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, Email: contact@americaserial.com Official Journal of America Serial Publication American Research Journal of Economics, Finance and Management https://americaserial.com/Journals/index.php/ARJEFM, Email: contact@americaserial.com 191 | P a g e 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. mailto:contact@americaserial.com mailto:contact@americaserial.com mailto:robbyeke19@yahoo.com mailto:robert.eke@wellspringuniversity.edu.ng/ 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, Email: contact@americaserial.com Official Journal of America Serial Publication American Research Journal of Economics, Finance and Management https://americaserial.com/Journals/index.php/ARJEFM, Email: contact@americaserial.com 192 | P a g e 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 mailto:contact@americaserial.com mailto:contact@americaserial.com 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, Email: contact@americaserial.com Official Journal of America Serial Publication American Research Journal of Economics, Finance and Management https://americaserial.com/Journals/index.php/ARJEFM, Email: contact@americaserial.com 193 | P a g e 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 mailto:contact@americaserial.com mailto:contact@americaserial.com 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, Email: contact@americaserial.com Official Journal of America Serial Publication American Research Journal of Economics, Finance and Management https://americaserial.com/Journals/index.php/ARJEFM, Email: contact@americaserial.com 194 | P a g e 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. mailto:contact@americaserial.com mailto:contact@americaserial.com 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, Email: contact@americaserial.com Official Journal of America Serial Publication American Research Journal of Economics, Finance and Management https://americaserial.com/Journals/index.php/ARJEFM, Email: contact@americaserial.com 195 | P a g e 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. mailto:contact@americaserial.com mailto:contact@americaserial.com 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, Email: contact@americaserial.com Official Journal of America Serial Publication American Research Journal of Economics, Finance and Management https://americaserial.com/Journals/index.php/ARJEFM, Email: contact@americaserial.com 196 | P a g e 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 mailto:contact@americaserial.com mailto:contact@americaserial.com 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, Email: contact@americaserial.com Official Journal of America Serial Publication American Research Journal of Economics, Finance and Management https://americaserial.com/Journals/index.php/ARJEFM, Email: contact@americaserial.com 197 | P a g e 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). mailto:contact@americaserial.com mailto:contact@americaserial.com 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, Email: contact@americaserial.com Official Journal of America Serial Publication American Research Journal of Economics, Finance and Management https://americaserial.com/Journals/index.php/ARJEFM, Email: contact@americaserial.com 198 | P a g e 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 mailto:contact@americaserial.com mailto:contact@americaserial.com 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, Email: contact@americaserial.com Official Journal of America Serial Publication American Research Journal of Economics, Finance and Management https://americaserial.com/Journals/index.php/ARJEFM, Email: contact@americaserial.com 199 | P a g e 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 mailto:contact@americaserial.com mailto:contact@americaserial.com 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, Email: contact@americaserial.com Official Journal of America Serial Publication American Research Journal of Economics, Finance and Management https://americaserial.com/Journals/index.php/ARJEFM, Email: contact@americaserial.com 200 | P a g e 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. mailto:contact@americaserial.com mailto:contact@americaserial.com 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, Email: contact@americaserial.com Official Journal of America Serial Publication American Research Journal of Economics, Finance and Management https://americaserial.com/Journals/index.php/ARJEFM, Email: contact@americaserial.com 201 | P a g e 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 mailto:contact@americaserial.com mailto:contact@americaserial.com 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, Email: contact@americaserial.com Official Journal of America Serial Publication American Research Journal of Economics, Finance and Management https://americaserial.com/Journals/index.php/ARJEFM, Email: contact@americaserial.com 202 | P a g e ● 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 mailto:contact@americaserial.com mailto:contact@americaserial.com 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, Email: contact@americaserial.com Official Journal of America Serial Publication American Research Journal of Economics, Finance and Management https://americaserial.com/Journals/index.php/ARJEFM, Email: contact@americaserial.com 203 | P a g e 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. mailto:contact@americaserial.com mailto:contact@americaserial.com 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, Email: contact@americaserial.com Official Journal of America Serial Publication American Research Journal of Economics, Finance and Management https://americaserial.com/Journals/index.php/ARJEFM, Email: contact@americaserial.com 204 | P a g e 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. mailto:contact@americaserial.com mailto:contact@americaserial.com 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, Email: contact@americaserial.com Official Journal of America Serial Publication American Research Journal of Economics, Finance and Management https://americaserial.com/Journals/index.php/ARJEFM, Email: contact@americaserial.com 205 | P a g e 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, mailto:contact@americaserial.com mailto:contact@americaserial.com 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, Email: contact@americaserial.com Official Journal of America Serial Publication American Research Journal of Economics, Finance and Management https://americaserial.com/Journals/index.php/ARJEFM, Email: contact@americaserial.com 206 | P a g e 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. Reference: Adebanjo, A. A., & Wisdom, O. (2024). Financial reporting quality and disclosure on stock price of listed deposit money banks in Nigeria. Asian Journal of Empirical Research, 14(4), 76–83. https://doi.org/10.55493/5004.v14i4.5186 Ayodele, T. D., & Afolabi, T. S. (2018). Corporate financial disclosure in Nigerian deposit money banks. 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