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An Investigation into the Impact of Financial Reporting on Investor Decision-Making

 

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An Investigation into the Impact of Financial Reporting on Investor Decision-Making

Investors’ investment decisions are a function of an array of factors that include market characteristics, individual risk profiles, and the available accounting information. However, every investor has unique considerations that he or she puts into consideration when determining the most viable business opportunity. The actuality that every investor considers different factors when making investment decision makes it challenging to companies to meet the demands of everyone. However, companies need to understand how best they can design their financial reporting to woo investors.

Purpose of the study

This study investigated the impact of financial reporting on investor decision-making.

Design/methodology of the study

The researcher used the qualitative and qualitative research approach in this study. The qualitative research method was implemented through literature review which involved the analysis of various scholarly works and during interviews. The quantitative research approach was put into play through primary research during the collection and presentation of the respondents’ feedback given through questionnaires and interviews. The quantitative research method was also put into play through secondary research which involved the analysis of three London-based companies’ financial reports. The companies were Unilever Plc, the McDonald’s Corporation and the Royal Dutch Shell Plc.

Study findings

The researcher found out that the decision of investors to invest in a company is greatly influenced by the quality of accounting information presented by the firm. It also established that reputable companies often realise high demands and prices for their shares, a factor that makes them earn higher returns. This attribute woos investors to invest in such companies as they are guaranteed high returns on their investments. The researcher also found out that the existence of accounting standards increases the confidence of investors to use companies’ financial reports to make investment decisions. Finally, the researcher discovered that analysts’ recommendations significantly influence investors’ investment decisions.

Implications of the study

This study will help companies understand how they can best design their accounting reports to woo investors. It will also help companies improve their reputation purposely to make investors develop positive perceptions towards them thereby invest in them. Furthermore, it will enable investors to understand how the reputation of a company they invest in will impact on their investments. It will make companies realise the benefits of adhering to accounting standards in their financial reporting and make investors realise how the standards affect their investments. It will help investors best utilise analysts’ recommendations in their decision-making and companies to understand how they can make use of analysts to attract investors. Finally, an understanding of whether and how analysts’ recommendations influence the decisions of different types of investors is vital because it helps the experts better bring into line their reports with the information needs of their intended audience.

 

• Introduction and Background

1.1              Introduction

A discussion presented by Rezaee (2009) disclosed that financial reporting by companies is important to various stakeholders. Rezaee (2009) argued that financial reports are relevant as they provide information regarding the financial position, performance and the changes in the monetary position of a company. For this reason, they are useful to a wide range of users who include financial institutions, directors, managers, workforce, prospective investors, government regulatory entities, media, vendors and the general public as they assist them to make management and investment decisions. However, according to Elliott & Elliott (2007), proper financial reporting is one that is done in accordance with some regulations. These regulations include the set national standards, professional ethics, corporate governance principles, and code of ethics. Elliott & Elliott (2007) disclosed that these regulations are intended to curb financial reporting fraud and scandals that might hinder effectual decision-making process by management and other users of reports. On the other hand, Albrecht, ‎Stice & Stice (2010) disclosed that the ethics in financial accounting reporting and the expected standards are intended to re-orientate companies on the need to conform to a code of conduct that brings about and augment public confidence in their operations.

Notwithstanding the above assertions, Pietra, McLeay & Ronen (2013) argued that financial reporting often boosts investment. However, Pietra, McLeay & Ronen (2013) clarified that the volume of investment in a company is commensurate with the quality of financial information presented in the reports it presents. For instance, Pietra, McLeay & Ronen (2013) found out that investors are interested in forward-looking information, especially that which provide performance projections. Furthermore, they tend to invest in companies that uphold more forthcoming disclosure policies. Taking Pietra, McLeay & Ronen (2013)’s arguments into account, this study seeks to establish the effect of reliable, accurate and timely financial reports on investors’ decision-making. It will also help company managers identify and implement the measures that promote effective financial reporting in their companies purposely to woo investment.

1.2              Background to the study

A study conducted by Hebb et al. (2015) established that investors often identify the most appropriate company to invest in based on the information available to them. Furthermore, they determine whether or not to invest based on the quality or contents of information available to them. Interestingly, Pounder (2009) disclosed that every investor takes a different perception of the same information presented in a company’s financial statements. Based on these findings, this study seeks to identify the impact of information reporting on investors’ decision-making. As a result, it will disclose the impact of the various contents of financial reports on the decisions of the investors thereby enabling company management to identify the most crucial contents of a financial report or measures that should be undertaken during the reporting to woo investors.

1.3              Statement of the problems

A discussion presented by Pietra, McLeay & Ronen (2013) disclosed that companies’ financial reports are critical in investors’ decision making. According to Pietra, McLeay & Ronen (2013), the statements enable investors to identify the most viable investments. With these facts in mind, many companies present biased reports purposely to woo investors. Notwithstanding the above, Chea (2011) noted that the use of fair value accounting enhances the accountability, consistency, risk management, as well as the transparency of the organisation’s financial measurement and reporting.

1.4              Research Statement

Investors use the financial information available to them to make projections about the future of a company before they make their investment decision.

1.5              Justification of the Study

A study conducted by Gitman, Juchau & Flanagan (2015) established that the core objective of financial reporting is to relay a company’s financial and non-financial information to its stakeholders who include lenders, shareowners, the government and even customers. However, based on a study conducted by Leach & Melicher (2014), the contents and quality of the information presented in a financial report determine the decisions of investors. On the other hand, Leach & Melicher (2014) disclosed that some investors encounter difficulties in understanding some terms used in financial statements. Based on these findings, this study is necessary as it seeks to enable companies to identify the most important measures they should undertake to realise positive impacts of their financial reports on investor decisions.

1.6              Research Objectives

1. To determine how the quality of the accounting information affects the investor’s decision-making
2. To determine how a firm’s reputation affects the investment decision of investors in firms.

• To determine if government policy on accounting standards are helpful to investors

1. To determine the extent to which the recommendation from friends and financial advisors affect the investment decision-making process.

1.7              Research Questions

1. How does the quality of Accounting Information affect the investor decision-making?
2. How does the firm image and reputation affect the investment decision-making process?

• How do the current accounting standards help investors in their decision-making?

1. How do analysts’ recommendations influence investor decision-making?

1.8              Scope of the Study

The research will provide both primary and secondary data from three companies in the UK. The companies will be identified using simple random sampling techniques. Consequently, this study will take the form of a descriptive survey.

1.9              Significance of the Study

The findings presented in this study will enable company managements to integrate more stringent measures in their accounting departments purposely to ensure they promote effective financial reporting with due consideration of timelines and allocated resources in the completion of projects. Furthermore, from the literature reviewed little attention has been put on the research on uncertainties encountered during investment decision-making processes. Hence this research will be geared towards addressing this gap. This research will contribute to knowledge by establishing the effect of reliable, accurate and timely financial reports. Thus, it will assist scholars as the findings of the study will add a new body of knowledge and will act as a future source of reference.

1.10          Structure of the Dissertation

Chapter one of this dissertation gives an introductory overview of what the researcher studied. It highlights the various sections that make up this study thereby enabling its users to have a clear view of all that is contained herein. It gives a detailed background of the topic being discussed and the aims and objectives the researcher intends to attain. It also highlights the questions that guide the researcher in resolving the research problems.

Chapter two highlights the various findings made by various scholars on this topic. It also makes an in-depth analysis of the arguments they present. It identifies the pertinent issues raised, the similarities of the assertions and how they conflict. The chapter ends by making some concluding remarks thereby summarising what the scholars highlighted.

Chapter three indicates the research methods applied during the gathering of the information necessary for the success of this study. It identifies the method used during the sampling and analysis of the information gathered. It identifies the various ethical principles that guided the collection and presentation of information. It also identifies the limitations and delimitations of the information presented throughout this study.

Chapter four discusses in detail the findings made in this dissertation. It analyses the information gathered from the various methods used by the researcher. It simplifies the understanding of the findings thereby helping the readers to have a clear picture of the results.

Chapter five analyses the data collected during the gathering of the information.  It first makes a general overview of the information gathered from the various sources. It also discusses the main objectives relevant to this study.

Chapter six gives an overall analysis of all the findings. It makes a conclusive summary of every issue that is considered relevant by the researcher regarding the topic of this dissertation. It also precisely highlights the implications of this study. It concludes by highlighting the limitations of the findings made in the course of this study and guides the readers on where more information can be found on the topic under discussion.

• Literature review

2.1.                  Introduction

This chapter presents the information retrieved from the findings made by scholars or experts who have previously studied the impact of financial reporting on investor decision-making. It analyses the arguments or findings presented by the researchers purposely to further the goals of this study. First, it seeks to highlight how the quality of a firm’s accounting information affects the investors’ decisions. It will then use the scholarly works to illustrate how a firm’s image and reputation affects investors’ investment decision-making process. Furthermore, it will disclose how the current accounting standards help investors in their decision-making. Finally, this chapter will illustrate how analysts’ recommendations influence investor decision-making.

2.2.                  How does the quality of Accounting Information affect the investor decision-making?

Analysis conducted by Lee (2007) established that financial reporting is majorly intended to inform stakeholders about the financial position of a company. For this reason, it helps the stakeholders make decisions based on the information presented in the report.  However, Lee (2007) disclosed that the realisation of this objective is determined on the quality of a financial report. Lee (2007) clarified that there are diverse aspects that determine the quality of a financial report. For instance, according to Skonieczny (2012), the language used in a financial report determines its understandability to the intended users.  Skonieczny (2012) revealed that the use of complex financial terms by companies in their financial reports hinders some investors from understanding the information being relayed to them. As a result, the investors may fail to grasp the information relayed by the companies in the reports, a factor that prevents them from making appropriate investment decisions. On the contrary, Buffett & Clark (2008) clarified that the use of simple and clear financial terms by companies in their statements makes it easy for investors to understand the information presented in them thereby make appropriate decisions. As a result, Buffett & Clark (2008) concluded that companies should use simple and clear language in their reports as this facilitates communication between the firms and stakeholders. Notwithstanding the above, Rosenfield (2006) argued that the quality of financial reports is determined by the number of people who can use them. According to Rosenfield (2006), the use of complex terms in financial reports makes the statements selective since they can be understood by few individuals. As a result, Rosenfield (2006) argued that the use of complex terms in financial reports prevents companies from attracting potential investors as they do not communicate fully to everyone. In a different perspective, Siddiqui (2011) argued that quality financial reports are free from ambiguous language. In Siddiqui (2011)’s view, the use of ambiguous phrases in a financial report misguides investors. For this reason, companies should use clear and simple language in their financial reports as this will help investors to have a clear picture of the state of the firms thereby make decisions based on factual information.

