This study examined the impact of Financial Reporting on investment decision of equity holders in Breweries and Banking Industries. The purpose of the study was to determine the impact financial reporting has on investment decisions of shareholders and other investors. Using residual equity theory and enterprise theory upon which the study is anchored and the body of literature on financial reporting pedagogies as conceptual guides, a five year data from five selected firms namely: Nigerian Breweries plc, Guinness Nigeria Plc, Zenith Bank plc, First Bank plc and Guaranty Trust Bank Plc were used in the study conducted in south east, Nigeria.  Financial reporting and equity holders were operationalized and measured. Data from the five selected firms were analyzed using regression and correlation statistics. The findings of the study show that: Profitability has a significant positive impact on equity holders’ investment decision. Dividend per share payout does not significantly affect equity holders’ investment decisions. There is a significant positive relationship between Earnings per share and investment decision. There is an insignificant positive relationship between leverage and investment decision. Liquidity of a firm has a significant positive effect on equity holders’ investment decision in the firm. The study concludes that financial reporting has a significant positive impact on equity holders investment decision. The study recommends that financial reporting statutory regulators should ensure credible financial reporting that would ensure reliable decision making.


The fundamental aim of financial reporting is to provide high-quality financial reporting information concerning economic entities or units, primarily financial in nature, useful for economic decision making (FASB, 1999; IASB, 2008). Providing high quality financial reporting information is important because it will positively influence capital providers and other stakeholders in making investment, credit, and similar resource allocation decisions enhancing overall market efficiency (IASB, 2006; IASB, 2008). The importance of reliable financial reporting as a vehicle for financial decision making cannot be over- emphasized and one of the fundamental problems in prior researches is the operationalization of the concept. The quality of financial reporting includes different context- specific domains and as such involves differences among constituents (Schipper & Vincent, 2003; Dechow & Dichev, 2002). In addition, the users within a user group may also perceive the usefulness of similar information differently given its context (Beest, Braam and Boelens, 2009).
Quoted organizations have as a matter of fundamental condition, the responsibility of making known those matters that concern their operations in order to help the investing public in their investment decision-making. Firms of different sizes aside their statutory obligation, endeavour to retain their shareholders and investors so as to attract new ones. A satisfying methodology of accomplishing the above is to make or publish the information concerning the organization as financial reporting. Such financial statement is essential in aiding the decision making abilities of accounting information users. Financial statement provides important information for a wide variety of decisions, and investors draw information from the statement of the firm in whose security they contemplate investing (Anaja & Onoja, 2015) ‘‘Decision makers who contemplate acquiring total or partial ownership of an enterprise expect to secure returns on their investment such as dividends and increase in the value of their investment’’ (p.2.). Dividends and increase in the value of shares of firms depend on the future profitability of the enterprise. Financial statement is a formal and comprehensive statement describing financial activities of a business organization such as the financial institutions. For such a business entity, financial statement is a statement that reports all relevant financial information, presented in a structured manner and in a form easy to understand for managerial use for taking prompt and informed decision making related to investment (IASB, 2007a) and also to decision making pertaining to cost planning, investment planning, expected returns and performance evaluation.
Anaja and Onoja (2015:2) posits ‘‘that the financial statement comprises balance sheet (for determining financial position), profit and loss statement (describes statement of comprehensive income), statement of equity changes (explain the changes of the company’s equity), and cash flow statements (reports on a company’s cash flow activities, particularly its operating, investing and financing activities). Although, these statements are often complex and may include an extensive set of notes to the financial statement and explanation of financial policies and management discussion and analysis (IASB, 2007b). The notes typically describe each item on the balance sheet, income statement and cash flow statement in further detail. Notes to financial statement are considered an integral part of the financial statements. However, the approaches that the notes and financial statement are presented and reported are critically for investment decision making by existing and prospective investors in order to earn optimal returns on their investments.
This indicates that financial statement methods in terms of information disclosure pattern, transparency, auditing, reporting standards, regulatory control and flexibility, corporate governance, and financial scandals have influence on investment decision making in any organization, especially in financial institutions with extensive range of investment activities that requires comprehensive financial facts that can be obtained from a financial reporting. Though, these financial statements are often prepared according to national standards, corporate governance, professional ethics, and code of ethics. It has been stressed that there is need for corporate ethics in the preparation of financial report. This to avoid financial reporting fraud and scandals that might hinders effective decision making process by management and other users of reports. The purpose of ethics in financial accounting reporting with expected standards is to re-orientate corporate organization on the need to abide by a code of conduct that facilitates public confidence in their services (Okafor, 2006).
