The study is about the impact of financial reporting on financial performance of quoted companies in Nigeria. The essence of this research work is to determine the relationship between the quality of financial reporting and profit after tax, return on asset, and return on equity. Data collections were both form primary and secondary sources. The primary data was basically obtained by administration of questionnaire while that of secondary data was from annual reports of sampled/ selected quoted companies. The study adopted the survey research and cross sectional research design. The sampledcompanies were obtained by using the stratified sampling technique while the sample size was obtained using the proportional sampling technique, Also, 450 copies of a well-structured questionnaire were also distributed but only 350 were returned and analyzed. The variables considered in the study were financial reporting and financial performance, which were represented by quality of financial reporting, return on equity, return on asset and profit after tax. Two analytical methods were adopted for statistical analysis of the variables. Theyare descriptive and inferential statistics. Under descriptive statistics, variables were subjected to frequency and percentages. Data analyses werecarried out using SPSS version 20 and Eviews 7 statistical software, and the level of significance used to test the hypothesis was 5%. The findings show that there is a significant  relationship between quality of financial reporting and profit after tax. It also establishes that quality of financial report has significant effect on return on asset. Based on these findings the study recommends that management of quoted organizations should ensure that they adopt best practices in financial reporting because there is direct relationship between quality of financial reporting and profit after tax, Also, quality of financial reporting has positive impact on return on asset of the quoted companies in Nigeria.









Background to the Study1

Statement of the Problem…3

Research Questions…4

Objectives of the Study5

Research Hypotheses…5

Significance of the Study6

Scope of the Study6

Operational Definition of Terms…7



Conceptual Review9

Concept of Financial Reporting9

Concept of Reliability of Financial Reporting10

Concept of profitability12

Controversial Issues in Financial Accounting Reporting14

Financial Reporting Legal Framework…16

Measurement of Financial Reporting Quality Using Qualitative Characteristics…18

Measurement of Financial Performance22

Goals and Objectives of Financial Reporting23

Importance of Financial Reporting24

The Nature and Scope of Financial Reporting25


Stewardship Theory28

Stakeholders Theory29

Asymmetric Theory30

Voluntary Disclosure Theory30

Ethical Relativism Theory31

Resource Dependence Theory32

Empirical Framework…33

Corporate Financial Disclosure in Nigeria…33

Relationship     of     Financial      Statement     with      Investment Decision…35

Deliberate Disclosure and Investors Decision Making38

Quality in Financial Reporting40

Organizations Attributes and Reliability of Financial Reporting41



Area of the Study44

Research Design…44

Population of the Study45

3.4 Sample size and Sampling Technique… 45

3.5. Study Variables… 48

Method of Data Collection…48

Method of Data Analysis50

Model Specification…50



Data Presentation for Questions related with the Variable in the Hypotheses52

Frequency Table – Section A…53

Frequency Table – Section B56

Frequency Table – Section C58

Frequency Table – Section D…60

Frequency Table – Section E…62

Hypotheses Testing and Interpretation64

Discussion of Findings… 74






Contribution to Knowledge78

Suggestion to further Studies…79


Appendix A – Ordinary Least Square Analysis using Panel Data for

Hypothesis One 80

Appendix B –Ordinary Least Square Analysis usingPanel Data for

Hypothesis Two… 81

Appendix C–Ordinary Least Square Analysis using Panel Datafor

Hypothesis Three 83

Appendix D – Schedule of Selected Companies 85

Appendix E – Questionnaire 86

Appendix F - Extract of Data Presentation for Secondary

Data used For Analysis 91

Appendix G – Complete Data used in Hypothesis 95



Background to the Study

Financial reporting is the communication of financial informationto various users of accounting information tomake an investment decision, obtaining credit facilities, and other financingdeci sions(Wild, Shaw, &Chiappetta, 2009). Furthermore, most financial reportsin Nigeria are governed byregulations and standards from various recognised financial regulatory bodies such as the Securities TransactionCommission (SEC), the Financial AccountingReporting Council of Nigeria (FRCN), Nigeria stock transactionto mention a few. Financialreports are formal andcomprehensivestatements describingfinancialactivities of a business organisation such as themanufacturing firm. It is also a statement that reports allrelevant financialinformation, prese nted in astructured manner and in a form easy to understandfor managerial use and for taking a prompt and informeddecision relating to investment (IASB, 2007).

