EFFECT OF PROFITABILITY AND FIRM GROWTH ON FINANCIAL REPORTING QUALITY OF LISTED INDUSTRIAL GOODS FIRMS IN NIGERIA

Abstract

The objective of this study is to investigate the effect of profitability and firm growth on financial reporting quality of listed industrial goods firms in Nigeria. Given the distinctive challenges characterizing the industrial goods sector such as high capital intensity, cyclical demand patterns and exposure to economic fluctuations, it is essential to examine how these factors influence the relationship between firm performance metrics like profitability and growth on financial reporting quality in this sector. A sample of 9 industrial goods firms were selected from the population of 13 firms listed on the Nigerian Exchange Group (NGX). Data was collected through secondary sources from annual reports of the companies from 2014- 2023. The study adopted the ex-post factor research designs and employed the use of generalized least squares regression as a tool for data analysis. The effect of corporate attributes on financial reporting quality was measured using the residuals from the modified Jones model by Dechow, Sloan and Sweeney (1995). The results showed a positive significant effect of profitability on discretionary accruals proxied by financial reporting quality (FRQ). For firm growth, a negative but significant effect on discretionary accruals was reported. Based on the findings, it is recommended that managers of industrial goods firms may choose to pursue firm growth strategies, through diversifying product lines and strengthening distribution channels, as it has been found empirically to enhance the quality of the firms’ reporting. Regulators such as Central Bank of Nigeria (CBN), Securities and Exchange Commission (SEC) and Financial Reporting Council of Nigeria (FRCN) should monitor compliance with firms’ disclosure requirements, and impose strict penalties for violations especially in areas of financial misreporting to deter unethical reporting practices