Patience Umah

Department of Accounting, Faculty of Business Studies

Ignatius Ajuru University of Education, Rivers State, Nigeria



This paper examined the impact of financial reporting quality and the investment decisions of investors in the Nigerian Banking Industry with special interest on Fidelity Bank Plc. Correlational research design was adopted for the study.  Both qualitative and quantitative data covering five years: 2011-2015 were collected from the financial statements of the bank after which regression analysis was used to analyse the data. Empirical findings from the study revealed that there is a strong relationship between cash used in and from investment in subsidiaries. It was also found that there is a weak relationship between cash and cash equivalents and investment in assets. The study however, recommended amongst others that deposit money banks should comply fully with the tenets of the financial reporting standards and that the Financial Reporting Council of Nigeria (FRCN) should beef up its monitoring of firms so as to ensure strict adherence to the International Financial Reporting Standards.


Keywords: Financial Reporting Quality, Accounting Information, Disclosure, Investment.



Financial reporting is one of the key elements of the accounting system that provides the basic information necessary for economic decision making (Bolo & Hassan, 2007). Is also the process of presenting economic measurements, duties and accounting information about the performance of reporting entities to stakeholders to enhance informed judgements. The implication of this is that past performance of a firm can be evaluated with the aim of effectively appraising and predicting future profitability prospects which is the key interest of investors. To further stress the importance of financial reporting, the International Reporting Standards (IASB) came up with a set of high quality standards on financial reporting quality with the major aim of firms providing top notch accounting information regarding their operations. Financial reporting quality is basically the accuracy of the financial statements of a firm reflecting its operating performance and the extent of their relevance in forecasting future cash-flows. It also entails the quality of preparation and presentation of both financial and non-financial information usually contained in the annual reports (Bamidele & Ibrahim, 2018).


These annual reports of companies have been used to communicate the activities carried out by the companies over a period of time to various stakeholders like the shareholders, investors, financial analysts, creditors, stockbrokers, management, employees and government (Musa and Iyere, 2016). These reports which may come quarterly, half-yearly and annual usually include financial and non-financial statements, footnotes, management discussions and analysis and other regulatory fillings. Stergios & Michalis (2012) noted that there are two basic principles generally used in rating the quality of financial reports. The first is the determination of the usefulness of the financial information to its users and secondly the financial report quality’s notion on the protection of shareholders/investors. The user needs principle is mainly concerned with the provision of relevant information to users for decision making and the second principle seeks to ensure that the information provided is enough to attend to their needs. (Jonas & Blanchet, 2000). In the words of Pandey (2005), investors are concerned with the efficient allocation of capital which involves channeling the firms funds to the long term assets. Anaja & Emmanuel (2015) categorized the forms of investors’ decisions into two which are first the evaluation of the prospective profitability of new investments and second the measurement of a rate against that prospective return on investments. In lay terms, investors are particularly interested in forecasted earnings per share which they use in stock pricing from where they can decide to sell off their shares, keep them or even buy more. Nyor (2013), submits that investors’ decisions are based on reasonable, stable and high returns on their investment in companies.



Financial statements of many firms lack the vital information that investors are interested in and as such cannot make wise decisions with it. Some of these vital elements which cannot be stated in monetary terms include: business model, reputation, credit rating, efficiency, loyalty and integrity of the management board. As a result of the inadequacies connected with the financial reporting of entities, IASB deemed it worthy to introduce the International Financial Reporting Standards (IFRS). The reason for this standards set is to reduce information asymmetry by providing sufficient and credible information reflecting the values, growth and other key features that will lead to quality decision making by investors.(Bushman & Smith, 2001). Due to the observed scanty literature on the relationship of financial reporting quality and investors’ decisions in the Nigerian environment, this paper seeks to broaden the intellectual discourse in the literature by determining if actually the decision of investors is being influenced by the quality of financial reporting. Read more


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