Notwithstanding the above, Lee (2007) argued that investors’ decisions are based primarily on future expectations as well as historical backgrounds of companies’ financial reports. For this reason, Lee (2007) asserted that the future economic outlook of a company and its management quality are key components of a quality financial report. This is because the profit forecasts and current financial statements are needed by investors in the determination of the viability of their ventures. In support of Lee (2007)’s arguments, Pietra, McLeay & Ronen (2013) found out that at the time of making investment decisions, most investors examine the available financial statements and focus on historical data. Some of these data include companies’ inventories, the total companies’ assets, working capital, equity, sales and net profits. However, according to Pietra, McLeay & Ronen (2013), the quality of a financial report is determined by its conformity with the set accounting standards within. A financial report that fully complies with the set accounting standards enable investors to make sound decisions, especially on the most profitable company. In Pietra, McLeay & Ronen (2013)’s view, accounting standards in financial reporting ensure that companies disclose their performance based on commonly accepted levels. These standards enable investors to identify the most viable investments by comparing different companies’ financial reports that are not biased or designed to mislead their users.

A discussion presented by Damodaran (2008) disclosed that investors are attracted to companies whose financial reports exhibit fast growth trends with clear paths to profit. In Damodaran (2008)’s view, investors need to be persuaded that a company’s business model will bring about profits. They understand that the competition for market leadership is a common phenomenon and as it intensifies, the ability of a company to capture markets quickly and realize profitably should always exist. For this reason, Damodaran (2008) argued that quality financial reports are that which guarantee value for investors’ investments. As a result, investors are attracted to invest in companies whose financial reports exhibit business models that guarantee profits.

2.3.                  How does the firm image and reputation affect the investment decision-making process?

A study conducted by Hirigoyen, ‎Chant-Hall & ‎Reid (2005) established that there is a wide array of thoughts on the impact of companies’ reputation on investors’ decisions. Although Hirigoyen, ‎Chant-Hall & ‎Reid (2005) established that the thoughts are inconsistent, Westbrook (2014) argued that the relationship between companies’ reputation on investors’ decision is significant. For instance, according to Westbrook (2014), investors are attracted to companies that are known to have a strong internal team. According to Westbrook (2014), the strength and size of a company management team are the most important single factor investors put into considering when selecting viable ventures. For this reason, companies that are reputable for having a managerial team that always steer their business operations in the right way win the confidence of investors. This consideration is critical in investors’ decision-making processes since they are aware that every entrepreneur faces a very competitive market. As a result, a company should be driven by a team that can decisively identify markets and grow the firm. In a different perspective, Charan, ‎Drotter & Noel (2010) argued that investors often invest in companies that are reputable for attracting and retaining star talent as this guarantees them long-term value for their investments. Notwithstanding Charan, ‎Drotter & Noel (2010)’s arguments, Mellen & Evans (2010) revealed that the reputation of a company is also determined by the nature of its external advisors. Mellen & Evans (2010) argued that the reputation of a company is improved or diminished according to the external team of advisors it chooses. As a result, investors are convinced to invest in companies whose external team comprise of a top investment banking, advisory, legal and audit experts. Mellen & Evans (2010)’s assertions are premised on the notion that when a company has a solid team in place, it becomes reputable and there is a high likelihood that investors will believe in the firm’s potential.

On the other hand, a discussion presented by Carroll (2015) revealed that a good reputation increases the corporate worth of a company and makes it attain a sustainable competitive advantage. For this reason, Carroll (2015) argued that a company can realize its goals with ease if it has a good standing among its stakeholders who include its customers, investors, business opinion leaders, suppliers and existing and potential employees. As a result, Carroll (2015) concluded that investors are more likely to invest in companies that possess good reputation since the repute is a key recipe of a firm’s competitive ability. Carroll (2015)’s arguments were supported by Verhezen (2016) who disclosed that if an organisation is well regarded by its main customers, investors will prefer to deal with it ahead of others. Furthermore, the customers will influence other potential customers to purchase from the company. Verhezen (2016) argued that suppliers are more inclined to trust in such companies’ ability to pay and to give fair trading terms. Consequently, if any problems occur in the companies’ trading relationship with their suppliers, the suppliers will be more prone to give them the benefit of the doubt because they have a reputation for fair dealing. Similarly, according to Schneier (2011) government regulators often trust such companies more because they have a good reputation. As a result, the regulators are often less inclined to punish such companies if they trip up along the way. Taking these resultant impacts of good reputation, Schneier (2011) concluded that investors often opt to invest in companies widely known for good character.

In a different perspective, Carroll (2015) argued that investors prefer investing in companies with good reputation since it guarantees the firm survival whenever tragedy and misfortune strike. According to Carroll (2015), reputation is a performance indicator. For this reason, investors believe that even in a crisis, the public and company stakeholders give the firm the benefit of doubt. The stakeholders will, therefore, remain loyal to the company throughout and after the crisis period, a situation that guarantees the continuity of the firm despite the challenges. However, according to Blackburn (2015), the reputation of a company accounts for the demand for its shares, share prices, and thus returns on the shares. Blackburn (2015) clarified that a reputable company often realizes high demand and prices for its shares, a factor that makes it earn higher returns. This attribute woos investors to invest in such companies as they are guaranteed high returns on their investments. On the contrary, companies with poor reputation are not attractive to investors since their shares perform dismally in the stock market and do not guarantee investors returns on their investment.

2.4.                  How do the current accounting standards help investors in their decision-making?

A discussion presented by Rezaee (2009) disclosed that accounting standards are designed to augment the confidence of investors, executives, the public, governments and even board members on companies’ financial statements. Rezaee (2009)’s arguments were premised on the notion that financial statements are usually used by the various stakeholders and institutions to make intelligent approximations of the magnitude, timing, and uncertainty of future companies’ cash flows. As a result, in the case of investors, they rely on the reports to make decisions regarding whether to invest in or acquire a company. Rezaee (2009) concluded that by complying with the set accounting standards, companies provide reliable information to investors thereby helping them make sound investment decisions based on facts. On the contrary, according to Dembinski et al. (2005), corporate financial statements usually rely on estimates and judgments that can extensively be off the mark, even when created and presented in good faith. Furthermore, accounting standards intended to facilitate comparisons between companies may not be the most accurate way to gauge the value of any particular company, especially the innovative firms in fast-moving economies. This is because, in such companies, the standards give rise to unofficial measures that bring about their unique problems. Dembinski et al. (2005) also disclosed that some company managers and executives often encounter strong incentives to deliberately fix errors into their companies’ financial statements. For these reasons, Dembinski et al. (2005) argued that despite the existence of accounting standards, not all investors rely on companies’ financial reports to make investment decisions.

In a different perspective, Larcker & Tayan (2011) argued that accounting standards improve the extent to which investors rely on financial statements during decision-making. Larcker & Tayan (2011)’s arguments were premised on the actuality that many investors are alive to the actuality that some executives use corporate financial reporting to manipulate results and lie about the true value of their companies. Through the enforcement of the standards, companies are compelled to provide true information. Furthermore, according to Larcker & Tayan (2011), investors can make sound decisions since companies are subjected to uniform measurement scales that make it possible for anyone to assess the viability of the various business opportunities the firms offer to investors. Conversely, according to Brigham & Houston (2012), accounting standards rarely impact on the decisions of many investors, especially those that make cross-border businesses. Brigham & Houston (2012) clarified that accounting standards vary across states, a feature that lowers their significance in helping international investors’ decision-making. Furthermore, companies at various locations comply with different accounting standards in their reporting. Brigham & Houston (2012) supported this argument by citing the Enron implosion which led to the enactment of the Sarbanes-Oxley financial reporting standards in the United States. However, the regulations were abandoned six years later due to the collapse of the financial world, a situation which necessitated the adoption of the Dodd-Frank regulations and an international initiative to reconcile variances between the U.S.’s and international accounting regulations.

On the other hand, Elliott & Elliott (2007) argued that accounting standards enable investors to make a factual assessment of a company’s prospects for future net cash inflows. As a result, the reports help investors determine the viability of their ventures. In Elliott & Elliott (2007)’s view, investors’ decisions are premised on future expectations as well as historical backgrounds of companies. For this reason, Elliott & Elliott (2007) asserted that the adherence to the set accounting standards by companies in their reporting enables investors to make accurate assessments of the future state of a company. This is because the standards ensure that companies provide accurate profit forecasts and current financial statements that can reliably be compared across various firms. In conclusion, Elliott & Elliott (2007) reiterated that accounting standards instill confidence on investors pertaining the financial statements presented by companies thereby guaranteeing them the realisation of their future expectations. In a different perspective, Brigham & Houston (2012) argued that the accounting standards enable investors to accurately compare how the managements of various companies have effectively and efficiently discharged their responsibilities that include wisely using their entities’ existing resources. In Brigham & Houston (2012)’s view, the standards ensure that the performances of various companies’ management are subjected to common measurements. According to Brigham & Houston (2012), the existence of accounting standards makes it possible for investors to make decisions with ease since the performance of a company’s management can easily be determined based on its firm’s financial reports.

Basu & Saha (2013) revealed that accounting standards enable investors to make decisions with ease since they create more transparency in the financial market. For this reason, Basu & Saha (2013) argued that by enhancing transparency, accounting standards ensure that companies provide more accurate information pertaining their profiles to investors. In this regard, even small investors, and not only professionals, can receive the information they require from companies for their investment choices. As a result, every investor is given a chance to compete fairly in the market. Furthermore, according to Basu & Saha (2013), more transparency will result in more business transactions that have reduced costs since there is plenty of clear information presented in the companies’ reports. Notwithstanding the above, Beke (2013) opined that accounting standards also reduces the risks perceived by investors. According to Beke (2013), by demanding transparency, more information and ensuring that accurate and understandable information are presented by companies, accounting standards reduce the fear associated with reliance on untrue and unclear financial reports. Furthermore, the lack of transparency poses a risk associated with the difficulties in understanding the accounting principles and standards used by companies as well as the incapability of investors to process the information given. For these reasons, Beke (2013) concluded that the current accounting standards reduce decision-making challenges often encountered by investors that include unclear and ambiguous financial reporting. However, according to Butler (2009), by reducing the risks associated with financial reporting, investors get lower returns from their investments thereby making them realize lower cost of capital as well. Butler (2009) clarified that the companies that use the International Financial Reporting Standards (IFRS) often realize less earning management, higher earnings and more value relevance of earnings. Butler (2009)’s assertions are premise on the actuality that the easy flow of capital results in lower costs attributable to the complexities of adjusting the financial reports of companies from different accounting standards. Because of the reduced costs of processing the information presented in financial statements, the efficiency of stock markets increases resulting in higher prices of stocks consequently bringing greater capital income for enterprises. In Butler (2009)’s view, these effects provide space for more innovation in the financial markets since they could become more incorporated, and more and new international transactions could be brought into existence. As a result, Butler (2009) argued that accounting standards guarantee investors easy international flow of capital thereby attracting them to cross-border investments. Notwithstanding Butler (2009)’s assertions, McPhail & Walters (2009) wrote that accounting standards, both local and international, attract investors to venture in cross-border investment and to invest in various sectors. McPhail & Walters (2009)’s arguments were premised on the notion that local and international accounting standards have become more widely used and tend towards the integration of various sectors as well as the global economy. The application of international accounting standards promote the globalisation of markets and ensure that international investors are given the information they desire to have. Furthermore, the accounting regulations ensure that investors can access and easily compare financial information of various companies since they are developed based on harmonized standards. In support of McPhail & Walters (2009)’s assertions, Oppermann (2008) averred that many investors make economic choices when they realise the viability of their ventures. For these reasons, investors can make cross-sector and international investment decisions with ease if they access clear and harmonised information.

