ABSTRACT

The study examined the effect of derivative accounting on the value of listed deposit money banks in Nigeria. The study made use ofthe ex-post facto research design. Panel regression was used in analyzing data from 10 listed banks that were selected on judgmental basis. Findings from the first objective reveal that derivative asset has a positive but insignificant effect on earnings per share of listed deposit money banks in Nigeria. While, derivative liability has a negative but insignificant effect on earnings per share of listed deposit money banks in Nigeria. The second findings reveal that, derivative asset has a negative but insignificant effect on share price of listed deposit money banks in Nigeria. While, derivative liability has a positive but insignificant effect on share price oflisted deposit money banks in Nigeria. Finally, it is revealed that both derivative asset and derivative liability have positive but insignificant effects on Tobins Q of listed deposit money banks in Nigeria. Thus, the study recommends that funds should be committed to the use of derivatives for hedging against interest rate fluctuations that affects the earnings of the banks. Result has shown that the amount of derivative assets and derivative liability used by the banks has not mitigated volatility of earnings on shares invested as a result of interest rate fluctuation, thus, the banks should give more forward contracts that are probable to derive assets, hedge liabilities and give more returns as earnings to bank investors. Also, accounting for the use of derivatives by the listed banks is not enough to attract investors, since investors in the banking sector are often skeptical about the volatility of bank investment due to interest rate and foreign exchange fluctuation. Ifthe banks improve on accounting for derivative by fully adopting the prescription made by IFRS 7 and 9, this will give confidence to intending investors that the banks can adequately hedge against volatile risk. As a result, there will improvement in the demand for the banks shares which will in turn be reflected in the prices of shares. Lastly, derivative accounting of the banks has shown to negatively affect the overall value ofthe banks (Tobins Q), this is as result ofthe banks’ huge liability in capital. The banks should endeavor to use more hedge instrument that are derivative assets in order to correct the negative consequences of using hedge instrument that are derivative liability which reduces the market value ofthe bank.