It was observed that the roles of financial statement on investment decision making of financial institutions in Nigeria has some problems to both investors and managers of business organizations who are either not aware of the importance of interdependence relationship that exist between investors and financial organizations. The incidence of corporate failures, for instance, Enron Corporation and in the year 2002, and other accounting scandals compounded by the global energy, food and financial crises leading to credit squeeze across the globe, have partly been attributed to impact of financial statement manipulations which portrayed some ailing companies as if they were sound. In Nigeria also, corporate failures and distresses have been witnessed in the banking sector. Evidence was the huge collapse of the commercial banks all due to massive accounting related frauds. This problem resulted in the establishment of Asset Management Company of Nigeria (AMCON) to prevent corporate failures particularly in the Nigerian banking sector by acquiring financially distressed companies.
This trend has now more than ever ensures that financial statements are sternly scrutinized. Investors, Financial analysts and other users of accounting information tend to use their critical eye to scrutinize financial statements. This has become necessary because audited financial statements, which used to provide assurance as to the healthy nature or otherwise of the firm are often not reliable as in the case of Enron Corporation.
The conceptual framework (CF) for international financial reporting (IASB, 2010) provides a conceptual basis for selecting the information characteristics which should be included in such a quality index. That is, the CF states that the degree to which financial reporting information is useful depends on its qualitative characteristics. Fundamental and enhancing qualitative characteristics are underlying attributes of information, which contribute to its decision usefulness.
The primary aim of the present study is to assess the impact of financial reporting on equity holders and other users of financial reports. For this reason the financial reporting is seen in terms of the fundamental characteristics (i.e. relevance and faithful representation) and the enhancing qualitative characteristics (i.e. understandability, comparability, verifiability and timeliness) as defined in the ED (IASB, 2008).
Equity holders are among the most important sources of financing firms. This is because it is the initial source of corporate funds and usually the last to extinguish. According to Nwoha (2007), this group comprises the shareholders or owners of a business who have an interest in the profit of the business and who can presume to wish to preserve the capital, which is invested in the business. Financial reporting essentially involves the preparation and issuing of financial statements. They are formal records of financial activities of corporate entities showing their financial condition for a given period of time. They are usually expected to comply with regulatory and professional requirements.
Financial statements serve as a means for assessing management’s performance in terms of how efficient and effective or otherwise it had used available resources in the course of trying to achieve corporate set goals, in the previous accounting period. The International Financial Reporting Standards (IFRS) states that the objective of financial statement is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions. Financial statements also show the results of the management stewardship of the resources entrusted to it. The degree of the usefulness of the financial statements as a tool for such assessment is dependent to a great extent, or the level of accuracy and reliability of the statements.
A financial statement that will meet the needs of any category of users must have the following qualities: reliability, understandable, simplicity, clear and logical manner, timely, accuracy, comparability, compliance with the relevant accounting standards. It should also comply with the relevant accounting standards as laid down by the Financial Reporting Council of Nigeria (FRCN).
A financial statement is said to be misleading if it lacks the qualities mentioned above. It contains fundamental errors or is prepared with the intention to deceive or confuse the users. Such deception can be carried out in a number of ways, among which are distortions of accounting records, falsification of transactions, omission of transactions, or misapplication of accounting principles etc. Many reasons can be adduced for the preparation of such misleading financial statements. One of such reasons is the demand for high returns by shareholders on their investments. This expectation of investors places management of some companies under undue pressure that they resort to indulging in unethical forms of financial-disclosure and reporting. Another reason is the quest to maintain a “giant” corporate status in the eyes of the business community despite some crippling internal problems, odds in the business terrain or sporadic changes in competitiveness. Manipulating the financials in order to satisfy the greed of company insiders- understating or reclassifying expenses is yet another reason. These of course set the stage for the failure of the company with time. The consequences of these unethical accounting practices include, but not limited to the following:

  1. A yawning gap between reality and the reported position of the company such that any person placing reliance on such reports for decision making will be misled.
  2. Erosion of investor’s confidence in corporate entities,
  3. Attrition of revenue to the government via evasion or avoidance of taxes,
  4. Reduction in the inflow of foreign direct and portfolio investment.

