THE USEFULNESS OF ACCOUNTING INFORMATION TO INVESTMENT DECISIONS MAKING IN NIGERIA
This research paper investigates the usefulness of accounting information to investment decisions in Nigeria. The paper became imperative in the light of some studies that explored the proposition that accounting information in published financial statements lost its usefulness over the period of time, as well as the instances of presentation of financial information by some corporate bodies as regards their networth and existence which is a far cry from the true picture of their actual financial position (of not being credit worthy, for instance). These kinds of happening have provoked thoughts and opinions from the intellectual world over the role of ethics and reliability of accounting information as a decision background for investment purposes. It is as a fallout of this background that this research is carried out. The methodology adopted is descriptive using a qualitative method i.e. purposive sampling method in getting responses to carefully framed questionnaires on the subject matter. In total, two hundred and fifty (250) respondents were sampled through purposive sampling method and two hundred (200) questionnaires were collected back, thus achieving a response rate of eighty percent (80%). Findings from responses received revealed accounting information as relevant and essential for investment decision-making.
The afore-mentioned measures are anticipated to increase investors’ confidence in accounting numbers and by extension the economic growth in Nigeria.
It was therefore recommended that there is need for a more ethical re-orientation of members of the industry in their ethical responsibility to the public and increase in punitive measures as well as solid policy framework readjustment for the industry.
Accounting Information in published financial statements lost their usefulness over the period of time. (Ball and Brown 1968, Oyerinde D.T., 2009). In United Kingdom, it has found that the financial statement was considered as the least effective means of communicating information. (Guthrie J., 2007).
There is need to increase the ethical knowledge, discipline and its practice into the profession of accounting most especially as it concerns the public through consistent and practical education
There is need for punitive measures where unethical practices such as poor accounting information or presentation are made to the public.
There is need to give public access to other corporate information in order to minimize these corporate fraud.
There is need for a stringent policy readjustment to regulating the affairs of these corporate bodies in accounting presentation.
There is also need for whistle blowing philosophy by the public when these issues are noticed.
SECTION 1: INTRODUCTION
1.1 BACKGROUND TO THE STUDY.
Listed companies in Nigeria use financial statements as one of the major medium of communication with their stakeholders. Therefore, stock market regulators and accounting standards setters are trying to improve the quality of financial statements in order to increase the transparency level in financial reporting. (Vishnani S., Shah B.K., 2008). Financial Statements may consist different types of information which can be named as Financial Information/Accounting Information and Non Financial Information/Non Accounting Information. Accounting Information are information which describes an account for a utility. It processes financial transactions to provide external reporting to outside parties such as to stockholders, investors, creditors, and government agencies etc. and non accounting information are information which cannot be measured in monetary terms to make investment decisions by the investors. This type of investment is called as ethical investment.
Financial information is essential in making sound investment decisions and it will reduce the informational asymmetry problem between the firm’s managers and the investors (Hossain, D. M., Khan, A., Yasmin, I. 2004). Though the investors use non financial information in order to make investment decisions, still conventional investors give more weight to financial information. Akintoye (2008) discovered that the quality of accounting information in terms of its accuracy, adequacy, reliability and mode of disclosure is a major determinant of the level of efficiency of the capital market and other decision tasks.
Recent happenings in the global world however and various empirical studies explored that Accounting Information in published financial statements lost their usefulness over the period of time. (Ball and Brown 1968, Oyerinde D.T., 2009). In United Kingdom, it has found that the financial statement was considered as the least effective means of communicating information. (Guthrie J., 2007). Having discovered that studies into the usefulness of accounting information are existent in other countries (Ball and brown 1968, Francis & Scghipper, 1999, Vishnani S., Shah B.K., 2008, and Ronen J.), the gap is still yet to be filled in Nigeria. Hence, this research work intends to fill this gap by investigating on The Usefulness of accounting information to investments decisions in Nigeria.
1.2 STATEMENT OF THE PROBLEM
The mobilization and allocation of both domestic and foreign savings are critical in the national growth process (Aregbeyen, 2011). It is therefore, obvious that the investment markets have a significant role to play in economic development. Growth occurs when savings are channeled into productive investments which in turn enhance the capacity of the economy to produce goods and services which have bearing on standard of living. Alile (2007) indicates that the capital market which is the main investment market for listed companies publishing financial or accounting information play a crucial role in stimulating industrial growth as well as economic growth and development.