The major relevance of the financial report to some users of financial statement is to provide information about the performance and  changes in financial position of a firm.These users include managers, directors, employees, prospectiveinvestors, financial institutions, government regulatory agencies, media, vendors and the general public. Financialreports are often prepared according to national standards, corporate governance, professional ethics, and code of ethics to avoid financial reporting fraud and scandals that might hinder effective decision-making process by management and other users of reports. The financial reports comprises of balance sheet (now called statement of changes in financial position), profit and loss statement (now called statement of comprehensiveincome), statement of equity changes (Statement of changes in equity, the company’s equity), and cash flow statements (now referred to as statement of cash flow activities).

On the other hand, Finance is always being disregarded in financial decision-making since it involves investmentand financing in a short-term period. Furthermore, it also acts as a restrain in financial performance since it does not contribute to return on equity (Rafuse, 1996). A well- designed and implementedfinancial management is expected to contribute positively to the creation of a firm’s value(Padachi, 2006). The dilemma in financial management is to achieve the desired trade-offbetween liquidity, solvency and profitability (Lazaridis, 2006).The subject of corporate financialperformance has received significant attention from scholars in the various areas of business andstrategic management.

It has also been the primary concern of business practitioners in all typesof organisations since financial performance has implications to organisation’s health andultimately its long-term survival. High performance reflects management effectiveness, andefficiency in making use of company’s resources and this, in turn, contributes to the country’seconomy at large (Naser and Mokhtar, 2004).   There have been various measures of financial performance. For example return on sales revealshow much a company earns in relation to its sales, return on assets determines an organisation’sefficiency in the ability to make use of its assets and return on equity reveal the return investorsexpect to earn on their investments. The advantages of financial measures are the simplicity ofcalculation and also that their definitions are agreed worldwide. Traditionally, the success of acompany has been evaluated by the use of financial measures (Tangen, 2003).

Statement of the Problem

Since the dramatic collapse of the Enron Corporation, an American company, in 2001, and the subsequent dissolution of Arthur Andersen, which was then one of the ‘’Big five’’, audit and accountancy firms around the world have been seen as laughable organization, because of their inconsistency in reporting and poorly structured accounting standard. In fact, according to Bratton (2002) Enron failure was seen as the biggest audit failure of all time. WorldCom another American company in telecommunication industry with over US$107 billion in assets, also suddenly collapsed just after one year (ie 2002) of the Enron misfortune. This financial scandals and the financial crunch facing the economy of most nations have resulted in increased attention to improve and enforce quality financial reporting practices worldwide in order to reform the global economy, which has made stock market regulatory body such as the Nigerian Stock Exchange (NSE) to direct all companies that are quoted on the exchange to ensure they adopt the IFRSs (International Financial Reporting Standard) by December 2011 while the Central Bank of Nigeria (CBN)has also directed Nigerian banks to adopt the IFRS by December 2010 (Egedegbe, 2009). But, despite all this financial regulation most quoted organization still evade this regulation through fraudulent mechanisms which involves them ensuring that the audited financials records sent to the central bank of Nigeria (CBN) are usually profit-oriented since it is the audited account that would be published and this often shows bogus profit in order to make them attractive to the capital market after a compromised approval have been obtained from the CBN. However, for the same accounting period, the audited account that would be forwarded to the Nigeria Deposit Insurance Corporation (NDIC) would have a depleted deposit base for the bank to pay an inconsequential 1% insurance premium to NDIC. For the same accounting year too, the audited accounts that is sent to the Federal Inland Revenue Services (IFRS) would have a reduced profit so that these banks would not pay any corporate tax to the coffers of the Federal Government of Nigeria while at the same time concealing withholding tax and value added tax (VAT) deductions thereby defrauding the federal government of Nigeria of revenue due to her for economic development (Adeside,2008). This problem of this study is to examine why quoted organisations in Nigeria still involve themselves in sharp practices despite the sections and guidance put in place by various regulatory bodies in Nigeria. Existing studies on financial reporting(e.g. Ferdy, Geert, & Suzanne,2009; Mohammadi, 2014; Hassan,2013) only consider financial reporting, investment, and qualitative characteristic, none of these studies have considered how financial performance and quality financial reporting can affect the lack of compliance of quoted companies with guidance and sanctions put in place by financial regulatory bodies globally and locally.