2.5.                  How do analysts’ recommendations influence investor decision-making?

A study conducted by Mooreland (2015) established that investors’ decisions are often influenced by decision tools. According to Mooreland (2015), one of the tools includes the analysts ‘recommendations. Furthermore, the structure of information and market factors systematically manipulates individuals’ investment decisions. As a result, before deciding what to do, investors usually conduct investment analysis through the use of fundamental and technical scrutiny of the available information. On the other hand, Mercer (2005) found out that nonprofessional investors feel more optimistic when they receive favorable analyst reports than when they access unfavorable information. Mercer (2005)’s findings were supported by Cianci (2008) who argued that the reactions of current investors to analysts’ report are often more significant than that of prospective investors. Cianci (2008) further clarified that current investors often feel more positive than prospective investors if an encouraging analyst report approves their beliefs in an investment. The investors similarly feel more depressed if an adverse report shows the likelihood of a negative result.

In a different perspective, Groysberg & Healy (2013) established that analysts’ research reports on companies typically contain their forecasts and investment recommendations about the firm’s performance. Groysberg & Healy (2013) further argued that analysts’ reports are often considered relevant because they are thought to be timely since they are released whenever the experts obtain the information or insight. Furthermore, they are believed to have superior content since they are prepared by experts. These factors have made analysts’ recommendations the basis of many investors’ investment decisions. Notwithstanding Groysberg & Healy (2013)’s arguments, Klein, ‎Dalko & Wang (2012) disclosed that different factors influence investors’ reliance on analysts’ recommendations. For instance, according to Klein, ‎Dalko & Wang (2012), the qualifications or reputation of an analyst presenting the recommendation determines whether or not an investor would rely on or ignore the suggestion. Klein, ‎Dalko & Wang (2012) argued that investors are less likely to rely on recommendations presented by analysts with an investment-banking relationship with the company being considered by an investor. Furthermore, the conclusion of an analyst’s report about a company will determine whether it will affect the decision of an investor. According to Klein, ‎Dalko & Wang (2012), the strength of the arguments that support the conclusion, either strong or weak, determines the level of weight that an investor will put on analyst’s recommendation.

However, according to Chang et al. (2008), investors’ decisions to rely on analysts’ forecasts or recommendations is dependent on their beliefs about the objectives of the experts and the companies’ managements. In support of Chang et al. (2008)’s arguments, Sarra (2011) revealed that many investors are alive to the actuality that analysts are an important source of information in modern-day’s markets. However, there are potential conflicts of interest that the experts might encounter. For instance, some analysts are employed by the companies that underwrite or own securities in the firms they analyse. Similarly, at times, the analysts, either directly or indirectly, own stocks in the companies they study and report about. For this reason, some investors lack the confidence to rely on analysts’ recommendations.

2.6.                  Conclusion

This chapter has critically analyzed the different assertions and findings presented by various scholars pertaining the impact of financial reporting on investor decision-making. The discussions presented in this chapter entail a critical analysis of the similar and divergent views presented by the different scholars regarding investor decision-making. It begins by highlighting how the quality of accounting information presented by companies affects investor decision-making. It further discusses the scholars’ thoughts pertaining how a firm’s image and reputation affect investors’ decision-making. It also discloses how the current accounting standards help investors in their decision-making. Finally, it discusses how analysts’ recommendations influence investor decision-making.

 

• Methodology

3.1              Introduction

The information presented in this chapter is exclusively an overview of the techniques adopted by the researcher during the collection of data for this study. The information also provides the various reasons that necessitated this study. It specifies the purpose of this study thereby helping its users to have a clear understanding of what the researcher intended to fulfil. It also identifies the research approach adopted, the research methods used, the data analysis strategy and the way data was sampled. This chapter also stipulates the options used by the researcher in ensuring that the information collected and presented herein is valid. This chapter also highlights the various issues relating to research ethics that were put into consideration by the researcher.  Furthermore, the limitations and delimitations of the information presented in this research are clearly highlighted in this chapter.

3.2              Research Purpose

This dissertation seeks to determine the effect of reliable, accurate and timely financial reporting by companies on investors’ decisions. It seeks to disclose the impact of the various contents of financial reports on the decisions of the investors thereby enabling company management to identify the most crucial contents of a financial report or measures that should be undertaken during the reporting to woo investors.

3.3              Research Methodology

The researcher relied on the qualitative and quantitative methods of data collection and presentation in this study. The qualitative research method was utilised through the analysis of scholarly works in the literature review chapter and in the interpretation of the interview responses given by the twenty respondents who were contacted by the researcher. The respondents were potential investors within London.

On the other hand, the quantitative method of research was used during the analysis and presentation of the financial reports of three London-based companies, Unilever Plc, the McDonald’s Corporation and the Royal Dutch Shell Plc, which were used in the case studies. The researcher also analysed the financial reports of three London-based companies to determine how their financial reporting affect investors in the successive years. Furthermore, the researcher utilised the quantitative research in the primary research through questionnaires. Twenty respondents were selected through random sampling from various potential investors within London. These respondents were required to respond to each of the research questions that formed this study.

3.4              The Research Design

This study adopted case study research design. Based on a discussion presented by Creswell (2013) the design of a particular research is mainly determined by the research problem. Considering Creswell (2013)’s argument, the researcher considered case study design appropriate for this dissertation since it gives an opportunity to researchers to analyse a particular aspect of a problem in detail within a very limited time scale.

3.5              Research Approach Adopted

This study adopted both the deductive and inductive research approaches. By analysing the various scholar works through the inductive approach, the researcher identified the various views and findings relating to the impact of financial reporting on investor decision-making. The deductive approach was put into play in the analysis of the responses collected from the interviews and questionnaires.

3.6              Research Methods Used-

The researcher used the qualitative as well as the quantitative research approach in this study. Qualitative research method was put into play through literature review which involved the analysis of secondary data and during the collection and presentation of interview findings. The qualitative research method was deemed appropriate in this case because much of the information pertaining the impact of financial reporting on investor decision-making is widely documented.

On the other hand, the quantitative research approach was utilised during the presentation and interpretation of questionnaire feedback presented by twenty respondents who were contacted by the researcher.

3.7              Sampling Method

According to Sekaran & Bougie (2016), the method of sampling in academic research is determined by the target population. Sekaran & Bougie (2016) further noted that the target population should be data sources with extensive information on the survey item. It is awfully of the essence to go for the most appropriate target population so as to satisfy the purpose of a survey. Guided by Sekaran & Bougie (2016), this study adopted a purposeful sampling method. Purposeful sampling is a strategy used in qualitative research purposely to facilitate the selection and identification of data sources that are rich in information thereby enhancing the effective use of limited resources (Gilgun, 2013). This sampling method entailed the identification and selection of secondary materials that provided the information that was crucial to the answering of the research question and in the realisation of the objectives. More importantly, the researcher opted to select and use materials that had in-depth and extensive information relating to the impact of financial reporting on investor decision-making. The researcher relied on random sampling during the identification of the respondents, both during the interviews and questionnaires methods of data collection. Cresswell & Clark (2011) clarified that the individuals selected in random sampling are a representation of the target population and are often unbiased. The main advantage of random sampling is that the data sources are selected from the target group thereby provide the relevant information based on the research objectives.

3.8              Data Analysis

This study analysed and interpreted the arguments and findings presented by various scholars and also the financial reports of three London-based companies in respect to investor entry. Through the analysis of the secondary materials and the companies’ reports, it was possible to determine the impact of financial reporting on investor decision-making.

3.9              Validity and Reliability- Triangulation

Based on a discussion presented by Creswell (2013), validity and reliability of information collected in academic research are the most vital factors that should take centre stage. Numerous strategies were adopted by the researcher to enhance the soundness and dependability of the findings made in this study. Based on the advice presented by Creswell (2013), the researcher took note of the fact that during the first stage of preparation for a study, a thorough understanding of the research problem through literature search and readings is a necessity. For this reason, the researcher analysed the information presented by various scholars on this topic in a bid to identify the major issues that required further study.

The researcher collected information from different scholarly works produced at different times with the sole aim of presenting unbiased findings. The use of different scholar works published at different times ensured that the researcher fully identified the varied thoughts and findings made by the scholars on this topic. The researcher further restricted the selection of the secondary materials to those that contained relevant information that could give answers to the research questions. Furthermore, the incorporation of information retrieved from various scholar works in this study ensured that the degree of reliability was augmented due to the diversity of data sources. The researcher also studied three London-based companies purposely to reduce the chances of biased study. By considering the feedback of the twenty respondents during interviews and another twenty responses through questionnaires, the researcher ensured that the findings made in this study can be relied on by other interested persons since it gives a clear picture of the impact of financial reporting on investor decision-making.

3.10          Ethical concerns

According to Demiray (2008), every research, irrespective of its nature, must adhere to some ethical rules that are aimed at preventing the infringement of the rights of other people, especially the subjects and the respondents. In adhering to this rule, the researcher of this study first ensured that the providers of the information relied on in this study were willing to have their contents published or used elsewhere. For this reason, the researcher ensured that the scholarly materials analysed especially in the literature review chapter were available for use in other studies. The researcher relied majorly on Google books which were freely accessible on the internet. On the other hand, the researcher ensured that the permission to use the financial reports of the three London-based companies was not restricted. More importantly, the researcher took extra caution not to misinterpret the information presented in each of the secondary materials. The researcher analysed and paraphrased the information presented in the scholarly works to shun plagiarism.

3.11          Limitations and Delimitations of the Study

Considering the arguments presented by Denscombe (2009), every research has its inherent flaws. Some of the limitations restricting this study include time constraints. The researcher took caution to conclude this research within the laid down timeline. In this regard, the quantity and quality of the findings given herein is a reflection of what the researcher managed to access and collect within the period set for this study.

