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Financial Reporting Quality on Investors’ Decisions

Author

Listed:
  • Nwaobia A. N.

    (Department of Accounting, School of Management Sciences, Babcock University, Ikenne, Nigeria)

  • Kwarbai J. D.

    (Department of Accounting, School of Management Sciences, Babcock University, Ikenne, Nigeria)

  • Jayeoba, O. O.

    (Department of Accounting, School of Management Sciences, Babcock University, Ikenne, Nigeria)

  • Ajibade A. T.

    (Department of Accounting, School of Management Sciences, Babcock University, Ikenne, Nigeria)

Abstract

Financial reporting quality has been said to play an important role in reducing information asymmetry. Thus, firms with high financial reporting quality may enhance more investors’ decision. Hence, the basic objective of this study is to determine whether earnings quality influence investors’ decision. The sample consisted of 10 manufacturing companies listed on the Nigerian Stock Exchange Market. The study period is 5 years (2010-2014). Data on accrual quality, volume of investment, Size, age and growth rate and earnings per share were drawn from the published annual report and accounts of the sampled companies. Correlation matrix, Vector auto regressive estimation and Pooled OLS model were employed for the analysis. Diagnostic tests for post estimation were also performed on the model. The result of the Ramsey Reset test shows a p-value of 0.2105, implying that model has no omitted variables. Also, Wooldridge test for autocorrelation in panel data indicates no first-order autocorrelation, showing a p-value of 0.3642. We calculated accruals quality based on the modified accrual model proposed by Mac Nichols in 2002. In this paper, the absolute value of residual error represents the financial reporting quality. This threshold is based on the idea that accruals reduce the smoothing initiated by the change in the cash flow and thus increase the earnings awareness.  The study finds evidence of a positive association between investors’ decision and financial reporting quality. Â

Suggested Citation

  • Nwaobia A. N. & Kwarbai J. D. & Jayeoba, O. O. & Ajibade A. T., 2016. "Financial Reporting Quality on Investors’ Decisions," International Journal of Economics and Financial Research, Academic Research Publishing Group, vol. 2(7), pages 140-147, 07-2016.
    • Handle: RePEc:arp:ijefrr:2016:p:140-147
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    References listed on IDEAS

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    Cited by:

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    2. Professor Owolabi, S.A. & Afolayan, Oluwatobi, 2020. "Auditor’s Independence (AUDINDP) and the Quality of Financial Reporting (FRQ) in Listed Deposit Money Banks (DMB’s) in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 4(8), pages 303-309, August.

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