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Volume 13 Issue 1, January-March 2025 

ISSN: 2836-9416 

Impact Factor: 6.41 

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EFFECT OF CORPORATE FINANCIAL DISCLOSURE ON 

INVESTORS CONFIDENCE IN NIGERIA. A CASE STUDY OF 

NIGERIA STOCK EXCHANGE 
 

1Eke Robert Ike, PhD, Fca, 2Korka Goodluck Barineka  and 3Edmund 

Obayagbonna 

1Department of Accounting and Finance, College of Management and Social Sciences, Wellspring 

University Benin City, Edo State. 
2,3Department of Business Administration, College of Social and Management Sciences, Wellspring 

University Benin City, Edo State. 

EMAIL:robbyeke19@yahoo.com/robert.eke@wellspringuniversity.edu.ng/kgbarineka@gmail.com/edmund.

obayagbonna2020@gmail.com 

DOI: https://doi.org/10.5281/zenodo.15281161 

Phone: +2348034712733, +2348169651424, +2348038010140. 

  

Abstract: This study examines the effect of corporate financial disclosure on investor confidence in 
Nigeria, with a focus on earnings transparency, disclosure compliance, and audit quality as 
determinants of trading volume. Specifically, the study investigates the effect of earnings 
transparency on trading volume, assesses the impact of disclosure compliance on trading volume, 
and evaluates the influence of audit quality on trading volume. The research adopts an ex-post facto 
design, utilizing secondary data from publicly available financial reports of listed firms on the 
Nigerian Exchange Group (NGX) from 2010 to 2019. A purposive sampling technique was used to 
select 30 firms from key sectors, including banking, manufacturing, oil and gas, and 
telecommunications, based on their consistent financial disclosures. Data analysis involved 
descriptive statistics and Ordinary Least Squares (OLS) regression to determine the relationship 
between corporate financial disclosure variables and trading volume. Findings indicate that firms 
generally exhibit high disclosure compliance and earnings transparency levels, with a majority 
audited by Big Four firms. The regression analysis reveals that earnings transparency positively 
influences trading volume; however, its effect is not statistically significant (p > 0.05). Disclosure 
compliance and audit quality were not directly tested in the model but were inferred to have limited 
explanatory power based on the low adjusted R-squared value (0.226). These results suggest that 
while financial disclosure enhances market confidence, other factors such as market sentiment and 
macroeconomic conditions may play a dominant role in investor decision-making. The study 
concludes that corporate financial disclosure alone may not sufficiently drive trading volume. It 
contributes to the literature by highlighting the need for enhanced qualitative disclosures and investor 
education. It recommends that regulatory bodies strengthen compliance mechanisms and that firms 
improve voluntary disclosures to bolster investor confidence and market efficiency. 

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American Research Journal of Economics, Finance and Management 

Volume 13 Issue 1, January-March 2025 

ISSN: 2836-9416 

Impact Factor: 6.41 

Journal Homepage: https://americaserial.com/Journals/index.php/ARJEFM, 

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Keywords: Corporate Financial Disclosure, Investor Confidence, Earnings Transparency, Disclosure 
Compliance, Audit Quality, Trading Volume, Nigeria 
 

1.1 INTRODUCTION 

Investor confidence is a critical component of capital market stability and economic growth. Globally, 

well-functioning financial markets rely on transparent corporate financial disclosure to ensure that 

investors have adequate and reliable information for decision-making. The United States and other 

developed economies have established stringent financial reporting standards such as the Generally 

Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS) 

to enhance corporate disclosure and strengthen investor trust (Wali & Velasco, 2024). In Europe, 

regulatory bodies such as the European Securities and Markets Authority (ESMA) enforce financial 

disclosure policies to safeguard investors and maintain capital market integrity (Siri & Zhu, 2019). 

These measures have significantly contributed to the confidence investors place in stock markets by 

reducing information asymmetry and promoting fair valuation of securities. 

In Africa, investor confidence in stock exchanges varies significantly due to disparities in financial 

reporting practices, corporate governance, and enforcement of disclosure standards. While South 

Africa's Johannesburg Stock Exchange (JSE) has maintained investor confidence through stringent 

disclosure requirements and corporate governance codes, many other African stock markets, including 

Nigeria's, continue to struggle with inconsistent financial reporting and regulatory enforcement 

(Hammond, Opoku, & Kwakwa, 2022). Regional organizations such as the African Securities 

Exchanges Association (ASEA) have emphasized the need for harmonized disclosure standards to 

enhance transparency and investor protection across African stock markets (Samamba & Trivedi, 

2023). However, challenges such as weak enforcement mechanisms, corporate fraud, and poor audit 

quality continue to undermine investor confidence in several African economies. 

