selected from the population of twelve firms that were operating in the sector as at 31^stDecember 2015.  The data generated for the study were analysed using descriptive statistics, correlation and multivariate regression analysis among others. The results from the analysis were used to test the four hypotheses of the study. The findings of the study showed that Accounting Conservatism has a significant impact on Bankruptcy Risk in the Nigerian Foods and Beverages sector. The study concluded that the higher the provisions for depreciation, taxation, bad debt and gratuity made by a firm, the lower would be the risk of the bankruptcy.Similarly, provisions for depreciation and gratuity and that of taxation and bad debt shows an insignificant and significant relationship with the bankruptcy risk, respectively. The risk of bankruptcy of the sampled firms fell into a ‘’grey area” with their total mean scores of 1.953591. For sustainable bankruptcy risk management, the study recommended that adequate provision for taxation and bad debt need to be encouraged and also arrangements for taxation and gratuity should be improved using appropriate Government policies. Finally, accounting standards-setting bodies should reconsider accounting conservatism as a reporting mechanism in response to the economic, legal, and political environment in which firms operate.

Keywords: Bankruptcy, conservatism, capital markets, political environment