This means that a capital market will succeed in facilitating economic growth and development if it can encourage the flow of savings / investment through the purchase of securities issued by government or private enterprise and others with the aim of financing the implementation of capital projects. However, instead of the potential of this industry to be harnessed we are having a big abuse of financial and accounting information presentation to the general public. Inaccurate financial and accounting statement disclosures and falsification is now the other of the day. Traditionally, investors within the public rely on this accounting and financial information and general information from enquiries as a basis for their investment decisions but this is not the case any more, with the level of corruption and incompetence that has bedvilled the sector. This has large implications for ethical practices within the sector, growth of the sector, investment direction and growth and development of the country.
1.3 AIMS AND OBJECIVES OF THE STUDY
The aim of the research is to investigate the usefulness of accounting information to investment decisions making in Nigeria.
The aim of the research is intended to be achieved through the following objectives:
- Examine the current state of accounting information as an aid to investment decisions in Nigeria
- Examine if accounting information in Nigeria meet regulatory criteria and standards.
- Examine the contribution of accounting information to investors decision among other factors
- Proffer recommendations in helping to solve the inherent problems in accounting information and presentation in Nigeria
1.4 SIGNIFICANCE OF STUDY
The quality of accounting information in terms of its accuracy, adequacy, reliability and mode of disclosure is a major determinant of the level of efficiency of the capital market and other decision tasks. The usefulness of accounting information to day-to-day running of the organization and the general public, especially for investors cannot be over-emphasized. Investments are normally undertaken under condition of uncertainty. Hence, one of the incentives required is a mechanism to help reduce the level of uncertainty to which a potential investor could be exposed (Ariyo, 2007). A careful execution of this research work which is tended to reveal problematic areas and investors concern would if implemented well would position the mechanism of accounting and financial information in performing its primary role vis-à-vis information and reduction of risk. A good accounting information presentation and mechanism if so achieved determines the nature and extent of moral hazard to which existing and potential investors could be exposed, thereby influencing the level of optimality of allocation of societal resources. The research will also tend to inform and educate the illiterate public on the dangers involved in decisions based on paper data alone without corroboration from objective financial experts. Furthermore, the research paper would be advisory to government and financial regulatory policies in formulating procedures and more stringent policies in combating these professional gaps within the industry. As well this research is intended to fuel further researches in this field of study.
1.5 RESEARCH QUESTION
In carrying out this research the following research questions are set:
- Does accounting information in Nigeria follow laid down professional standards and procedures?
- Is accounting information in Nigeria a true reflection of the financial state of listed companies?
- Is accounting information significantly reliable for investment purposes?
- Does accounting information affect the rate of investment in Nigeria?
- What is the public perception relating to accounting information and financial presentation in Nigeria?
1.6 RESEARCH HYPOTHESIS
In this research, three (3) hypotheses were set, namely:
Ho: Accounting information does not significantly represent a true reflection of financial situation of listed companies in Nigeria
Hi: Accounting information significantly represents a true reflection of financial situation of listed companies in Nigeria.
Ho: Accounting information in Nigeria is not significantly reliable for investment purposes in Nigeria.
Hi: Accounting information in Nigeria is significantly reliable for investment purposes in Nigeria.
1.7 SCOPE AND LIMITATIONS OF STUDY
This research work is primarily on accounting information relevant to investors in Nigeria and this would involve only accounting and financial indexes computed and published to the public by listed companies alone and does not involve any other type of accounting information or management accounting information not published or obtained or used within the organization or not published. Furthermore, this research would as well be a reflection of the experiences of investors or respondents quite recent to the research likely a period of 5 years back from now since the research work is a qualitative one.
In terms of limitation, the research work is a qualitative one and thus will be based on respondents’ judgment which has its weaknesses but effort will be tailored at using ranked options (ordinal attitudinal scales) in order to capture the scale of their perceptions. Furthermore, ability to get respondents that are finally literate enough who is an investor, aware and uses financial information is seen also as very important to the research. In other to lessen the effect of this limitation, the sampling methodology was purposive.
The question of motivation to fill a research instrument nowadays by business seem to them as time wasting, consequently much time wasting was involved in lobbying respondents into helping in completing the questionnaire. Conclusively, all instruments were to every extent retrieved back to ensure further work.
1.8 TERMINOLOGIES IN THE RESEARCH
Accounting: The systematic recording, reporting, and analysis of financial transactions of a business
Financial: related to finance which is the science of the management of money and other assets
Investment: the purchase of a financial product or other item of value with an expectation of favorable future returns
Monetary: of or relating to money or to the mechanisms by which it is supplied to and circulates in the economy
Regulatory: To control or direct according to rule, principle, or law or to adjust to a particular specification
Standard: A level of quality or attainment, universally or widely accepted, agreed upon, or established means of determining what something should be.
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