Financial reporting quality and the performance of firms in Sub-Sahara Africa: The mediating role of firms’ characteristics

The purpose of this study is to test the validity of the mediating role of firms’ characteristics and its consequences on the financial reporting quality and performance of publicly quoted firms in sub-Saharan Africa. The study employed a quantitative approach and tested an existing theory by formulating relevant hypotheses. Measures of firms’ characteristics include the statistic factor (size) and dynamic factors (return on assets and return on equity as dependent variables; and discretionary cash flow from operating activities less net profit as an independent variable). The sample size consists of one hundred and twelve (112) public firms quoted on stock exchanges in three (3) sub-Saharan African countries from 2012 to 2022. Data obtained were analyzed using fixed effect and random effect panel data regression and structural equation modeling. The results revealed that financial reporting quality positively and insignificantly affects performance. However, financial reporting quality and firms’ performance were found to be positively and significantly affected when firms’ characteristics (size) were introduced. The implication of these results is that financial reporting quality alone cannot lead to an increase in firms’ performance. The size of the firm should be given due consideration to guarantee increased firm performance via high-quality financial reporting. Moreover, the results of this study are expected to offer information to the management of firms, enabling them to fulfill the condition of quality financial reporting so that investors and analysts of capital markets can benefit from determining informed investment decisions.