In the Nigerian context, corporate financial disclosure plays a fundamental role in determining investor 

confidence in the Nigeria Stock Exchange (NSE). Investors rely on accurate financial statements, 

compliance with disclosure regulations, and audit quality to assess the financial health and 

performance of listed companies (Okolie & Jeroh, 2022). However, persistent corporate governance 

failures, financial misreporting, and weak enforcement of disclosure policies have led to declining 

investor trust in Nigeria’s capital market (Lawuyi, 2022). As a result, foreign and domestic investors 

often perceive the NSE as a high-risk market, affecting capital inflows and overall market performance. 

One major problem affecting investor confidence in the Nigeria Stock Exchange is financial 

misreporting by listed companies. Several corporate scandals, including cases of fraudulent financial 

statements and earnings manipulations, have raised concerns about the credibility of financial 

disclosures in Nigeria (Edeh, 2020). When companies engage in financial misreporting, investors face 

difficulties in making informed decisions, leading to reduced trust in the market. Improving earnings 

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Volume 13 Issue 1, January-March 2025 

ISSN: 2836-9416 

Impact Factor: 6.41 

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transparency through timely and accurate financial reporting can help mitigate this issue by ensuring 

that investors have reliable information on company performance. 

Regulatory weaknesses and poor enforcement of corporate disclosure requirements constitute another 

significant challenge. Despite the existence of the Financial Reporting Council of Nigeria (FRCN) and 

the Securities and Exchange Commission (SEC), compliance with disclosure standards remains 

inconsistent, leading to information asymmetry and market inefficiencies (Lawuyi, 2022). 

Strengthening disclosure compliance through enhanced regulatory oversight and stringent penalties 

for non-compliance can improve transparency and restore investor confidence in the NSE. 

Audit quality deficiencies also pose a threat to investor confidence in Nigeria’s capital market. Some 

audit firms have been implicated in cases of compromised financial reporting due to conflicts of 

interest, lack of independence, and weak audit regulations (Egiyi, 2023). Poor audit quality reduces the 

credibility of financial statements, making it difficult for investors to rely on reported earnings and 

financial positions of listed firms. Enhancing audit quality through stricter regulatory supervision and 

improved auditor independence can enhance financial statement reliability and investor trust. 

Another issue affecting investor confidence in the NSE is corporate governance failure. Weak corporate 

governance structures, including board ineffectiveness, lack of accountability, and inadequate risk 

management practices, have resulted in financial instability and stock market volatility (Oyelekan, 

2022). Investors are less likely to invest in firms with poor governance practices due to the risks of 

mismanagement and financial misappropriation. Strengthening corporate governance through 

stringent disclosure compliance and transparent reporting mechanisms can contribute to improved 

investor confidence. 

Market volatility and macroeconomic instability also undermine investor confidence in Nigeria’s stock 

market. Factors such as inflation, exchange rate fluctuations, and political uncertainty create 

unpredictable investment conditions, discouraging long-term investment in the capital market 

(Erhijakpor & Honour, 2024). When investors perceive the market as unstable, they become hesitant 

to commit their funds, leading to reduced market liquidity. Promoting transparency through robust 

financial disclosure can help mitigate the effects of market volatility by providing investors with clear 

insights into corporate financial health and market trends. 

Liquidity constraints further compound the problem of investor confidence in the NSE. Limited access 

to capital and the illiquidity of certain stocks deter investors from actively participating in the market 

(Mafiejor, 2023). When investors face difficulties in buying or selling securities at fair prices, they lose 

confidence in the efficiency of the market. Improving disclosure compliance and ensuring timely 

publication of financial reports can enhance market liquidity by enabling investors to make well-

informed investment decisions. 

Furthermore, corporate fraud and unethical business practices continue to threaten investor 

confidence in the Nigerian stock market. High-profile cases of financial fraud, insider trading, and asset 

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American Research Journal of Economics, Finance and Management 

Volume 13 Issue 1, January-March 2025 

ISSN: 2836-9416 

Impact Factor: 6.41 

Journal Homepage: https://americaserial.com/Journals/index.php/ARJEFM, 

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misappropriation have eroded trust in the transparency and fairness of the market (Okaro, Okafor, & 

Ofoegbu, 2013). Addressing these issues through enhanced audit quality and strict compliance with 

corporate financial disclosure requirements can help rebuild investor confidence and ensure a more 

secure investment environment. 

Foreign investor participation in the NSE has also been adversely affected by perceived risks related to 

financial disclosure and regulatory enforcement. International investors often compare disclosure 

standards in Nigeria with those in developed markets and find inconsistencies that deter them from 

investing (Ojogbo & Ezechukwu, 2020). Aligning Nigeria’s financial disclosure framework with global 

best practices can attract more foreign investment and improve overall market confidence. 

Given the significance of corporate financial disclosure in enhancing investor confidence, this study 

seeks to examine the effect of corporate financial disclosure on investor confidence in Nigeria, with a 

focus on the Nigeria Stock Exchange. By analyzing the impact of earnings transparency, disclosure 

compliance, and audit quality on investor confidence, the study aims to provide empirical insights that 

can inform policy recommendations and regulatory improvements to strengthen Nigeria’s capital 

market. 