This study is delimited to the analysis of the secondary data with the intentions of identifying the impact of financial reporting on investor decision-making. As a result, the research questions, the research objectives, the research methods are all focused on the impact of financial reporting on investor decision-making.

3.12          Conclusion

This chapter has highlighted the various issues pertaining data collection in this study. It clarifies the purpose of this study. The information regarding the purpose of this study enables the readers to understand why this research was necessary and what the researcher intended to attain by undertaking this task. It also specifies every step taken by the researcher to come up with reliable and valid research findings. This chapter identifies the research methods adopted in this study. It also highlights the methods of data analysis, sampling methods, validity and reliability, and the limitations and delimitations of the information presented in this study. The ethical principles that guided this study were also identified in this chapter.

 

 

 

 

 

 

 

 

 

 

 

• Data Findings and Presentation of Results

4.1Introduction

This chapter entirely sets out the key results and statistical analysis of the information the researcher collected. It discloses the products of the analysis process undertaken by the researcher. It provides the answers to the research questions while reflecting the research design implemented. It highlights the notable findings made by the researcher from the financial reports of three London-based companies that were considered by the researcher for case studies.

4.2Case Study Results in Tables Based on the Research Objectives

4.2 (a): Unilever plc financial results for the years 2011-2015

Table 4.2 (a) given in Appendix 1 highlights the Financial statements and reports for Unilever Plc (ULVR) for the financial years 2011-2015. As indicated in the table, Unilever’s revenues were not steady between 2011- 2015. In the year ending 31^st December 2011 the company posted € 46,467.00 Million in revenues while in December 2012, the company realised revenues amounting to € 51,324.00 Million. In December 2013, the company realised € 49,797.00 Million in revenues while in December 2014, it realised € 48,436.00 Million. Finally, the company realised € 53,272.00 Million in revenues in the financial year ending 31^st December 2015. On the contrary, the company’s liabilities increased steadily throughout the years. As indicated in the table, the company’s liabilities for the year ending 31^st December 2011 was not reported whereas those of the year ending 31st December 2012 were € 30,240.00 Million. On 31^st December 2013, the company’s total liabilities were € 30,698.00 while on 31^st December 2014; the company recorded a total of € 33,764.00 Million worth of liabilities. Finally, in the year ending 31^st December 2015, Unilever plc recorded € 36,216.00 Million worth of liabilities.

 

4.2 (b): McDonald’s Corporation financial results for the years 2009-2014

Table 4.2 (b) given in Appendix 1 relates to McDonald’s Corporation Annual Report for the financial years 2009 – 2014. As indicated in the table, the company’s total revenues steadily increased from 2009 – 2013 but reduced in 2014. In 2009, the company realised $ 22,745 million in revenue while in 2010, the amount rose to $ 24,075 million. In 2011, it made $ 27,006 million whereas, in 2012, it managed to realise $27,567. Finally, in 2013, the company made revenues worth $28,106 million, but in 2014, the total revenues declined to $ 27,441 million. Similarly, the company’s operating income rose between 2009 and 2013 but declined in 2014.  In 2009, the company spent $6,841 million in its operations whereas, in 2010, it spent $ 7,473 million. On the other hand, in 2011, the company’s operational expenses were $8,530 million whereas, in 2012, it spent $8,605 million. Finally, in 2013, the company spent $8,764 million in operations whereas, in 2014, its operation costs declined to $7,949 million. The company’s net income was also not steady over the years. In 2009, the company’s income was $4,551 million whereas, in 2010, it realised $4,946 million. In 2011, the company’s net income was $5,503 million, but in 2012, the net income realised reduced to $5,465 million. Finally, in 2013 the company’s net income rose to $5,586 million which later reduced to $4,758 million. The company’s assets, just like other items highlighted in the financial report, the value of the company’s total assets increased steadily between 2009 and 2013 but reduced in 2014. In 2009, the company’s total assets were worth $30,225 million while in 2010, they were $31,975 million. In 2011, the company’s assets were worth $32,990 million whereas in 2012 they were $35,386 million.  Finally, the assets were worth $36,626 million in 2013 but reduced to $34,281 million in 2014.  Interestingly, the company’s total debt increased steadily throughout the period considered in this study. In 2009, the company’s total debt was $10,578 million, but in 2010 it was $11,505 million. On the other hand, the company’s debt in 2011 was $12,500 million whereas, in 2012, it was $13,633 million.  Finally, in 201`3, the company’s total debt was $14,130 million which increased to $14,990 million in 2014.  The company’s total shareholders’ equity increased between 2009 and 2013 but reduced in 2014. In 2009, the total shareholders’ equity was $14,034 million whereas in 2010 it was $14,634 million. In 2011, the shareholders’ equity reduced to $14,390 million, but in 2012, it rose to $15,294 million. Finally, in 2013 the company’s shareholders’ equity was $16,010 million, but in 2014, shareholders’ equity reduced drastically to $12,853 million.

4.2 (c): Financial Information for ROYAL DUTCH SHELL plc for the years 2011-2015

Table 4.2 (c) given in Appendix 1 presents the financial information for Royal Dutch Shell plc for the years 2011 to 2015. As indicated by the table, the company’s revenues have consistently declined since 2011 to 2015. In 2011, the company’s revenue was $484,489 million whereas, in 2012 it was $481,700 million. On the other hand, the revenue for 2013 was $459,599 million while that of 2014 was $431,344 million. Finally, the company’s total revenue for 2015 was $272,156 million. Similarly, the company’s gross profit declined annually between 2011 and 2015. In 2011, the company’s gross profit was $87,987 million while in 2012, it reduced to $85,695 million. In 2013, the company’s gross profit was $78,014 million while in 2014, it was recorded at $74,028 million. Finally, the company’s gross profit in 2015 was $49,417. The company’s operating income also reduced drastically between 2011 and 2015. In 2011, the company’s operating income was $57,033 million whereas, in 2012, it declined to $52,046 million. In 2013, the operating income was recorded at $35,234 million whereas, in 2014, it was $30,118 million. The company’s operating income was at an all-time low in 2015 when it was recorded at $3,935 million. The company also recorded a continuous decline in the value of net income between 2011 and 2015. In 2011, the company’s net profit was $30,918 million while in 2012 it was $26,592 million. In 2013, the net profit was $16,371 million while in 2014, it was recorded at $14,874 million. Finally, in 2015, the company’s net profit was $1,939 million. A similar trend was witnessed in the company’s total current liabilities. In 2011, the total current liabilities were $102,659 million whereas, in 2012, they were $96,979 million. In 2013, the liabilities were $93,258 million while in 2014, the company’s current liabilities were $93,258 million. Finally, in 2015, the company’s current liabilities were $70,948 million. The company’s long-term debt declined over the period between 2011 and 2015. In 2011, the company recorded long-term debt amounting to $30,463 million while in 2012, it was $29,921 million. In 2013, the company’s long-term debt was $36,218 million while in 2014, it was $38,332 million. Finally, in 2015, the company’s long-term debt was $52,849 million. Although the company’s other noncurrent liabilities were unavailable in 2011 and 2012, the information presented between 2013 and 205 disclosed that the company’s noncurrent liabilities increased steadily over the years. In 2013, the company’s noncurrent liabilities were $23,763 million whereas, in 2014 it was $27,416 million. Finally, the company recorded $30,676 million worth of other noncurrent liabilities in 2015. The company’s total liabilities in 2011 were worth $174,254 million whereas in 2012 it was $170,398 million. In 2013, the company recorded $177,465 million worth of total liabilities whereas in 2014, they were valued at $181,150 million. Finally, in 2015, the company’s total liabilities were $177,281 million.

4.3Primary Research Findings Based on the Research Objectives

4.3.1        How does the quality of Accounting Information affect the investor decision-making?

The information presented in Table 4.3.1 (a) in Appendix 2 highlights the information collected by the researcher from the respondents regarding the research question “How does the quality of Accounting Information affect the investor decision-making?” While responding to the statement “The language used in financial reports influences investors’ decision-making,” one of the respondents argued: “Simple languages in financial reports enable investors to easily understand the contents.” On the other hand, another respondent stated: “Many investors may not understand complex terms used in financial reports” while his colleague argued: “The use of complex languages reduces the number of people who can use them during decision-making.” Another respondent stated: “The use of simple languages in financial reports ensures that many people can understand the contents thereby attracting more investors” whereas her colleague opined: “The use of unclear and ambiguous language misleads investors and may hinder their decision-making.” Finally, another respondent stated: “The use of standard language and common terms in financial reports simplifies investor decision-making.”

On the other hand, while responding to the research statement “The contents of a financial report influences investors’ decision-making,” one of the respondents argued: “A comprehensive financial report makes it easier for investors to make investment decisions.” In a different perspective, another respondent stated: “Simplified financial reports enable investors to understand their contents and thus, make decisions with ease” while her colleague argued: “A well-structured financial report enhances its use by investors thereby promoting the ease of decision-making.” Another respondent thought: “Financial reports that reflect companies’ past are crucial to investors’ decision-making” whereas his colleague believed: “Financial statements that provide more information including companies’ inventories, the total companies’ assets, working capital, equity, sales and net profits helps investors to make decisions faster.” Another respondent argued: “Past accounts and future predictions are critical in a financial report as it helps investors determine the viability of the investment” while another asserted: “Financial reports that highlight companies’ growth plans facilitate investor determine the viability of investing in a company.” However, one of the respondents stated: “Presenting companies’ operational plans and projected growth enable investors to gauge their return on investment thereby simplifying decision-making” while another thought: “Being transparent on losses encountered during an accounting period augments investor confidence on a company as it indicates transparency.”

In response to the research statement “The quality of financial reports influences investor decisions,” one of the respondents stated: “Investors rely greatly on financial reports that comply with accounting standards.” In a different perspective, another respondent argued: “Transparency in financial reporting helps investors determine the best course of action to undertake” while another opined: “Detailed financial reports are considered high quality and simplify investors’ decision-making processes.” Notwithstanding the above, another respondent stated: “Timely publication of financial reports boosts investors’ confidence thereby attracting investment” while another thought: “Chronological presentation of information in financial reporting makes it easier for investors to understand them and thus the ease of decision-making.”

4.3.1 (b): Using simple language in accounting information promotes investor decision making

The data presented in Table 4.3.1 (b) in Appendix 3 illustrates the responses presented by the respondents in respect to the statement “Using simple language in accounting information promotes investor decision making.” As indicated by the table, 2 respondents strongly disagreed with the statement whereas 3 others disagreed with it. 2 others neither agreed nor disagreed with the statement while 6 others agreed with it. Finally, 7 other respondents strongly agreed with the averment.

