Accounting for Externalities and Financial Performance of Listed Industrial Goods Companies in Nigeria

Abstract

Good financial performance of companies gives confidence to shareholders and investors on returns on their investment and guaranteed going concern. However, literature has shown that poor financial performance has made some companies to lose their competitive edge, and inability to achieve growth objective. Accounting for and reporting firms’ externalities impact is becoming increasingly important globally, investors have raised the bar on what they consider material to the performance of their investments, expectation of long-term profitability and sustainability of the company. This study examined the effect of accounting for externalities on financial performance proxied by Return on Asset (ROA)) of listed industrial goods in Nigeria. The study adopted Ex-post facto research design. The population for the study comprised of fifteen (15) Industrial Goods companies listed on Nigeria Stock Exchange as at 31st December, 2021. The Panel data were sourced from audited annual reports for the period of ten (10) years spanning from 2012-2021. Data were analyzed using descriptive and inferential statistics. The findings of the study revealed that accounting for externalities had significant effect on ROA (AdjR<sup>2</sup> =0.6010, F (3,96) = 3.99<sup>**</sup>; p = 0.0100). The study concluded that accounting for externalities has significant effect on financial performance of listed industrial goods companies in Nigeria. It was recommended that standard-setting bodies in Nigeria like the Financial Reporting Council of Nigeria should develop mandatory guidelines and standards for accounting and reporting of externalities to foster a more sustainable and responsible business environment.