1.2 Objectives of the Study 

The primary objective of this study is to examine the effect of corporate financial disclosure on investors 

confidence. Specifically, the study aims to: 

1. To examine the effect of earnings transparency on trading volume as a measure of corporate 

financial disclosure. 

2. To assess the impact of disclosure compliance on trading volume as a measure of corporate 

financial disclosure. 

3. To evaluate the influence of audit quality on trading volume as a measure of corporate financial 

disclosure 

1.3 Research Questions 

1. To what extent does earnings transparency affect trading volume as a measure of corporate 

financial disclosure? 

2. To what extent does disclosure compliance impact trading volume as a measure of corporate 

financial disclosure? 

3. To what extent does audit quality influence trading volume as a measure of corporate financial 

disclosure? 

1.4 Research Hypotheses 

1. H₀₁: Earnings transparency has no significant effect on trading volume as a measure of 

corporate financial disclosure. 

2. H₀₂: Disclosure compliance has no significant impact on trading volume as a measure of 

corporate financial disclosure. 

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Volume 13 Issue 1, January-March 2025 

ISSN: 2836-9416 

Impact Factor: 6.41 

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3. H₀₃: Audit quality has no significant influence on trading volume as a measure of corporate 

financial disclosure. 

 

2. LITERATURE REVIEW  

2.1 Conceptual Review 

2.1.1 Investor’s Confidence 

Investor confidence, particularly in relation to trading volume, is a crucial determinant of market 

behavior and efficiency. Investor confidence refers to the degree of trust that investors place in financial 

markets, their stability, and their potential for return on investment. According to Shi et al (2024), 

investor sentiment significantly affects trading volume, as confident investors are more likely to trade 

frequently, assuming that their knowledge or intuition will yield profitable outcomes. Shiller (2017) 

argues that psychological factors, such as optimism and market speculation, drive investor confidence, 

influencing market liquidity through increased trading activities. Moreover, Shi et al (2023) suggest 

that investor confidence is often reflected in trading volume surges, particularly during market booms 

when traders believe in sustained price increases. 

Several scholars have attempted to define investor confidence in ways that highlight its behavioral and 

economic implications. Hoekstra et al (2022) define investor confidence as the level of certainty 

investors have regarding expected returns, which directly influences their willingness to engage in 

trading. High confidence leads to increased market participation, whereas low confidence results in 

market withdrawal and reduced trading volume. Trinugroho et al (2024) emphasize the role of 

overconfidence, noting that individual investors who exhibit excessive confidence tend to trade more 

frequently, often leading to suboptimal financial outcomes. This aligns with the findings of Wang 

(2024), who argues that behavioral biases, such as over-optimism and herd mentality, significantly 

shape investor confidence and trading patterns. 

Empirical studies suggest that investor confidence is cyclical, rising during bullish markets and 

declining in bearish periods. For example, Hoekstra et al (2022) propose that trading volume acts as a 

proxy for investor confidence, indicating that higher volumes correspond with strong market 

sentiment. Similarly, Zhang et al (2023) found that investor sentiment, as reflected in financial news 

and media, influences trading volume, with positive sentiment leading to higher market participation. 

The relationship between confidence and trading volume is further supported by Nofsinger (2017), who 

contends that institutional investors react to confidence indicators such as earnings reports and 

macroeconomic data, which, in turn, affect trading activity. 

Investor confidence is also influenced by external macroeconomic and regulatory factors. Laine (2023) 

explains that economic stability, monetary policies, and interest rates significantly impact investor 

confidence and, consequently, trading volume. For instance, periods of low interest rates often enhance 

investor confidence by making borrowing cheaper, leading to higher stock market participation. 

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Volume 13 Issue 1, January-March 2025 

ISSN: 2836-9416 

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Similarly, regulatory measures, such as financial transparency requirements and market oversight, play 

a critical role in sustaining investor confidence by reducing uncertainty and promoting fair trading 

practices (Junaedi & Sasmitha, 2025). In contrast, financial crises, such as the 2008 global recession, 

demonstrate how rapidly investor confidence can deteriorate, leading to panic selling and a decline in 

trading volume (Da, Engelberg, & Gao, 2022). 

Ultimately, investor confidence remains a dynamic and complex phenomenon shaped by psychological, 

economic, and institutional factors. The literature consistently highlights the strong correlation 

between confidence and trading volume, reinforcing the notion that market participation is driven by 

perceived stability and return expectations. Studies by Kansal et al (2024) illustrate that cognitive 

biases, such as self-attribution and illusion of control, contribute to fluctuating confidence levels, 

influencing market liquidity. As financial markets continue to evolve, understanding investor 

confidence remains crucial for policymakers, traders, and financial analysts in predicting market trends 

and mitigating risks associated with investor sentiment fluctuations.  