4.3.1 (c): Adherence to accounting standards in financial reporting improves the quality of the reports and simplifies investor decision processes

The information relayed in Table 4.3.1 (c) given in Appendix 3 relates to the questionnaire responses given by the respondents in respect to the research statement “Adherence to accounting standards in financial reporting improves the quality of the reports and simplifies investor decision processes.” No one among the participants strongly disagreed with this view while 2 others disagreed with it. On the other hand, 4 of the respondents neither agreed nor disagreed with the opinion whereas 6 others agreed with it. Finally, 8 other respondents strongly agreed with the opinion.

4.3.2        How does the firm image and reputation affect the investment decision-making process?

Table 4.3.2(a) presented in Appendix 2 highlights the responses collected by the researcher during the interviews on the question “How does the firm image and reputation affect the investment decision-making process?” While responding to the statement “Firm image and reputation affect the investment decision-making process,” one of the respondents argued: “Firms with good image and reputation attract many investors.” On the other hand, another respondent stated: “Good image and reputation signifies profitability thereby attracts investors” while her colleague argued: “Good company image and reputation is a symbol of good company management which guarantee higher returns on investment.” In a different view, another respondent thought: “Good reputation guarantees higher sales and income thereby attracts investors” whereas her colleague argued: “Good company reputation and image implies ready market for its products and this attracts investors.” Notwithstanding the above, another respondent stated: “Good image and reputation attracts investors thereby guarantee business continuity even during harsh economic times and thus continued returns on investment” whereas another believed: “Good company image and reputation is a symbol of competitive ability thereby guarantee higher returns on investment.” However, according to another respondent, good company image and reputation signify that the company offers quality goods and services and this attracts investors as it guarantees investors returns on their investment. In a different perspective, another respondent stated: “Companies with good images and repute often have longer lives thereby attract more investors” while his colleague asserted: “Good image and reputation of a company guarantees fast growth and thus higher returns.” Finally, according to one of the respondents, good company image and reputation attracts labour force which promotes productivity.

However, in response to the statement “Firm image and reputation do not affect the investors’ decision-making process,” one of the respondents stated: “Investors’ decisions are determined by their individual business aspirations.” On the other hand, another respondent thought: “Investors’ decisions are often influenced by the profit margins presented in a company’s financial statements” while another respondent believed: “Investment requirements determine the capability of an investor to invest in a given company.” However, in one of the respondents’ view, investors’ investment decisions are dependent on their financial ability while another participant stated: “An investor’s investment decisions are determined by his or her religious principles in respect to a company’s image and reputation.” Another respondent stated: “The rate of dividends presented in financial statements influences investors’ decision-making” while another thought: “Past investment experiences influence investors’ investment decisions.” Finally, another respondent opined: “       The location of a company influences investors’ investment decisions” while another believed: “The academic qualifications of an investor influences his or her investment decisions.”

4.3.2(b): Firm image and reputation influence investors’ decisions

The information presented in Table 4.3.2(b) given in Appendix 3 relates to the thoughts of the respondents pertaining the proclamation “A company’s image and reputation influence investors’ decisions” No one among the individuals contacted by the researcher strongly disagreed with the statement while 2 others disagreed with it. On the other hand, 3 respondents neither agreed nor disagreed with the opinion while 6 of their colleagues agreed with it. Finally, 9 of the respondents strongly agreed with the opinion.

4.3.2(c): Firm image and reputation do not influence investors’ investment decisions

Table 4.3.2 (c) in Appendix 3 illustrates the responses given by the respondents to the questionnaire statement “Firm image and reputation do not influence investors’ investment decisions.” 7 of the individuals contacted by the researcher strongly disagreed with the assertion while 6 others disagreed with it. On the other hand, 2 of the respondents neither agreed nor disagreed with the opinion while 3 others agreed with it. Finally, 2 of the respondents strongly agreed with this thought.

4.4.1        How do the current accounting standards help investors in their decision-making?

The information presented in Table 4.4.1(a): in Appendix 2 relates to the responses presented by the respondents to the questionnaire question “How do the current accounting standards help investors in their decision-making?” One of the respondents argued: “the adherence to accounting standards instils confidence on investors regarding the information they find on financial statements.” Another respondent believed: “The adherence to accounting standards by companies guarantees investors that what they are reading reflects the true status of companies thereby enhancing their decision-making.” In a different view, one of the respondents thought: “Accounting standards promote transparency thereby facilitates investors’ decision-making.” However, according to another respondent, “Accounting standards promote standardised reporting among companies thereby enabling investors to compare the performances of various companies and thus facilitating decision-making.” Another respondent believed: “The adherence to the accounting standards enable investors to gauge the performance various companies’ management and thus the probable returns on their investment.” On the other hand, one of the respondents indicated: “The implementation of accounting standards enables investors to identify the best companies to invest in” while her colleague wrote: “The adherence to accounting standards ensures that companies present financial reports that can be understood by investors with ease thereby facilitating decision-making.” In a different view, another respondent wrote: “Accounting standards prevents the publication of biased information thereby reducing investors’ doubt on their reliability” while another thought: “Accounting standards ensures that investors access all information necessary for their decision-making processes.” In a different view, one respondent wrote: “Accounting standards ensure that every investor can understand the information presented by companies thereby facilitating decision-making” while another argued: “Accounting standards ensures that financial reports are presented in simple language thereby facilitating decision-making processes.” However, according to one of the respondents, investors’ reliance on financial reports is influenced by the available investment opportunities. In a different view, another respondent thought: “Investors’ decisions are based an individual’s past investment experiences” while another thought: “Investors consider companies reputation more than financial statements when making statements.” Nevertheless, another respondent argued: “Many investors do not trust the information presented in financial statements” while his colleague believed: “Many investors consider the requirements set by companies for investors influence their decisions more than financial statements.” In a different view, another respondent argued: “The language used in financial statements influences the decisions of investors” while another wrote: “Investors focus majorly on companies’ profit scales during decision-making.” Finally, one of the respondents stated: “Not all potential investors understand the existence of accounting standards” while another was convinced: “Investors rely on experts’ recommendation during their decision-making.”

4.4.1(b): The current accounting standards help investors in their decision-making

The information presented in Table 4.4.1(b) given in Appendix 3 relates to the information articulated by the respondents regarding the questionnaire statement “The current accounting standards help investors in their decision-making.”          One of the respondents strongly disagreed with the averment while 2 of his colleagues disagreed with it. On the other hand, 3 other respondents neither agreed nor disagreed with the statement while 6 others agreed with it. Finally, 8 other respondents strongly agreed with the argument.

4.4.1(c): The current accounting standards do not help investors in their decision-making

The information presented in Table 4.4.1(c) in Appendix 3 relates to the feedback given by 20 respondents contacted by the researcher to the questionnaire statement “The current accounting standards do not help investors in their decision-making.” 7 of the respondents strongly disagreed with the averment while 5 others disagreed with it. On the other hand, 1 of the respondents neither agreed nor disagreed with the statement while 5 others agreed with it. Finally, 2 other respondents strongly agreed with this thought.

4.4.2        How do analysts’ recommendations influence investor decision-making?

Table 4.4.2(a) given in Appendix 2 relates to the feedbacks given by the respondents through questionnaires in response to the question “How do analysts’ recommendations influence investor decision-making?” One of the respondents wrote: “Many investors believe analysts to be truthful thereby rely on their advice” while his colleague argued: “Many investors rely on analysts because they are investment experts.” On the other hand, another respondent wrote: “Investors focus on the reputation of companies more than analysts’ recommendations” while her colleague argued: “Many investors rely on analysts’ recommendations because they believe that the experts are more knowledgeable about market trends.” In a different view, one respondent thought: “Investors are more concerned with companies’ profit forecasts than analysts’ recommendations” while another opined: “Investors rely on analysts’ recommendations in the interpretation of companies’ financial reports.” Notwithstanding the above, one respondent asserted: “Investors consider their past investment experiences more than analysts recommendation during decision-making” while another believed: “Not all investors depend on analysts’ recommendation during decision-making.” According to another respondent, investors’ recommendations are part of the several factors investors rely on during investment while another argued: “Analysts’ recommendations offer simplified investment advice and thus are critical to investors during decision-making.” Apart from the above arguments, another respondent wrote: “The relationship of an analyst with the company he or she analyses influences the degree of investors’ reliance on his or her report.” Her colleague thought: “The reputation of an analyst influences the degree of investors’ reliance on his or her recommendation.” However, according to one of the respondents, investors consider the history of companies during decision-making more than analysts’ recommendations while another stated: “Investors usually make investment decisions based on the capital available to them.” In a different perspective, one respondent argued: “Analysts’ recommendations do not influence investors’ decisions” whereas her colleague thought: “Investors’ decisions are influenced by the available information about a company.” In a different view, one respondent wrote: “Investors do not rely on analysts’ recommendations because they are sometimes biased and do not reflect the truth” whereas his colleague thought: “Analysts’ recommendations are irrelevant to most investors.” Finally, one respondent argued: “Many investors do not believe on analysts’ recommendations” while another thought: “Investors rely on analysts’ to understand the meanings of various complex accounting terms.”

4.4.2(b): Analysts’ recommendations influence investor decision-making

The information presented in Table 4.4.2(b) given in Appendix 3 relates to the responses given by the respondents to the questionnaire statement “Analysts’ recommendations influence investor decision-making.” 2 of the 20 respondents strongly disagreed with the thought while one other respondent disagreed with it. 3 other respondents neither agreed nor disagreed with the assertion while 5 others agreed with it. Finally, 9 of the respondents strongly agreed with the statement.

4.4.2(c): Analysts’ recommendations do not influence investor decision-making

The information in Table 4.4.2(c) in Appendix 3 relates to the respondents’ reaction to the questionnaire statement “Analysts’ recommendations do not influence investor decision-making.” 6 of the respondents who were contacted by the researcher strongly disagreed with the averment while 7 others disagreed with it. On the other hand, 2 other respondents neither agreed nor disagreed with this view while 3 others agreed with it. Finally, 2 other respondents strongly agreed.

4.4Conclusion

This chapter has highlighted the various responses given by different respondents to each of the questions that formed the basis of this study. It highlights the thoughts of the twenty respondents who responded to the research questions that were presented to them during the interviews and through questionnaires.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

• Data Analysis and Discussion

5.1.            Introduction

This chapter holds a meticulous discussion of the findings made by the researcher in the course of this study. It gives an overall discussion of what emerged in the course of this research and interprets it in a manner that enables its readers to understand with ease.

5.2.            Overview

This dissertation was founded on the desire to understand the impact of financial reporting on investor decision-making. The researcher began by establishing how the quality of the accounting information presented by companies influences the decision of an investor.  Secondly, the researcher sought to find out how a firm’s reputation affects the investment decision of investors in firms. Furthermore, the researcher sought to determine whether government policies on accounting standards are helpful to investors in their investment decisions. Finally, the researcher analysed the extent to which the recommendations from financial advisors affect the investment decision-making process.