Research Questions

⦁ Is there any significant relationship between profit after tax and quality of financial reporting of quoted companies in Nigeria?

⦁ To what extent does the quality of financial reporting have effect on the return on asset of quoted companies in Nigeria?

⦁ To what extent does financial reporting have any impact on return on equity of the quoted companies in Nigeria?

Objectives of the Study

The main objective of this study is to examine the impact of financial reporting on financial performance of quoted companies in Nigeria, while the specific objectives are to;

- determine the relationship between the quality of financial reporting and profit after tax of the quoted companies in Nigeria.

- ascertainthe effectof quality of financial reporting onreturn on asset of quoted companies in Nigeria.

- evaluatethe Impact of quality of financial reporting on return on equity of quoted companies in Nigeria.

Research Hypotheses

In order to achieve the objectives of this study the following null hypothesis wereformulated;

1 There is no significant relationship between the quality of financial reporting and profit after tax of the quoted companies in Nigeria.

2 Quality of financial reporting has no effect on return on asset of quoted companies in Nigeria.

3 Quality of financial reporting has no impact on return on equity of quoted companies in Nigeria.

Significance of the Study

The study is significantbecause it will provide more information to users of financial inform- ation that will enable themto developconfidence in financial reports. It is also important because it will giveinsight into some of the statutory provisions put in place by relevant statutory organ isations to strengthen the quality of financial reporting in quoted companies in Nigeria. The stu dy will also providerelevant information to investors that will guide them in making an appro priateinvestment decision. It is also important because it will serve as a resource materialand an addition to existing literature or knowledge. The study is also important because it will provide management with information that will help them to reduce poor financial reporting

Scope of the Study

The study was limited to thirty (30)quoted companies which cut across the eleven sectors(11) listed on the Nigeria Stock exchange. The study covers a period of 5years, which is 2012- 2016.This period was chosen because it is the period Nigeria Started adopting the international financial reporting standard (IFRS). The companies considered are; Ellah Lakes Plc., Chellarams Plc., Arbico Plc., UACN Property Development CO. Ltd., Champion Brew. Plc, Guinness NigPlc, McnicholsPlc, Nestle Nigeria Plc.Access Bank Plc.Aso Savingsand LoansPlc, Custodian and AlliedPlc, FBNHoldings Plc, N.E.M Insuranceco (NIG) Plc.PrestigeAssurance co. Plc.Skye BankPlc,Sterling Bank Plc.Unity BankPlc, Zenith International BankPlc, GlaxoSmithKline

Consumer Nig. Plc.Pharma-dekoPlc,E-tranzact International Plc, AustinLaz& CompanyPlc, CapPlc, Lafarge Africa Plc.Aluminium Extrusion Ind. Plc. Mobil OilNig Plc.Total Nigeria Plc.Capital HotelPlc, Juli Plc, R. T. Briscoe Plc, The Initiate Plc.

Operational Definition of Terms

i. Management: This refers to the top official in the organisation, they are often responsible for ensuring quality financial statement in quoted organisations.

ii. Organisation: Thisrefers to a group of people who come together to make profit, they usually have a singular objective and purpose.

iii. Investors: These are individuals who make their daily leaving by investing in the stock market.

iv. Financial Scandal: These are fraudulent occurrences in the financial world, caused by lapses in the management and other regulatory agencies in charge of quoted organisations.

v. Statutory Regulation: These are specific rule and regulation put in place by relevant regulatory bodies to ensure stability in the operation of quoted companies

vi. Investor’s Psyche: This refers to the perception of investors as regards investing in the stock market.

vii. FinancialPerformance: This refers to the process of carrying out an assignment in an organisation in an efficient and effective manner

viii. Return on Asset: this is the ratio of profit after tax to the total asset of the selected quoted companies considered in this research work.

ix. Return on Equity: This is the ratio of profit after tax to the Equity of the selected quoted companies considered in this research work

x. Quality of Financialreporting: This refers to major criteria of the financial reporting that emphasises that information contained in the financial report should be reliable and credible.

xi. Profit After tax: This is the profit after subtraction of tax for the period under consideration.




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