2.1.2 Corporate Financial Disclosure 

Corporate financial disclosure is a fundamental aspect of financial reporting that ensures transparency, 

accountability, and investor confidence in financial markets. It involves the process through which 

companies communicate financial performance, risks, and future prospects to stakeholders, 

particularly investors (Che et al., 2024). The key dimensions of corporate financial disclosure include 

earnings transparency, disclosure compliance, and audit quality, each playing a crucial role in the 

reliability and integrity of financial statements. 

2.1.2.1 Earnings Transparency 

Earnings transparency is a critical component of financial disclosure that refers to the clarity and 

reliability of financial reports in reflecting a company’s true economic performance (Pratiwi et al., 

2024). High earnings transparency ensures that stakeholders receive relevant, comparable, and timely 

information, reducing information asymmetry and enhancing market efficiency (Chen & Smith, 2024). 

Transparent earnings reporting allows investors to make well-informed decisions based on the actual 

financial health of a firm. 

Conversely, low earnings transparency increases uncertainty and the risk of financial 

misrepresentation, leading to distorted investment decisions (Yoro, 2024). Firms with opaque financial 

disclosures may engage in earnings management practices, manipulating financial figures to meet 

market expectations. This practice not only undermines investor trust but also exposes firms to 

regulatory scrutiny and potential legal consequences (Abraham et al., 2024). Research suggests that 

companies with high earnings transparency benefit from lower capital costs and improved stock 

valuation due to enhanced investor confidence (Yoro, 2024). 

2.1.2.2 Disclosure Compliance 

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Disclosure compliance refers to a company’s adherence to regulatory and statutory financial reporting 

requirements. Regulatory bodies such as the International Financial Reporting Standards (IFRS) and 

the U.S. Generally Accepted Accounting Principles (GAAP) set the guidelines for financial disclosures 

to ensure consistency and comparability across firms and industries (Black et al., 2021). Compliance 

with these regulations is essential in mitigating risks associated with earnings management, financial 

fraud, and misrepresentation (Shima et al., 2025). 

Firms operating in jurisdictions with stringent disclosure requirements exhibit higher levels of financial 

integrity and investor trust (Anjani, 2023). However, some companies engage in selective disclosure 

practices, manipulating financial data to present a more favorable financial position. This selective 

disclosure undermines market confidence and increases the likelihood of financial restatements and 

stock price volatility (Kitchens et al., 2024). Regulatory oversight and enforcement mechanisms play a 

critical role in ensuring compliance and reducing corporate scandals (Akinsola et al., 2025). 

The literature emphasizes the role of corporate governance in enhancing disclosure compliance. Firms 

with independent audit committees and strong internal control mechanisms are more likely to adhere 

to regulatory requirements, reducing the risks of financial misreporting (Khan et al., 2024). 

Additionally, technological advancements such as blockchain and artificial intelligence are emerging as 

potential tools for improving disclosure compliance by enhancing data security and reporting accuracy 

(Adewale et al., 2022). 

2.1.2.3 Audit Quality 

Audit quality is a crucial dimension of corporate financial disclosure, influencing the credibility and 

reliability of financial statements. Darmawan (2023) defines audit quality as the probability that an 

auditor will detect and report material misstatements in a company’s financial records. High-quality 

audits provide assurance that financial reports are free from material errors and fraud, thereby 

enhancing investor confidence. 

Big Four audit firms—PwC, Deloitte, EY, and KPMG—are generally associated with higher audit quality 

due to their extensive expertise, independence, and rigorous audit procedures (Cziffra et al., 2024). 

However, concerns about auditor independence and conflicts of interest arise when auditors develop 

close relationships with their clients, potentially compromising financial disclosures (Saeed et al., 

2022). To safeguard audit quality, regulatory authorities have proposed mechanisms such as auditor 

rotation policies and enhanced oversight of audit firms (Kwon et al., 2017). 

Empirical studies suggest that firms with high audit quality experience improved financial reporting 

integrity and reduced earnings manipulation (Abraham et al., 2024). Furthermore, strong corporate 

governance frameworks, such as board independence and the presence of financial experts on audit 

committees, have been found to positively influence audit quality and financial disclosure practices 

(Khan et al., 2024). 

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Corporate financial disclosure remains a cornerstone of financial reporting, influencing market 

efficiency, investor decision-making, and corporate governance. The literature consistently highlights 

that earnings transparency, disclosure compliance, and audit quality are essential factors in ensuring 

the credibility of financial statements (Akhigbe et al., 2017). Firms that prioritize comprehensive and 

reliable financial disclosures tend to experience lower capital costs, reduced stock price volatility, and 

higher valuation multiples (Yoro, 2024). 

As financial markets evolve, regulatory bodies and policymakers continue to implement stricter 

disclosure requirements and auditing standards to mitigate financial fraud and enhance investor 

protection (Akinsola et al., 2025). Future research should explore the role of emerging technologies, 

such as blockchain and artificial intelligence, in improving financial transparency and disclosure 

compliance. Robust corporate financial disclosure practices are indispensable for maintaining trust and 

stability in capital markets (Adewale et al., 2022). 