The list of users of financial statements is in exhaustive. Each group examines the financial statements based on areas of their needs. The basic users include shareholders, board & management, regulatory authorities, creditors, suppliers, financial analysts, researchers, prospective investors, government etc. These users expect the financial statements to contain information that would enable them among other things evaluate the performance and earning power of a business enterprise, compare its performance over time or with other enterprises within the industry, predict its future performance and continuity to enable them make investment decisions etc.
Accounting typically restricts itself to information in a normal set of financial statement, that is, a balance sheet, a statement of income, and a statement of retained earnings (Anglo-Saxon Countries), together with various footnotes and supporting schedules. Note and supplementary schedules may contain additional information that is relevant to the needs of equity holders and other users about the items in the balance sheet and income statement, such as disclosures about the risks and uncertainties affecting the enterprises and any resources and obligation not recognized in the balance sheet. IASC (2006).
Although a published annual report may include information about plans, new products, projected capital expenditures and the like, that is generally presented in such a way that is definitely separated from the original financial statement. Mautz and Sharaf, (2000). Fundamental questions are how much information and what form of presentation are necessary to enable users to form opinions and take decision, which are competent to them. Flint (2000, 15). One of the tasks of financial reporting is to reduce the tremendous mass of detailed information contained in a company’s business papers to manageable and understandable proportion. On the other hand, the summarization and condensation may be carried to such an extreme that users’ comparisons and distinctions are lost or concealed. Obviously too much or too little detail may be harmful.
Many companies make increasing shareholders value a key goal, if not the ultimate, because of direct and indirect influence from shareholders. Shareholders value refers to a company’s value less its debt. Since shareholders or equity holders elect a corporation’s directors, they can exert a significant amount of influence on a company and its policies, because directors know they can be fired if equity holders are not satisfied with their performance and decisions. That is why financial report of a company should be disclosed to the shareholders. One argument against public disclosure was that labour force would present pay demands to the management of highly profitable companies. If information was to be made public, the profit should be understated (potentially overstated in unprofitable companies) so that it would not harm the company. The ‘real picture’ could however, be given to the shareholders at the shareholders’ meeting.
Financial statements also have impact on new investors. When a company issues new shares of stock, it will most likely distribute financial statements to potential investors. ‘‘The potential investors will examine the financial statements to determine if they want to put money into the company’’ (Osuala et al, 2012:166).  Low earnings numbers could negatively impact the number of investors willing to put money into the company. In some cases, financial statements can even affect other businesses. Negative numbers by a leading company can sometimes lead to a negative outlook on other companies and this may drive down the stock prices on other companies in the same industry sector of the market.
Balance sheet, profit and loss account or income Statement, the Notes to the accounts, Statement of Sources and application of funds, value added Statements and historical financial Summary and these elements of financial statement provide information about the resources, obligation and the performance of the company in a clear, simple and understandable manner (p 166.)


The essence of financial reporting is to provide reliable, transparent, effective and efficient accounting information that would be of benefit to shareholders and other investors in making investment decisions. Company Management and Directors take responsibility of preparing the final account of their companies; and when such is prepared, it is expected to fulfil some fundamental statutory conditions or ethical conditions that would ensure that expected accounting information that are realistic, dependable are delivered and capable of fulfilling the yelling of investing public .When a company prepares its own final account purely for internal use by the Directors and Management, it can draft them in any way which is most suitable. Such accounts are supposed to be prepared with strict adherence to Accounting Principles.
However, the situation with the present accounting practice in some organizations leaves much to be desired. It is obvious that some organizations get involved in reporting information that is not consistent with their operations; for example some companies engage in insider trading of their own shares in order to increase the worth of such shares and to create the impression of competitive purchase of their shares (Oluwabiyi, 2014).
In Mid-October 2001, Enron Corporation, one of the largest companies in the world, shocked Wall Street by reporting huge losses and a dramatic reduction in shareholders’ equity. On December 2, 2001 Enron filed for chapter 11 bankruptcy. In January 2002, the U.S Justice Department began a criminal investigation which ultimately revealed accounting discrepancies in the form of overstated earnings, underreported losses, improper transactions and partnerships created to conceal liabilities from investors, as well as the illegal shredding of thousands of key accounting documents, emails, and memoranda by Enron and their accounting firm. This made the shareholders confidence to be sorely shaken which negatively impacted stock market prices, industry stability, and holdings on both personal and retirement accounts.  On the local scene, we also have some notable cases such as the failures of some Nigerian Banks in the early 1990’s, the case of Lever Brothers Plc (Now Unilever) in 1998 where overvaluation of stocks running into billions of Naira was discovered. Another was the case of the African Petroleum (AP) Plc in which the company’s Board concealed indebtedness to the tune of about N22 billion in its year 2000 offer for sale. We had yet the case of Cadbury Plc as well as that of Evans Medicals Plc in which the company’s record unsupported inventory balance of about five hundred and fifty million Naira in its year 2008 financial statements. The current case as we all know involves MTN Nigeria communications ltd which failed to delist 5.2 million subscribers who could not register their sim cards and was fined $5.2 billion dollars by Nigerian Communications Commission which were later reduced to 780 billion naira. (GJMST Vol. 1 Issue Pg 20).
These events above hold little promise for the accounting profession and corporate enterprise in Nigeria. This is because confidence erosion by investing public would deplete stock market as well as reduce drastically, corporate worth of organizations listed on the Nigerian Stock Exchange. In response to the above, this study investigates the impact of financial reporting on equity holders and other accounting information users. The study would endeavour to quantitatively measure the gains accruable to accounting information users if accurate, reliable and responsive financial reporting is upheld by corporate organizations in Nigeria.
The main objective of the study is to investigate the impact of financial reporting on investment decision of equity holders in Breweries and Banking industries. The following specific objectives are formulated:

  1. To determine the impact of profitability of a firm on equity holders’ investment decisions based on the financial statements of the company concerned.
  2. To ascertain how dividend per share payout affects equity holders’ investment decisions.
  • To assess the relationship between Earning per share as contained in the firm’s annual report and equity holders’ investment decision.
  1. To determine the relationship between leverage of a firm and equity holders’ investment decision in the firm.
  2. To ascertain the impact of liquidity of a firm on equity holders’ investment decision in the firm.


