Mediating effects of information asymmetry and cost of capital on the relationship between financial reporting quality and investment efficiency of listed deposit money banks in Nigeria

Abstract

Purpose: The purpose of this paper is to examine the serial mediating effects of information asymmetry (IA) and cost of capital (COC) on the relationship between financial reporting quality (FRQ) and investment efficiency (IE) of listed Deposit Money Banks (DMBs) in Nigeria over ten-year period (2008-2017) using Barron and Kenny's (1986) mediation model steps.

Methodology: The paper employed ex-post facto research design. Its population covered fourteen (14) DMBs that remained listed from 31^st December, 2008 to 31^st December, 2017. The data required for the study was available and so, census sampling technique was used to cover the entire fourteen (14) banks. Secondary sources of data comprising published annual reports and accounts of the listed DMBs and Thomson Reuters Data stream were used.  The techniques of data analysis used are OLS, GLS and FGLS regression.  

Results and Conclusion: The results found are that FRQ affects both Underinvestment (Underinv) and Overinvestment (Overinv) directly and indirectly through its effect on IA and COC of listed DMBs in Nigeria. Hence, the paper concluded that IA and COC mediate the relationship between FRQ and Underinv/Overinv of listed DMBs in Nigeria.

Implications of Findings: Practically, the findings imply that the level of IE in the Nigerian banking industry will improve if the listed DMBs adopt the practice of reporting comprehensive and relevant information to capital providers.