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Influence of Accounting Information Relevance on Investment Decisions in the Nigerian Capital Market

Abstract

Accounting information relevance is an important characteristic of high-quality financial reporting because it determines the extent to which financial information is capable of influencing users' economic decisions. Relevant accounting information provides investors with useful information about a company's financial position, financial performance, cash flows, risks, and future prospects, thereby enabling them to evaluate investment opportunities and make informed decisions. Investment decisions in the Nigerian capital market involve decisions regarding the purchase, retention, or sale of securities based on available financial, market, and economic information. In Nigeria, investors operate in an environment characterized by inflation, exchange rate fluctuations, interest rate changes, economic uncertainty, regulatory developments, and variations in corporate performance. These factors increase investors' need for timely, predictive, and confirmatory accounting information when evaluating securities. The importance of relevant accounting information is further reinforced by financial reporting requirements and capital market regulations intended to improve transparency and investor protection. Institutions such as the Financial Reporting Council of Nigeria (FRCN), the Securities and Exchange Commission (SEC), and the Nigerian Exchange Group (NGX) play significant roles in promoting credible financial reporting and efficient capital market operations. Despite these regulatory efforts, concerns remain regarding delayed financial reporting, inadequate disclosure of material information, earnings management, complex accounting presentations, and information that may not adequately reflect the economic realities of listed companies. Such limitations may reduce the usefulness of accounting information and make investment decisions more difficult for market participants. Although previous studies have examined accounting information and investment decisions, empirical evidence regarding the influence of accounting information relevance on investment decisions in the Nigerian capital market remains limited and inconclusive. Against this background, this study investigates the influence of accounting information relevance on investment decisions in the Nigerian capital market. The study is anchored on Decision-Usefulness Theory, Information Asymmetry Theory, and the Efficient Market Hypothesis (EMH). Decision-Usefulness Theory emphasizes that financial reports should provide information that is useful to investors in making rational economic decisions. Information Asymmetry Theory explains that relevant and timely accounting information can reduce the information gap between corporate management and investors, thereby reducing uncertainty associated with investment decisions. The Efficient Market Hypothesis suggests that publicly available accounting information is incorporated into security prices as investors respond to information concerning corporate performance and prospects. Collectively, these theoretical perspectives provide a comprehensive framework for explaining the relationship between accounting information relevance and investment decisions in the Nigerian capital market. The study adopts a quantitative research design using a structured questionnaire administered to individual investors, institutional investors, investment analysts, portfolio managers, stockbrokers, fund managers, financial advisers, accountants, auditors, and other capital market professionals involved in investment decision-making in Nigeria. A stratified random sampling technique will be employed to ensure adequate representation of relevant categories of capital market participants. Accounting information relevance will be measured using the predictive value of accounting information, confirmatory value, timeliness, materiality, earnings information usefulness, cash flow information usefulness, and the ability of financial information to assist investors in assessing future corporate performance, while investment decisions will be measured using security selection, share purchase decisions, portfolio allocation, investment retention, security disposal decisions, perceived investment risk, and investors' confidence in investment choices. Primary data collected from respondents will be analyzed using descriptive statistics to summarize respondents' demographic characteristics and perceptions regarding accounting information relevance and investment decisions. Structural Equation Modeling (SEM) will be employed to examine the influence of accounting information relevance on investment decisions. The measurement model will be evaluated using Cronbach's Alpha, Composite Reliability (CR), Average Variance Extracted (AVE), and Confirmatory Factor Analysis (CFA) to establish the reliability and validity of the research instrument. Additional diagnostic tests, including multicollinearity assessment, common method bias analysis, and model fit indices such as the Comparative Fit Index (CFI), Tucker-Lewis Index (TLI), Root Mean Square Error of Approximation (RMSEA), and Standardized Root Mean Square Residual (SRMR), will be conducted to ensure the adequacy, consistency, reliability, and robustness of the structural model. The study anticipates that accounting information relevance will have a significant positive influence on investment decisions in the Nigerian capital market. Relevant accounting information is expected to improve investors' ability to evaluate the financial health, profitability, liquidity, risk exposure, and future prospects of listed companies. Timely and predictive financial information is also expected to reduce investment uncertainty, improve investors' confidence, facilitate security valuation, and enable investors to distinguish between attractive and less attractive investment opportunities. Furthermore, relevant accounting information is expected to improve portfolio allocation decisions, security selection, investment timing, and decisions concerning the purchase, retention, or disposal of shares. Conversely, accounting information that is delayed, incomplete, immaterial, or insufficiently predictive may increase information asymmetry, weaken investor confidence, and lead to less informed investment decisions. Consequently, improving the relevance of accounting information is expected to contribute significantly to informed investment decision-making and greater efficiency in the Nigerian capital market. This study is expected to make significant theoretical and empirical contributions to the literature on accounting information, financial reporting, investment decisions, and capital market efficiency by providing comprehensive evidence on the relationship between accounting information relevance and investment decisions in the Nigerian capital market. Unlike previous studies that broadly examined accounting information quality or financial reporting usefulness, this research specifically evaluates relevance as a qualitative characteristic of accounting information and its influence on investors' decisions using primary data and Structural Equation Modeling (SEM). The findings will provide valuable insights for the Financial Reporting Council of Nigeria (FRCN), the Securities and Exchange Commission (SEC), the Nigerian Exchange Group (NGX), listed companies, investors, investment analysts, stockbrokers, professional accounting bodies, policymakers, regulators, and academic researchers regarding the importance of providing relevant accounting information to capital market participants. The study will also provide evidence-based recommendations for improving the timeliness, predictive value, confirmatory value, materiality, and usefulness of accounting information, strengthening corporate disclosure practices, improving investor communication, and promoting more informed and efficient investment decisions in the Nigerian capital market.

Keywords: Accounting information relevance, investment decisions, Nigerian capital market, financial reporting, information usefulness, investor confidence, information asymmetry, Decision-Usefulness Theory, Structural Equation Modeling (SEM), Nigeria.