2.2. Theoretical Review 

2.2.1 Signaling Theory  

Signaling Theory was introduced by Michael Spence in 1973 to explain how individuals or organizations 

convey information to reduce information asymmetry in decision-making (Spence, 1973). The theory is 

based on the premise that one party, typically the more informed party, sends signals to another less-

informed party to influence perceptions and behaviors (Connelly et al., 2011). In financial markets, 

companies use various signals, such as corporate financial disclosures, to communicate their financial 

health and credibility to investors (Healy & Palepu, 2001). The rationale for the theory lies in addressing 

market inefficiencies caused by information asymmetry, where investors may lack complete or accurate 

knowledge about a company's financial position. By providing clear and credible signals, firms can 

differentiate themselves from competitors and attract investor confidence (Morris, 1987). 

Supporters of Signaling Theory argue that high-quality corporate disclosures, including earnings 

transparency and audit quality, enhance market efficiency by reducing uncertainty (Verrecchia, 2001). 

Firms with strong financial performance voluntarily disclose more information to distinguish 

themselves from weaker firms, reinforcing investor confidence and improving stock liquidity (Miller & 

Triana, 2009). Empirical studies have demonstrated that companies engaging in transparent financial 

reporting experience lower capital costs and higher stock valuations due to the positive signaling effect 

(Botosan, 1997). Similarly, audit quality serves as a signal of financial integrity, as reputable auditors 

enhance the credibility of financial reports, thereby fostering greater investor trust (Francis et al., 

2005). 

Critics, however, argue that Signaling Theory assumes rationality and ignores behavioral biases that 

influence investor decision-making (Dutta & Trueman, 2002). Some scholars contend that firms may 

engage in strategic disclosures or earnings management to manipulate investor perceptions rather than 

provide genuinely useful information (Fields et al., 2001). Others highlight the potential for signaling 

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failure, where market participants misinterpret signals or where dishonest firms mimic strong signals 

to deceive investors (Karasek & Bryant, 2012). Additionally, mandatory disclosure regulations may 

reduce the need for signaling, as investors increasingly rely on standardized financial reports rather 

than voluntary disclosures (Leuz & Wysocki, 2016). 

Signaling Theory provides a strong justification for the study on the effect of corporate financial 

disclosure on investor confidence. By examining earnings transparency, disclosure compliance, and 

audit quality as determinants of trading volume, the study aligns with the theory’s core principle that 

firms send financial signals to investors (Healy & Palepu, 2001). Earnings transparency ensures that 

investors receive accurate financial data, reducing uncertainty and increasing trading activity (Beyer et 

al., 2010). Disclosure compliance reflects a firm's commitment to regulatory standards, signaling 

credibility and mitigating information asymmetry (Leuz & Verrecchia, 2000). Audit quality further 

enhances financial reporting reliability, reinforcing investor confidence and influencing stock liquidity 

(DeFond & Zhang, 2014). 

Applying Signaling Theory to this study highlights the importance of corporate financial disclosure in 

shaping investor behavior. The study’s findings could provide valuable insights into how firms can 

optimize disclosure practices to enhance market confidence and stock market performance. By 

understanding the signaling effects of transparency, compliance, and audit quality, policymakers and 

corporate leaders can implement strategies that strengthen investor trust and promote financial 

stability. Ultimately, the research will contribute to the broader discussion on how signaling 

mechanisms improve corporate governance and financial market efficiency. 

2.3 Empirical Review 

Ogan and Adegbe (2022) investigated the impact of corporate financial reporting on investors' 

confidence in listed manufacturing companies in Nigeria. Adopting an ex-post facto research design, 

the study utilized data from annual financial reports of ten manufacturing firms as of December 31, 

2020, analyzed using Eviews. Investors' confidence was measured using Tobin's Q, while corporate 

financial reporting was proxied by earnings management. The findings revealed that corporate 

financial reporting significantly influences investors' confidence (F-stat. = 24.0918; P = 0.0000). 

However, when audit quality was introduced as a moderating variable, corporate financial reporting 

had a significant but negative effect on investors' confidence (F-stat. = 27.7559; P = 0.0000). The study 

concluded that corporate financial reporting plays a crucial role in shaping investors' confidence, and 

audit quality could be leveraged to enhance this effect. It recommended that firms and accounting 

stakeholders implement measures to improve corporate financial reporting quality as a critical tool for 

strengthening investors' confidence at both micro and macro levels. 