  1. To what extent does profitability of a firm influences equity holders’ investment decisions?
  2. To what extent does dividend per share payout affects equity holders’ investment decisions?
  • What is the relationship between earning per share and equity holders ’investment decision?
  1. What is the relationship between leverage of a firm and equity holders’ investment decision in the firm?
  2. To what extent does liquidity of a firm affects equity holders’ investment decision in the firm.

Following the aforementioned objectives and research questions, the following hypotheses are formulated in alignment. The hypotheses are stated in alternate.

  1. Profitability of a firm has a significant and positive impact on equity holders’ investment decisions in the firm.
  2. Dividend per share payout does significantly affect equity holders’ investment decisions.

iii.            Earning per share has a significant and positive impact on equity holders ’investment decision.

  1. Leverage of a firm has a significant and positive impact on equity holders’    investment decision in the firm.
  2. Liquidity of a firm has a significant and positive effect on equity holders’ investment decision in the firm.

This study highlights the importance of financial reporting to equity holders in breweries and banking industries. The study is meaningful to them as it assists them to get appropriate information about the financial position and changes in an enterprise that is useful to a wide range of users in making economic decisions. It also meets the needs of other accounting information users. Economic decisions taken by users require an evaluation in the ability of an enterprise to generate cash or cash equivalents and of the timing and certainty of generation of such values. The economic decision may include, for example, whether to hold or sell their investments in a firm or whether to reappoint or replace its management.
Also to corporate accountants, this study would assists them to present their financial report based on rules and procedures necessary to define accepted accounting practice at a particular time period. This study is relevant to potential investors, employees, lenders, suppliers and other trade creditors, customers, governments and their agencies and the public at large.  It is hopefully expected that this study’s findings and recommendations would be pivotal to other researchers who wish to make further research into the impact of financial reporting on users of accounting information.
1.7          SCOPE OF THE STUDY
This dissertation focused on the impact of financial reporting on investment decision of equity holders in Breweries and Banking industries.  Conceptually, the study is within the domain of financial reporting and accounting information usage. The geographic scope is within the South East Nigeria while the time scope involves the period of 2010 to 2014.
The study is constrained by the following undermentioned factors.

  1. Financial Constraint: – Finance was one of the major constraints that limited the study. This is consequent upon the fact that the researcher sources of financial support were only sufficient to take on the scope covered in this study
  2. Difficulty in Sourcing Materials: – It is also one of the major constraints in this dissertation. The impact of financial reporting to equity holders is a new economic concept adopted by the Securities and Exchange Commission, no doubt limited the study as the researcher had difficulties in searching out for these materials.
  • Financial reporting as a fluid concept: The concept of financial reporting is a fluid and abstract concept whose operationalization could be subjective. For this reason, the concept is approached differently by different scholars in terms of measurement.


  1. Accounting Information: – This refers to data that are found in financial statement of organization. The information should be real (facts) that have a surprise effects on the receiver and to have a value greater than its cost and potentially evoke a response in the decision making.


  1. Accounting Principles: – The term used to describe these practices is Generally Accepted Accounting Principles (GAAP). It encompasses the conventions; rules and procedures necessary to define accepted accounting practice at a particular time. Many of the policies are dictated by the IFRS and do not have much room for interpretation.


  • Equity Shareholders: – This is the most important source of corporate finance. It is usually the first instrument to be issued by a firm and continues to play a dominant role throughout the lifetime of the firm.


  1. Financial Reporting: – This is a financial statement prepared at the end of the year, which is to be reported to the shareholders, government or investors and to the public at large. It is presented in such a way that is definitely separated from the ordinary financial statements. It may include information about plans, new product, and projected capital expenditures.


  1. Financial Statements: – These are statements of financial position or balance sheet, comprehensive income statement, cash flow statement, statement of changes in equity and value added. Financial statements are prepared based on a number of accounting policies and assumptions usually referred to as Generally Acceptable Accounting Principles (GAAP). In applying these GAAPs, accountants generally make judgments, which are expected to be logically deductible from the relevant GAAPs.
  2. Intrinsic Value: – This is the value the security ought to have and will have when other investors have the same insight and knowledge as the analysts.