International Journal of Finance and Accounting 2015, 4(1): 21-39 DOI: 10.5923/j.ijfa.20150401.03 Conservatism and Value Relevance of Accounting Information in Quoted Firms in Nigeria Lawani Imade Rebecca 1 , Umanhonlen Ogbeiyulu Felix 2,* , Okolie Romanus Onyeisi 3 1 Department of Accountancy, Faculty of Management Sciences, University of Benin, Benin City, Nigeria 2 Department Banking & Finance, Faculty of Management Sciences, University of Benin, Benin City, Nigeria 3 Department of Accounting, Faculty of Social Sciences, Ambrose Alli University, Ekpoma, Nigeria Abstract This project work centered on conservatism and value relevance of accounting information to quoted firms in Nigeria stock exchange. While there have been a number of studies on this topic in the developed countries not much has been explored in Nigeria. Value relevance has been criticized by extant literature and also that conservatism in accounting as one reason for the observed decrease in value relevance. In order to ascertain the impact of conservatism on value relevance of accounting information, secondary source of data collection, statistical instruments such asmultiple regression and correlation coefficient were used in the analysis of data collected. It was discovered among others that there is the existence of a significant inverse relationship between Market-based conservatism (BMCONA) and Earnings per share (EPS) for the pooled OLS, fixed and random effects model. The results suggest that higher conservative practices by companies will affect the informativeness of financial estimates and declines in stock returns may be seen as an outcome of the markets assessment of disclosure credibility. In concluding this study, some recommendations were made. One of such recommendation was that the financial reporting council and other allied bodies should ensure clarity and provide rules with probably less discretionary tendencies for management to manipulate. The overall aim is to improve credibility of financial information. Keywords Conservatism, Value Relevance, Accounting Information 1. Introduction 1.1. Background of the Study In the recent time, the value relevance of accounting information has been criticized by the stock market researchers in accounting. A number of literatures in the developed countries have created the impression that accounting numbers have lost their value relevance (Dontoh, Radhakrishman and Ronen, 2004, Ramesh and Thiagarajah, 1995). These criticisms were based on theory of life cycle stages, high technology, fraud, rapidly changing business environment and increasing conservatism (Brown Lo and Lys, 1999). The extant literature on value relevance has consistently found that the value relevance of earnings has been decreasing over time. Literature has also found that the value relevance of book values has been increasing; however results are mixed on whether the increase in the relevance of book value has offset the decrease observed in earnings. The literature posits conservatism in accounting as one reason for the observed decrease in value relevance. On the other hand Waltts, (2003) notes that despite criticisms, conservatism has * Corresponding author: ogbeiyulu4real@yahoo.com (Umanhonlen Ogbeiyulu Felix) Published online at http://journal.sapub.org/ijfa Copyright © 2015 Scientific & Academic Publishing. All Rights Reserved survived in accounting for many years. He points out that conservatism simply states that we should “anticipate no profit but anticipate all losses”. Conservatism imposes a high threshold of verifiability and provides information that is useful for many purposes including contracting, but Watts however argues that “conservatism is likely to be an efficient financial reporting mechanism in the absence of contracting.” Conservatism accounting requires verifiability that minimizes the potential for errors in measurement, and correspondingly increases the reliability of the resulting information. If unverified information is sufficiently unreliable, the relevance of that information may well be diminished; hence relevance might be positively associated with conservatism. The direction of the relationship between value relevance and conservatism is unclear. Regulators commonly describe accounting treatments as “trade-offs” between relevance and reliability; furthermore when the regulators are criticized, the critiques commonly portray regulations as having erred in the favour of one side at the expense of the other (see FASB, 2004). The presumption behind trade-off is that relevance decreases in conservatism. For example practitioners have argued that practices such as expensing research and development are conservative that “Accounting is no longer counting what counts” (Stern Stewart, 2002). Because of this potential trade off, increasing conservatism is sometimes claimed as a possible reason for decreasing value relevance