5.3.            Discussion of the specific objectives

5.3.1.      How does the quality of Accounting Information affect the investor decision-making?

Based on the information retrieved from Skonieczny (2012) in the literature review chapter, the researcher found out that the language used by a company in its financial reports determines how the intended users can understand the information presented in them. Skonieczny (2012)’s arguments were echoed by one of the respondents who responded to interview question “How does the quality of Accounting Information affect the investor decision-making?” by responding: “Simple languages in financial reports enable investors to easily understand the contents.” On the contrary, the use of complex financial terms by companies in their financial reports hinders some investors from understanding the information being relayed to them. This finding was made during the analysis of the interview responses as one of the respondents stated: “The use of complex languages reduces the number of people who can use them during decision-making.” For this reason, the researcher concluded that financial reports are helpful to investors if they are made using simple language. The financial statements of the three London-based companies considered in chapter 4 of this study, Unilever Plc, the McDonald’s Corporation and the Royal Dutch Shell Plc, all used simple and clear languages.

The discussion presented by Rosenfield (2006) illustrated that the use of complex terms in financial reports makes the statements selective and of low quality since they can only be understood and used by a few individuals. This argument resonated with one given by one of the respondents who argued: “The use of simple languages in financial reports ensures that many people can understand the contents thereby attracting more investors.” On the other hand, from the literature presented by Siddiqui (2011), the researcher found out that quality financial reports are free from ambiguous language. Similar thoughts were given by 2 respondents during the interviews, one of whom argued: “The use of unclear and ambiguous language misleads investors and may hinder their decision-making” the other stated: “The use of standard language and common terms in financial reports simplifies investor decision-making.” For these reasons, companies should always use clear and simple language in their financial reports as this will help every potential investor to have a clear picture of the state of the firms thereby make decisions based on factual information. This attribute was adopted by Unilever Plc, the McDonald’s Corporation and the Royal Dutch Shell Plc whose financial reports used simple and precise words.

In the literature review chapter and from the questionnaires, the researcher also discovered that a financial report that gives the future forecast of a company influences the decisions of investors. This thought was retrieved from Lee (2007) and Pietra, McLeay & Ronen (2013) Pietra, McLeay & Ronen (2013) in the literature review chapter who argued that investors’ business decisions are based primarily on their future expectations. For this reason, the future economic outlook of a company and its management quality are key components of a quality financial report. Similar assertions were retrieved from one of the respondents who argued during interviews that past accounts and future predictions are critical in a financial report as it helps investors determine the viability of the investment” while another asserted: “Financial reports that highlight companies’ growth plans facilitate investor determine the viability of investing in a company.” These items dominated the financial statements presented by the London-based companies, Unilever Plc, the McDonald’s Corporation and the Royal Dutch Shell Plc which were considered in chapter 4 of this study. For this reason, the availability of this information in the above companies’ annual financial statements has made it easy for investors to gauge the viability of investing in the companies.

The quality of a financial report is determined by its conformity with the set accounting standards. In this study, the researcher established that a financial report that fully complies with the set accounting standards enable investors to make sound decisions thereby can determine the most profitable company to invest in. Based on the findings presented by Pietra, McLeay & Ronen (2013), the researcher found out that accounting standards in financial reporting ensure that every company discloses its performance based on commonly accepted levels. The researcher further established that the standards enable investors to identify the most viable companies for investment since the policies are intended to subject financial reporting to uniform principles that cannot mislead their users.

Finally, in this study, the researcher found out that investors are attracted to companies whose financial reports exhibit fast growth trends with clear paths to profit. This revelation was made by Damodaran (2008) whose studies were considered in the literature review chapter. For this reason, a quality financial report is that which discloses that a company can capture markets quickly and realise profitably since there is a continuous competition among companies for market leadership. Furthermore, the researcher found out that quality financial reports are that which guarantee value for investors’ investments. For this reason, investors are attracted to invest in companies whose financial reports exhibit business models that guarantee profits. Taking into consideration these findings, the researcher established that the financial reports of Unilever Plc and the McDonald’s Corporation display a greater likelihood of future profitability unlike that of the Royal Dutch Shell Plc which discloses a continuous reduction in the volume of revenue.

5.3.2.      How does the firm image and reputation affect the investment decision-making process?

This study established that the reputation of a company is one of the factors that greatly influence the investment decisions of investors. For instance, based on the disclosures presented by Westbrook (2014) whose literature was analysed in the literature review chapter, the researcher found out that investors are usually attracted to companies that are known to have a strong internal team. Similar thoughts were held by numerous respondents during the interviews, one of whom stated: “Firms with good image and reputation attract many investors.” Furthermore, the researcher established that the strength and size of a company’s management are the most important factors investors put into consideration when selecting viable investments. For this reason, the researcher discovered that a company that is reputable for having a managerial team that always steer the firm’s business operations in the right way win the confidence of many investors. As a result, a company should be driven by a team that can decisively identify markets and grow the firm.

The researcher also discovered that a company that can attract and retain star talent earns itself good reputation thereby attracting investors. Based on Charan, ‎Drotter & Noel (2010)’s discussions considered in the literature review, the researcher found out that many investors are convinced that star talents in a company guarantee them long-term value for their investments. One of the respondents stated, “Good company image and reputation attracts labour force which promotes productivity.” This study further established that the reputation of a company is also determined by the nature of its external advisors. This was established from the literature presented by Mellen & Evans (2010) who argued that the reputation of a company is improved or diminished according to the external team of advisors it chooses. Investors are convinced to invest in companies whose external team comprise of a top investment banking, advisory, legal and audit experts.

Furthermore, this study discovered that reputable companies are widely known to have a sustainable competitive advantage. This attribute was discovered by the researcher while analysing the literature presented by Carroll (2015) who disclosed that a good reputation increases the corporate worth of a company which consequently makes the firm attain a sustainable competitive advantage. Similar thoughts resembled those presented by one of the respondents who stated: “Good company image and reputation is a symbol of competitive ability that guarantees higher returns on investment” during the interviews. For this reason, reputable companies can realise their goals with ease since they have a good standing among its stakeholders who include its customers, investors, business opinion leaders, suppliers and existing and potential employees. The researcher also discovered that the customers of reputable companies often influence other potential customers to purchase from the companies. For this reason, reputable companies often have a bigger customer base that enables them to grow faster. The truthfulness of Carroll (2015)’s findings is confirmed by the annual financial statements of the three London-based companies which were considered in chapter 4. The financial statements of Unilever Plc and the McDonald’s Corporation disclose a continuous rise in the value of liabilities despite the unsteady rise in the companies’ profits.  This means that investors believe that the two companies are suitable for investment despite the unsteady profits they make. On the contrary, the revenues of Royal Dutch Shell Plc decline annually a factor that has led to an annual reduction in the volumes of liabilities. This indicates that investors lack the trust in the viability of investing in the company.

The researcher further established that investors are more likely to invest in reputable companies since they believe that the firms can survive or withstand misfortunes like harsh economic times. This study established this from Carroll (2015) whose literature was considered in the literature review chapter. Similarly, one of the interviewees stated: “Good image and reputation attracts investors thereby guarantee business continuity even during harsh economic times and thus continued returns on investment.” Furthermore, investors remain loyal to such companies throughout and after the crisis period, a situation that guarantees the continuity of the firm despite the challenges. On the other hand, the information retrieved from Blackburn (2015) in the literature review chapter revealed that companies with good reputation often realise high demand, prices and return for their shares. These factors woo investors to invest in such companies as they are guaranteed high returns on their investments. On the contrary, companies with poor reputation are not attractive to investors since their shares perform dismally in the stock market and do not guarantee investors returns on their investment.

5.3.3.      How do the current accounting standards help investors in their decision-making?

This dissertation established that accounting standards are designed to increase the confidence of investors, executives, the public, governments and even board members on companies’ financial statements. This discovery was made in the literature review chapter during the analysis of the information presented by Rezaee (2009) who disclosed that accounting standards ensure that companies provide reliable information thereby helping investors make sound investment decisions based on facts. However, based on the findings presented by Dembinski et al. (2005), the researcher established that the lack of accounting standards becomes an opportunity for companies to present financial statements that can extensively be off the mark thereby misleading investors. Furthermore, the researcher established that accounting standards make it possible for investors to compare the performance of various companies. The lack of these standards allows company managers and executives to deliberately fix errors into their companies’ financial statements purposely to woo investors. This view was presented by one of the interviewees who stated: “Accounting standards prevents the publication of biased information thereby reducing investors’ doubt on their reliability.”

Similarly, from the information retrieved from Larcker & Tayan (2011) in the literature review chapter, this dissertation established that accounting standards improve the extent to which investors rely on financial statements during decision-making. This finding was supported by one of the interviewees who stated: “the adherence to accounting standards instils confidence on investors regarding the information they find on financial statements.” It is on this ground that one of the respondents stated: “through the enforcement of the standards, companies are compelled to provide true information.” For these reasons, the enforcement of accounting standards ensures that investors can make sound decisions since companies are subjected to uniform measurement scales. As a result, it becomes possible to investors to assess the viability of the various investment opportunities companies offer them. This thought was echoed by numerous interviewees, one of whom stated: “Accounting standards promote standardised reporting among companies thereby enabling investors to compare the performances of various companies and thus facilitating decision-making.” On the other hand, another respondent believed: “The adherence to the accounting standards enable investors to gauge the performance various companies’ management and thus the probable returns on their investment.”

However, the researcher discovered that accounting standards are not relied on by some investors, especially those who conduct international investment. This discovery was made from the information presented by Brigham & Houston (2012) who disclosed that accounting standards rarely impact on the decisions of many investors, especially those that make cross-border businesses. Brigham & Houston (2012)’s assertions emanate from the actuality that accounting standards vary across states, a feature that lowers their significance in helping international investors make decisions.

This dissertation established that accounting standards enable investors to accurately compare how the managements of various companies are effective and efficient in discharge their responsibilities that include wisely using their entities’ existing resources. The researcher discovered this from the literature presented by Brigham & Houston (2012) who revealed that the standards ensure that the performances of various companies’ management are subjected to common measurements. For this reason, the researcher concluded that accounting standards facilitate investors’ decision-making.

The researcher further established that accounting standards promote transparency in financial reporting thereby helping investors to access information relating to various aspects of company operations. This information was retrieved by the researcher from Basu & Saha (2013) who argued that accounting standards ensure that companies are transparent and provide more accurate information pertaining their performance and profiles to investors. In this regard, every investor can receive the information they require from companies for the making of their investment decisions. Consequently, by enhancing transparency, accounting standards reduce the risks perceived by investors in various investments. Considering the discussion presented by Beke (2013), the researcher concluded that by demanding transparency, more information and ensuring that accurate and understandable information are presented by companies, accounting standards reduce the fear associated with reliance on untrue and unclear financial reports. On the contrary, the lack of accounting standards hinders transparency thereby increasing the risks associated with the complicatedness in understanding the accounting standards used by companies as well as the incapability of investors to process the information given. For these reasons, this study concluded that the current accounting standards reduce decision-making challenges often encountered by investors that include unclear and ambiguous financial reporting.