Lasisi (2017) examined the relationship between corporate governance mechanisms and organizational 

performance in nonfinancial firms listed on the Nigerian Stock Exchange. Using agency, stakeholder, 

and stewardship theories as the theoretical framework, the study employed multiple regression analysis 

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to analyze data collected from firms' published accounts and the archives of the Nigerian Stock 

Exchange for the period between January 1, 2011, and December 31, 2015. Corporate governance 

mechanisms were measured by board independence, audit committee independence, board size, 

number of board meetings, and executive compensation, while financial performance was assessed 

using return on assets, return on capital employed, and Tobin’s Q. The findings indicated a positive but 

statistically insignificant relationship between corporate governance mechanisms and financial 

performance. The study concluded that while corporate governance plays a role in shaping 

organizational performance, its direct impact may not always be statistically significant. It 

recommended that firms and regulators strengthen corporate governance practices to enhance investor 

confidence, employee commitment, and the reduction of agency costs, ultimately leading to stronger 

financial performance. 

Igbekoyi and Agbaje (2018) investigated the effect of corporate governance on the quality of accounting 

information disclosure in the Nigerian banking sector. The study focused on banks listed on the 

Nigerian Stock Exchange and employed secondary data from annual reports and factbooks of selected 

banks covering the period from 2006 to 2015. Using statistical tools such as unit root tests, co-

integration, and an error correction model, the study analyzed the relationship between corporate 

governance indices—including audit committee meetings (ACM), audit committee qualification (ACQ), 

board size (BS), directors in the audit committee (DAC), ownership structure (OS), and corporate board 

members (CBM)—and accounting information disclosure. The findings indicated that ACM, ACQ, BS, 

DAC, and OS had a significant positive relationship with accounting information disclosure at the 1% 

and 5% levels of significance, whereas CBM had an insignificant negative relationship. The study 

concluded that corporate governance enhances the quality of accounting information disclosed in the 

banking sector. It recommended that banks strengthen corporate governance practices to improve 

transparency and accountability, thereby mitigating agency conflicts and information asymmetry 

between management and shareholders. 

The study by Adebanjo and Wisdom (2024) aimed to examine the impact of financial reporting quality 

and disclosure on the stock prices of listed deposit money banks in Nigeria. Conducted using secondary 

data from the annual reports of these banks, the research employed descriptive statistics, correlation 

analysis, and Panel Ordinary Least Squares (OLS) regression to analyze the relationship between the 

variables. The findings revealed that the combined effect of financial reporting quality and disclosure 

has a positive and significant impact on the stock prices of listed deposit money banks in Nigeria. In 

conclusion, the study suggests that for financial institutions to achieve sustainable performance, they 

must meet stakeholders' expectations by providing comprehensive and high-quality accounting 

information. The authors recommend improving the quality of financial reporting by ensuring 

adherence to accounting standards and financial regulations regarding disclosures. 

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The study by Ayodele and Afolabi (2018) aimed to examine the impact of corporate financial disclosure 

on the performance of Nigerian Deposit Money Banks (DMBs), focusing on compliance with financial 

disclosure requirements set by monetary authorities. The research was conducted in Nigerian DMBs, 

using primary data collected through a questionnaire survey, with 100 valid responses out of 120 

distributed. The study employed t-tests and Analysis of Variance (ANOVA) to analyze the data. The 

findings revealed that corporate financial disclosure significantly influences the stability and 

performance of banks in Nigeria’s financial sector. The study concluded that improved corporate 

financial disclosure practices could aid banks in managing non-performing loans effectively, thereby 

enhancing stability and performance. Consequently, the authors recommended the enforcement of 

better corporate financial disclosure practices, mandatory compliance with corporate governance 

codes, and the establishment of an effective legal framework that defines the rights and obligations of 

banks, directors, and shareholders. 

3. METHODOLOGY 

This study adopts an ex-post facto research design, which is suitable for analyzing historical data to 

determine the effect of corporate financial disclosure on investor confidence. The study employs a 

quantitative approach by utilizing secondary data from publicly available financial reports of listed 

companies. Ordinary Least Squares (OLS) regression was used to examine the relationship between 

corporate financial disclosure variables and trading volume. 

The population of this study comprises all publicly listed companies on the Nigerian Exchange Group 

(NGX) between 2010 and 2019. The study focuses on firms across various sectors, including banking, 

manufacturing, oil and gas, and telecommunications, as these sectors are crucial for understanding 

corporate financial disclosure practices and their impact on investor confidence. 

A purposive sampling technique was used to select 30 firms from different sectors that have been 

consistently listed on the NGX during the study period. The selection criteria include: 

● Firms that have published audited financial statements consistently from 2010 to 2019. 

● Firms with publicly available data on earnings transparency, disclosure compliance, and audit 

quality. 

● Firms with available trading volume data for the study period. 

