Effect of Accounting Conservatism on Financial Leverage: Evidence from Listed Pharmaceutical Companies in Nigeria

Abstract

This study examines the impact of accounting conservatism on financial leverage among listed pharmaceutical companies in Nigeria. Using a quantitative research approach, secondary data covering an eleven-year period from 2012 to 2023 were collected from selected pharmaceutical companies listed on the Nigerian Exchange Group (NXG) as of December 2023. Panel regression analysis was employed to analyze the data. The findings indicate a significant negative correlation between accounting conservatism and financial leverage, suggesting that companies with higher levels of conservatism tend to maintain lower leverage. This relationship is particularly evident in firms experiencing greater operational uncertainty and volatility, implying that conservative accounting practices may act as a risk-mitigating strategy. The study contributes to the understanding of how accounting principles influence financing decisions in emerging markets, offering valuable insights for stakeholders in the pharmaceutical sector and policymakers seeking to enhance financial stability. Based on the findings, the study recommends that management should avoid overoptimism or exaggerated uncertainty in decision-making and adopt a cautious approach when considering funding options for rapid growth.