Finally, this study found out that accounting standards attract investors to venture in cross-border investment and to invest in various sectors. This discovery was made from the information presented by McPhail & Walters (2009) who wrote that local and international accounting standards have become more widely used and tend towards the integration of various sectors as well as the global economy. As a result, the application of international accounting standards promote the globalisation of markets and ensure that local and international investors are given the information they desire to have.

5.3.4.      How do analysts’ recommendations influence investor decision-making?

The researcher established that investors usually consider the recommendations of analysts when assessing the available investment opportunities. Based on a discussion presented by Mercer (2005) and Cianci (2008), the researcher found out that many investors especially those who are unprofessional rely greatly on analysts’ recommendations in their decision-making.

The researcher further established that analysts’ reports are relevant to investors during decision-making since they are informative. Based on the information retrieved from Groysberg & Healy (2013) in the literature review chapter, analysts’ reports contain the forecasts and investment recommendations about a firm’s performance. Similar thoughts were presented by some interviewees one of who stated: “Many investors believe analysts to be truthful thereby rely on their advice.” Furthermore, the researcher established that analysts’ recommendations are often considered relevant because they are thought to be timely since they are released whenever the experts obtain the information or insight. They are also thought to have superior content since they are prepared by experts. Considering these attributes, the researcher concluded that analysts’ recommendations are the basis of many investors’ investment decisions.

However, based on the information presented by Klein, ‎Dalko & Wang (2012), the researcher found out that different factors influence investors’ reliance on analysts’ recommendations. For instance, based on the findings presented by Klein, ‎Dalko & Wang (2012), the researcher established that the qualifications or reputation of an analyst presenting the recommendation determines whether or not an investor would rely on or ignore the suggestion. Investors are less likely to rely on recommendations presented by analysts with an investment-banking relationship with the company being considered by an investor. This is because many investors think that such experts’ reports are biased and intended to mislead investors into investing in the company instructing the analysts. Furthermore, the researcher found out that the conclusion of an analyst’s report about a company will determine whether it will affect the decision of an investor. The strength of the arguments that support the conclusion, either strong or weak, determines the level of weight that an investor will put on analyst’s recommendation.

The researcher found out that the market environment an investor operates in determines his or her reliance on analysts’ recommendations. For instance, based on the findings presented by Mailibayeva (2007), this study established that investors in a favourable market environment are less likely to rely on analysts’ recommendations. On the contrary, investors in an unfavourable market are more likely to rely on analysts’ recommendation. On the other hand, based on the discussions presented by Chang et al. (2008) the researcher established that the investors’ decisions to rely on analysts’ forecasts or recommendations are dependent on their beliefs about the objectives of the experts and the companies’ managements. Many investors are alive to the actuality that analysts are an important source of information in modern-day’s markets. Conversely, there are probable conflicts of interest that the experts might encounter. For instance, some analysts are employed by the companies that underwrite or own securities in the firms they analyse. Similarly, at times, the analysts, either directly or indirectly, own stocks in the companies they study and report about. For these reasons, the researcher concluded that some investors lack the confidence to rely on analysts’ recommendations.

5.4.            Conclusion

This chapter has highlighted various findings made by the researcher while determining the impact of financial reporting on investor decision-making. It begins by illustrating how the quality of accounting information presented in a company’s financial report affects the investor decision-making. It then presents the findings made in this study regarding how a firm’s image and reputation affect investors in their decision-making. It also discusses how accounting standards help investors in their decision-making. Finally, it illustrates how analysts’ recommendations influence investor decision-making.

• Conclusions and Recommendations

6.1.            Introduction

This chapter sums up all the information that was collected and presented in this study. It helps the users of this dissertation to have a general understanding of the key findings that were made by the researcher in this study. It also highlights the expected implications of this study. This enables its users to understand what the researcher wanted to achieve through this study. It also clarifies the implications of this dissertation that formed the basis of the research questions and objectives. This is because a clear enumeration of the implications helps the users to understand what this study focused on achieving. This chapter concludes by recommending on what should be done by companies to realise maximum gains from financial reporting and to enhance the reliability of their financial reports by investors. It also recommends on what should further be researched on by experts or scholars to generate conclusive literature on the impact of financial reporting on investor decision making and the various aspects that affect investors’ decision-making.

6.2.            Conclusions

This dissertation critically studied the impact of financial reporting on investor decision-making. It critically analyzed the available scholar literature on this issue and contacted 20 respondents who were prospective investors to collect their views pertaining various issues that formed the basis of this scholarly study. Furthermore, the researcher analysed the financial statements of three London-based companies, Unilever Plc, the McDonald’s Corporation and the Royal Dutch Shell Plc, to determine how their reporting have influenced investors’ decisions.

To make it possible for this study to fully determine the impact of financial reporting on investor decisions, the researcher developed four questions, each forming the basis of the four research objectives. The research questions were: –

1. How does the quality of Accounting Information affect the investor decision-making?
2. How does the firm image and reputation affect the investment decision-making process?
3. How do the current accounting standards help investors in their decision-making?
4. How do analysts’ recommendations influence investor decision-making?

6.3.            Implications of the study

This study will help companies understand how they can best design their accounting reports to woo investors. It will also help companies improve their reputation purposely to make investors develop positive perceptions towards them thereby invest in them. Furthermore, it will enable investors understand how the reputation of a company they invest in will impact on their investments. It will make companies realise the benefits of adhering to accounting standards in their financial reporting and make investors realise how the standards affect their investments. It will help investors best utilise analysts’ recommendations in their decision-making and companies to understand how they can make use of analysts to attract investors. Finally, an understanding of whether and how analysts’ recommendations influence the decisions of different types of investors is vital because it helps the experts better align their reports to meet the information needs of their intended audience.

6.4.            Recommendations

This study found out that companies use a variety of terms and phrases in their financial reports. Similarly, analysts use some special terms and phrases in their reports and recommendations about the companies they study. The findings made in this study indicated that the effects of the use of complex and ambiguous languages in companies’ financial reports and analysts’ recommendations are adverse. Furthermore, the researcher discovered that the meanings of the terms could differ from one company to another. For this reason, companies and analysts should always use simple and clear terms and languages in their reports and recommendations as this will guarantee effective communication. It is also important that investors should never make assumptions but should carefully read and analyse contents of the reports and recommendations. They can even seek to know the meanings of the various complex terms they do not understand as this will save them from the risks associated assumption.

Since analysts provide important information in today’s markets, this study established that investors should always understand that there are potential conflicts of interest the experts might encounter. For instance, some analysts are employed by the companies that underwrite or own the securities of the firms the experts cover. Furthermore, some analysts sometimes own stocks in the corporations they report about, either directly or indirectly, for instance, through employee stock purchase pools which they and their colleagues take part. For this reason, investors should first determine whether or not there is a relationship between the analysts they depend on and the companies they are considering to invest in.

Since this study established that the recommendations of analysts are subject to various factors that can influence their reliability, it is prudent that investors should not depend solely on the reports when determining whether to or not to invest in or abandon a company. Investors should, for instance, conduct their research which may include reading the prospectus of every new company and analysing the periodic reports filed by the companies purposely to confirm whether the investment opportunities they offer are appropriate for them. More importantly, the investors’ personal research should be conducted with their unique financial strengths in mind.

Notwithstanding the above, the information presented in this dissertation is not conclusive about the impact of financial reporting on investor decision-making. It is delimited to the research objectives and questions that formed the basis of this study. For this reason, the information presented by the researcher is all that was considered relevant to the set objectives. It is also delimited to the content that was available to the researcher and more importantly, it relates to the three London-based companies. Because of these reasons, the findings of this study may not apply to every other company.

 

 

 

 

 

 

 

 

 

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Appendices

List of Tables

Appendix 1: Case Study Tables

Table 4.2 (a): Unilever plc financial results for the years 2011-2015

Income Statement:	31/12/2015 € (Millions)	31/12/2014 € (Millions)	31/12/2013 € (Millions)	31/12/2012 € (Millions)	31/12/2011 € (Millions)
Revenue: Operating Profit/ (Loss): Profit Before Tax: Profit after tax from continuing operations: Liabilities:      Current Liabilities: Borrowings: Other Current Liabilities: Other Liabilities:   Total Liabilities:	53,272.00 7,515.00   7,220.00   5,259.00   4,789.00 15,230.00 20,019.00   n/a   36,216.00	48,436.00 7,980.00   7,646.00   5,515.00   5,536.00 14,106.00 19,642.00   n/a   33,764.00	49,797.00 7,517.00   7,114.00   5,263.00   4,010.00 13,372.00 17,382.00   n/a   30,698.00	51,324.00 6,977.00   6,533.00   4,836.00   2,656.00 13,159.00 15,815.00   n/a   30,240.00	46,467.00 6,433.00   6,245.00   4,623.00   n/a n/a n/a   n/a   n/a

 

Table 4.2 (b): McDonald’s Corporation financial results for the years 2009-2014

Dollars in millions ($)	2014	2013	2012	2011	2010	2009
Total revenues Operating income Net income Cash provided by operations Total assets Total debt Total shareholders’ equity Shares outstanding in millions	27,441 7,949 4,758 6,730 34,281 14,990 12,853 963	28,106 8,764 5,586 7,121 36,626 14,130 16,010 990	27,567 8,605 5,465 6,966 35,386 13,633 15,294 1,003	27,006 8,530 5,503 7,150 32,990 12,500 14,390 1,021	24,075 7,473 4,946 6,342 31,975 11,505 14,634 1,054	22,745 6,841 4,551 5,751 30,225 10,578 14,034 1,077

 

Table 4.2 (c): Financial Information for ROYAL DUTCH SHELL plc for the years 2011-2015

Income Statement (mil)	2015	2014	2013	2012	2011
Revenue Gross Profit Operating Income Net Income Total Current Liabilities Long-term Debt Other Noncurrent Liabilities Total Liabilities	$272,156 $49,417 $3,935 $1,939 $70,948 $52,849 $30,676 $177,281	$431,344 $74,028 $30,118 $14,874 $86,212 $38,332 $27,416 $181,150	$459,599 $78,014 $35,234 $16,371 $93,258 $36,218 $23,763 $177,465	$481,700 $85,695 $52,046 $26,592 $96,979 $29,921 n/a $170,398	$484,489 $87,987 $57,033 $30,918 $102,659 $30,463 na $174,254

 

 

 

 

 

Appendix 2: Interview Tables

Table 4.2.1 (a): How does the quality of Accounting Information affect the investor decision-making?

