Macroeconomic Variables, Financial Reporting Quality, and Investment Efficiency: A Study of Nigerian Manufacturing Firms

This study investigates the moderating role of macroeconomic variables on the relationship between financial reporting quality and investment efficiency in Nigerian manufacturing firms. Investment efficiency, defined as the alignment of corporate investment decisions with growth opportunities rather than internal cash flows or managerial preferences, is a critical driver of long-term firm value. Financial reporting quality is widely recognized as a mechanism that reduces information asymmetry and improves capital allocation efficiency. However, the Nigerian manufacturing sector operates within a volatile macroeconomic environment characterized by inflation, exchange rate instability, and electricity supply constraints that may moderate this relationship. This study uses panel data from 35 manufacturing firms listed on the Nigerian Exchange Group for the period 2017 to 2023. Financial reporting quality is proxied by accrual quality and earnings smoothing measures. Investment efficiency is estimated using the Richardson investment deviation model. Macroeconomic variables include inflation rate, real GDP growth, exchange rate, and electricity supply index. Generalized method of moments panel regression is employed to address dynamic endogeneity. Results reveal that financial reporting quality significantly reduces both over-investment and under-investment in sampled firms. However, high inflation and exchange rate volatility significantly weaken this beneficial effect, suggesting that macroeconomic instability dilutes the informational benefits of high-quality reporting. The study recommends that policymakers prioritize macroeconomic stabilization as a complementary condition for maximizing the investment efficiency benefits of improved financial reporting.

Keywords: macroeconomic variables, financial reporting quality, investment efficiency, manufacturing, panel data.