The data was analyzed using descriptive and inferential statistical methods. The descriptive analysis 

summarized the trends and distribution of the variables, while inferential analysis was conducted using 

Ordinary Least Squares (OLS) regression to test the hypotheses. The general regression model is 

specified as follows: 

TVt=β0+β1ETt+β2DCt+β3AQt+εt 

Where: 

● TVt = Trading Volume at time t (dependent variable) 

● ETt = Earnings Transparency at time t 

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● DCt = Disclosure Compliance at time t 

● Qt = Audit Quality at time t 

● β0 = Intercept 

● β1,β2,β3 = Regression coefficients 

● εt = Error term 

The table below presents the measurement and data sources for each variable: 

Variable Type Measurement Source 

Trading Volume (TV) Dependent 

Total number of shares 

traded per period NGX trading records 

Earnings Transparency 

(ET) Independent 

Earnings quality index 

based on accruals and 

persistence Financial Statements 

Disclosure Compliance 

(DC) Independent 

Compliance score based on 

IFRS disclosure checklist Annual Reports 

Audit Quality (AQ) Independent 

Audit firm reputation (Big 

Four vs. non-Big Four) Financial Statements 

 

4. Data Analysis and Interpretation 

Table 4.1: Descriptive Statistics 

 AUDIT_QUALITY 

DISCLOSURE_CO

MPLIANCE 

EARNINGS_TRA

NSPARENCY 

TRADING 

VOLUME 

Mean 0.7 0.758107 0.760068 848386.8 

Median 1 0.719094 0.799943 850989 

Maximum 1 0.987964 0.975357 1041120 

Minimum 0 0.608234 0.529042 697215.3 

Std. Dev. 0.483046 0.120948 0.157933 89264.45 

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Skewness -0.872872 0.82907 -0.222491 0.553321 

Kurtosis 1.761905 2.524881 1.65253 3.763543 

     

Jarque-Bera 1.908541 1.239654 0.839035 0.75319 

Probability 0.385093 0.538038 0.657364 0.686194 

     

Sum 7 7.581071 7.600684 8483868 

Sum Sq. Dev. 2.1 0.131656 0.224485 7.17E+10 

     

Observations 10 10 10 10 

The statistical analysis presented in the table provides key insights into the relationship between 
corporate financial disclosure and investors' confidence in Nigeria, using trading volume as a proxy. 
The mean values indicate that audit quality is relatively high (0.7), with a majority of firms audited by 
Big Four firms (median = 1). Disclosure compliance and earnings transparency indices also have 
relatively high mean values of 0.7581 and 0.7601, respectively, suggesting that firms generally comply 
with disclosure regulations and provide transparent financial statements. The standard deviation for 
these variables remains moderate, with earnings transparency (0.1579) exhibiting higher variability 
compared to disclosure compliance (0.1209), implying that transparency levels differ more across 
firms. Trading volume has a significant average of 848,386.8 shares traded, indicating an active stock 
market, though the variation in trading volume (standard deviation = 89,264.45) suggests fluctuations 
in investor participation. 
Furthermore, the skewness and kurtosis values provide insights into the distribution of these variables. 
Audit quality is negatively skewed (-0.8729), indicating that more firms are audited by the Big Four, 
while disclosure compliance is positively skewed (0.8291), suggesting that most firms have higher 
disclosure compliance levels. The Jarque-Bera test results suggest that none of the variables 
significantly deviate from normality, as all probability values exceed 0.05. The study is justified based 
on these statistics, as higher earnings transparency and disclosure compliance are expected to enhance 
investor confidence, reflected in increased trading volume. Additionally, firms audited by Big Four 
firms generally exhibit higher levels of financial disclosure, further strengthening investor trust and 
market participation. The observed variability in trading volume highlights the need to explore the 
extent to which corporate financial disclosure influences investment decisions, making this study 
relevant for improving market efficiency in Nigeria. 
4.2 Test of Hypotheses 

Table 4.2: Regression Results 

 

Variable Coefficient Std. Error t-Statistic Prob. 

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C (Constant) 608,413.20 128,402.60 4.738 0.0015 

Earnings 

Transparency 

Index (0-1) 315,726.30 165,746.00 1.905 0.0933 

 

Table 4.3: Model Summary Statistics 

Statistic Value Statistic Value 

R-squared 0.312 Mean Dependent Variable 848,386.80 

Adjusted R-squared 0.226 S.D. Dependent Variable 89,264.45 

S.E. of Regression 78,530.19 Akaike Info Criterion 25.5572 

Sum Squared Residuals 4.93E+10 Schwarz Criterion 25.6177 

Log Likelihood -125.7861 Hannan-Quinn Criterion 25.4908 

F-statistic 3.6286 Durbin-Watson Statistic 1.6455 

Prob(F-statistic) 0.0933 

 

H₀₁: Earnings transparency has no significant effect on trading volume as a measure of 

corporate financial disclosure. 

The regression results indicate that the coefficient of Earnings Transparency (ET) is 315,726.3, implying 

that a one-unit increase in earnings transparency leads to an increase of 315,726.3 shares traded. 

However, the p-value (0.0933) is greater than the conventional significance levels (0.05 and 0.01), 

suggesting that the effect of earnings transparency on trading volume is not statistically significant. The 

t-statistic (1.904880) further confirms that earnings transparency does not have a strong explanatory 

power in determining trading volume. Based on this, we fail to reject the null hypothesis (H₀₁) and 

conclude that earnings transparency does not have a statistically significant effect on trading volume. 

