The study examined faithful representation of accounting information and financial performance of quoted banks in Nigeria using secondary data obtained from Nigeria stock exchange spanning from 2007 to 2016. Price to earnings ratio- PER and Earnings yield-ENY were selected as financial performance proxies while absolute discretionary accruals (ABSDA) was used as a measure of faithful representation of accounting information. ABSDA was subjected to Hausman test and also regressed against performance variable. Findings indicate that ABSDA is negatively correlated with PER but positively correlated with ENY. The study also confirmed a significant negative effect of ABSDA on PER and ENY implying that the more intense the practice of accounting information manipulation through the use of absolute discretionary accruals is, the greater the adverse effects on price earnings ratio and earnings yield. This is because it introduces bias which hurts the neutrality of accounting information (SFAC 8, 2010). We recommend that regulators should increase scrutiny or constraints over accounting discretion and flexibilities allowed by accounting standard to curtail distortions by financial statement preparers in order to eliminate earnings manipulation and achieve high level of faithful representation.
Keywords: Accounting Information Quality, Earnings yield, Faithful representation, Financial Performance, Nigerian Banks, Price/ earnings ratio