Themes	No. of Respondents	Direct Quotes
The language used in financial reports influences investors’ decision-making	6	Simple languages in financial reports enable investors to easily understand the contents
		Many investors may not understand complex terms used in financial reports
		The use of complex languages reduces the number of people who can use them during decision-making
		The use of simple languages in financial reports ensures that many people can understand the contents thereby attracting more investors
		The use of unclear and ambiguous language misleads investors and may hinder their decision-making
		The use of standard language and common terms in financial reports simplifies investor decision-making
The contents of a financial report influences investors’ decision-making	9	A comprehensive financial report makes it easier for investors to make investment decisions
		Simplified financial reports enable investors to understand their contents and thus, make decisions with ease
		A well-structured financial report enhances its use by investors thereby promoting the ease of decision-making
		Financial reports that reflect companies’ past are crucial to investors’ decision-making
		Financial statements that provide more information including companies’ inventories, the total companies’ assets, working capital, equity, sales and net profits helps investors to make decisions faster
		Past accounts and future predictions are critical in a financial report as it helps investors determine the viability of an investment
		Financial reports that highlight companies’ growth plans facilitate investor determine the viability of investing in a company
		Presenting companies’ operational plans and projected growth enable investors to gauge their return on investment thereby simplifying decision-making
		Being transparent on losses encountered during an accounting period augments investor confidence on a company as it indicates transparency
The quality of financial reports influences investor decisions	6	Investors rely greatly on financial reports that comply with accounting standards
		Transparency in financial reporting helps investors determine the best course of action to undertake
		Detailed financial reports are considered high quality and simplify investors’ decision-making processes
		Timely publication of financial reports boosts investors’ confidence thereby attracting investment
		Chronological presentation of information in financial reporting makes it easier for investors to understand them and thus the ease of decision-making

 

4.2.2(a):          How does the firm image and reputation affect the investment decision-making process?

Theme	No. of Respondents	Direct Quotes
Firm image and reputation affect the investment decision-making process	11	Firms with good image and reputation attract many investors
		Good image and reputation signifies profitability thereby attracts investors
		Good company image and reputation is a symbol of good company management which guarantee higher returns on investment
		Good reputation guarantees higher sales and income thereby attracts investors
		Good company reputation and image implies ready market for its products and this attracts investors
		Good image and reputation attracts investors thereby guarantee business continuity even at harsh economic times and thus continued returns on investment
		Good company image and reputation is a symbol of competitive ability thereby guarantee higher returns on investment
		Good company image and reputation signify that the company offers quality goods and services and this attracts investors as it guarantees investors returns on their investment
		Companies with good images and repute often have longer lives thereby attract more investors
		Good image and reputation of a company guarantees fast growth  and thus higher returns
		Good company images and reputation attracts labour force which promotes productivity
Firm image and reputation do not affect the investors’ decision-making process	9	Investors’ decisions are determined by their individual business aspirations
		Investors’ decisions are often influenced by the profit margins presented in companies’ financial statements
		Investment requirements determine the capability of an investor to invest in a given company
		Investors’ investment decisions are dependent on their financial ability
		An investor’s investment decisions are determined by his or her religious principles in respect to a company’s image and reputation
		The rate of dividends presented in financial statements influences investors’ decision-making
		Past investment experience influences investors’ investment decisions
		The location of a company influences investors’ investment decisions
		The academic qualifications of an investor influences his or her investment decisions
TOTAL	20

 

Table 4.2.3(a): How do the current accounting standards help investors in their decision-making?

Themes	No. of Respondents	Direct Quotes
The current accounting standards help investors in their decision-making	11	Adherence to accounting standards instils confidence on investors regarding the information they find on financial statements
		The adherence to accounting standards by companies guarantees investors that what they are reading reflects the true status of companies thereby enhancing their decision-making
		Accounting standards promote transparency thereby facilitates investors’ decision-making
		Accounting standards promotes standardised reporting among companies thereby enabling investors to compare the performances of various companies and thus facilitating decision-making
		The adherence to the accounting standards enable investors to gauge the performance various companies’ management and thus the probable returns on their investment
		The implementation of accounting standards enables investors to identify the best companies to invest in
		The adherence to accounting standards ensures that companies present financial reports that can be understood by investors with ease thereby facilitating decision-making
		Accounting standards prevents the publication of biased information thereby reducing investors’ doubt on their reliability
		Accounting standards ensures that investors access all information necessary for their decision-making processes
		Accounting standards ensure that every investor can understand the information presented by companies thereby facilitating decision-making
		Accounting standards ensures that financial reports are presented in simple language thereby facilitating decision-making processes
The current accounting standards do not help investors in their decision-making processes	9	Investors’ reliance on financial reports is influenced by the available investment opportunities
		Investors’ decision are based an individual’s past investment experiences
		Investors consider companies reputation more than financial statements when making statements
		Many investors do not trust the information presented in financial statements
		Many investors consider the requirements set by companies for investors influence their decisions more than financial statements
		The language used in financial statements influences the decisions of investors
		Investors focus majorly on companies’ profit scales during decision-making
		Not all potential investors understand the existence of accounting standards
		Investors rely on experts’ recommendation during their decision-making
TOTAL	20

 

Table 4.2.4(a): How do analysts’ recommendations influence investor decision-making?

Theme	No. of Respondents	Direct Quotes
How do analysts’ recommendations influence investor decision-making?	20	Many investors believe analysts to be truthful thereby rely on their advice
		Many investors rely on analysts because they are investment experts
		Investors focus on the reputation of companies more than analysts’ recommendations
		Many investors rely on analysts’ recommendations because they believe that the experts are more knowledgeable about market trends
		Investors are more concerned with companies’ profit forecasts that analysts recommendations
		Investors rely on analysts’ recommendations in the interpretation of companies’ financial reports
		Investors consider their past investment experiences more than analysts recommendation during decision-making
		Not all investors depend on analysts’ recommendation during decision-making
		Investors’ recommendations is part of the several factors investors rely on during investment
		Analysts’ recommendations offer simplified investment advice and thus are critical to investors during decision-making
		The relationship of an analyst with the company he or she analyses influences the degree of investors’ reliance on his or her report
		The reputation of an analyst influences the degree of investors’ reliance on his or her recommendation
		Investors consider  the history of companies during decision-making more than analysts’ recommendations
		Investors usually make investment decisions based on the capital available to them
		Analysts’ recommendations do not influence investors’ decisions
		Investors’ decisions are influenced by the available information about a company
		Investors do not rely on analysts’ recommendations because they are sometimes biased and do not reflect the truth
		Analysts’ recommendations are irrelevant to most investors
		Many investors do not believe on analysts’ recommendations
		Investors rely on analysts’ to understand the meanings of various complex  accounting terms
TOTAL	20

 

Appendix 3: Questionnaire Tables

Table 4.3.1 (b): Using simple language in accounting information promotes investor decision making

Using simple language in accounting information promotes investor decision making	Number of Respondents
Strongly disagree	2
Disagree	3
Neither agree nor disagree	2
Agree	6
Strongly Agree	7
TOTAL	20

 

Table 4.3.1 (c): Adherence to accounting standards in financial reporting improves the quality of the reports and simplifies investor decision processes

Adherence to accounting standards in financial reporting improves the quality of the reports and simplifies investor decision processes	Number of Respondents
Strongly disagree	0
Disagree	2
Neither agree nor disagree	4
Agree	6
Strongly Agree	8
TOTAL	20

Table 4.3.2(b): Firm image and reputation influences investors’ decisions

Firm image and reputation influences investors’ decisions	Number of Respondents
Strongly disagree	0
Disagree	2
Neither agree nor disagree	3
Agree	6
Strongly Agree	9
TOTAL	20

 

Table 4.3.2(c): Firm image and reputation do not influences investors’ investment decisions

Firm image and reputation do not influence investors’ investment decisions	Number of Respondents
Strongly disagree	7
Disagree	6
Neither agree nor disagree	2
Agree	3
Strongly Agree	2
TOTAL	20

 

Table 4.4.1(b): The current accounting standards help investors in their decision-making

 

The current accounting standards help investors in their decision-making	Number of Respondents
Strongly disagree	1
Disagree	2
Neither agree nor disagree	3
Agree	6
Strongly Agree	8
TOTAL	20

 

Table 4.4.1(c): The current accounting standards do not help investors in their decision-making

The current accounting standards do not help investors in their decision-making	Number of Respondents
Strongly disagree	7
Disagree	5
Neither agree nor disagree	1
Agree	5
Strongly Agree	2
TOTAL	20

 

Table 4.4.2(b): Analysts’ recommendations influence investor decision-making

Analysts’ recommendations influence investor decision-making	Number of Respondents
Strongly disagree	2
Disagree	1
Neither agree nor disagree	3
Agree	5
Strongly Agree	9
TOTAL	20

 

Table 4.4.2(c): Analysts’ recommendations do not influence investor decision-making

Analysts’ recommendations do not influence investor decision-making	Number of Respondents
Strongly disagree	6
Disagree	7
Neither agree nor disagree	2
Agree	3
Strongly Agree	2
TOTAL	20

 

 

 

 

 

Indicative Dissertation Schedule

Stage of the dissertation writing process	Number of days/weeks needed			Start date		End date
STAGE ONE: Reading and research
a) Seek to identify an original, manageable topic	2 weeks	12th December 2016					24th December,2016
b) Reading and research into chosen topic	2 Weeks	26th December 2016					7th January, 2017
STAGE TWO: The detailed plan
a) Construct a detailed plan of the dissertation	3 days		8th January 2017		10th January, 2017
STAGE THREE: Initial writing
a) Draft the various sections of the dissertation	4 days		11th January 2017			14th January 2017
b) Undertake additional research where necessary	3 days		15th January 2017			18th January 2017
STAGE FOUR: The first draft
a) Compile and collate sections into first draft of dissertation	2 weeks		19th January 2017		31st January 2017
b) check the flow of the dissertation	3 days		1st February 2017		3rd February 2017
c) Check the length of the dissertation	3 days		6th February 2017		8th February 2017
d) Undertake any additional editing and research	2 Weeks		9th February 2017		22nd February 2017
STAGE FIVE: Final draft
a) Check for errors	3 days		23rd February 2017			25th February 2017
b) Prepare for submission	3 days		26th February 2017			28th February 2017
c) Final proof-read (by a friend or yourself) and final editing	1 Week		1st March 2017			7th March 2017
d) Compile bibliography	3 days		8th March, 2017			10th March, 2017
e) Get the dissertation bound	1 week		13th March, 2017			19th March, 2017
f) Submit your dissertation	1 day		20th March, 2017			20th March 2017

 

 

 

 

 

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