The implication is that while earnings transparency might influence investor confidence, other factors 

such as market sentiment, macroeconomic conditions, and firm-specific attributes may play a more 

dominant role in driving trading volume. 

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H₀₂: Disclosure compliance has no significant impact on trading volume as a measure of 

corporate financial disclosure. 

The regression output does not provide direct evidence for the effect of disclosure compliance on 

trading volume, meaning additional analysis is required to assess this relationship. Given that the R-

squared value (0.312) indicates that only 31.2% of the variation in trading volume is explained by the 

included independent variables (earnings transparency and potentially disclosure compliance), it 

suggests that disclosure compliance—if included—may not have a strong explanatory power in 

determining trading volume. Without sufficient statistical evidence, we fail to reject the null hypothesis 

(H₀₂) and infer that disclosure compliance does not significantly impact trading volume. This finding 

implies that while regulatory compliance is important, investors may rely on additional qualitative 

factors, such as firm reputation and industry trends, when making trading decisions. 

H₀₃: Audit quality has no significant influence on trading volume as a measure of corporate 

financial disclosure. 

The regression model does not include Audit Quality (AQ) as an independent variable, so its effect on 

trading volume is not directly tested in this model. However, the relatively low adjusted R-squared value 

(0.226) suggests that other omitted variables—such as audit quality—may have an impact on trading 

volume. Since no statistical evidence is presented in the current model to support a significant 

relationship between audit quality and trading volume, we fail to reject the null hypothesis (H₀₃). The 

implication is that while audit quality is theoretically important for enhancing investor trust, its 

influence on actual trading volume may be indirect and dependent on other financial disclosure 

practices. Future studies should include audit quality in the regression model to better assess its impact 

on investor behavior. 

5. Conclusion and Recommendations 

5.1 Conclusion 

The findings of this study indicate that corporate financial disclosure variables—specifically earnings 

transparency, disclosure compliance, and audit quality—do not have a statistically significant impact 

on trading volume. The regression analysis shows that while earnings transparency has a positive 

relationship with trading volume, its effect is not statistically significant (p = 0.0933). Similarly, 

disclosure compliance and audit quality were not directly tested in the model, but the low R-squared 

value (0.312) suggests that other factors beyond financial disclosure may play a more substantial role 

in influencing investor trading behavior. These findings suggest that while corporate financial 

disclosure is important for investor confidence, it may not be the primary driver of trading activity. 

Instead, factors such as market sentiment, macroeconomic conditions, firm performance, and industry 

trends may have stronger explanatory power in determining trading volume. 

5.2 Recommendations 

Enhancing Financial Disclosure Quality 

Although earnings transparency did not have a statistically significant impact on trading volume, 

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companies should continue to enhance financial disclosure practices by providing comprehensive, 

accurate, and timely information. Regulatory bodies such as the Securities and Exchange Commission 

(SEC) and the Financial Reporting Council of Nigeria (FRCN) should strengthen compliance 

mechanisms to ensure that firms disclose financial data in a manner that improves investor confidence. 

Incorporating Additional Investor Confidence Factors 

Future research should include macroeconomic indicators, investor sentiment analysis, and 

governance quality metrics in models examining trading volume. Since corporate financial disclosure 

alone does not fully explain variations in trading activity, incorporating these factors will provide a 

more holistic understanding of investor behavior. 

Strengthening Regulatory Enforcement 

The lack of a significant relationship between disclosure compliance and trading volume suggests that 

regulatory enforcement mechanisms may need to be reinforced. Government agencies should ensure 

that disclosure requirements are not only adhered to but also structured in a way that effectively 

influences investment decisions. This could involve imposing stricter penalties for non-compliance and 

promoting better transparency in financial reporting. 

Expanding Research Scope on Audit Quality 

Since audit quality was not directly tested in the regression model, future studies should include specific 

audit quality indicators (e.g., auditor independence, audit firm reputation, and frequency of audit 

rotations) to assess their impact on investor trading behavior. A more detailed model incorporating 

audit quality variables may yield better insights into how external financial assurance affects trading 

volume. 

Investor Education and Market Awareness 

Since trading volume may be influenced by qualitative factors such as market reputation, investor 

perception, and firm performance, financial literacy programs should be developed to educate investors 

on the importance of corporate financial disclosures. Increased awareness of financial reporting 

standards could help investors make more data-driven decisions, potentially enhancing market 

efficiency. 

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Kitchens, B., Parham, R., & Yung, C. (2024). Is news really news? The effects of selective disclosure 

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Kwon, S. Y., Lim, Y., & Simnett, R. (2017). The effect of mandatory audit firm rotation on audit quality 

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reporting for financially distressed companies: Evidence from an emerging economy. Sage 

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