A Theoretical Framework for Accounting Quality, Information Environment, and Capital Allocation Efficiency in Sub-Saharan African Emerging Markets

This study develops a theoretical framework that integrates accounting quality, information environment quality, and capital allocation efficiency in the context of Sub-Saharan African emerging markets, with empirical testing using panel data from Nigerian listed companies. Existing theoretical frameworks, developed primarily in advanced economy contexts, may inadequately capture the institutional, regulatory, and market microstructure features that shape accounting information usefulness in frontier and emerging market settings. This study proposes an extended information intermediation model that incorporates institutional quality, investor protection strength, and financial market development as conditioning factors in the accounting quality-capital allocation relationship. Empirically, the framework is tested using panel data from 55 Nigerian Exchange Group-listed companies for the period 2010 to 2023. Accounting quality is measured using a composite of accrual quality, earnings persistence, predictability, and value relevance indicators. Capital allocation efficiency follows the Wurgler investment-to-value sensitivity model. Generalized method of moments and two-step system GMM estimators are employed to address dynamic panel bias and endogeneity. Results provide strong support for the proposed framework, finding that accounting quality effects on capital allocation efficiency are significantly conditioned by institutional quality. The study contributes original theoretical and empirical content to the accounting research literature by establishing a contextualized causal model relevant to African emerging markets. It recommends that international standard setters consider institutional context in the design and sequencing of accounting reform interventions in developing economies.

Keywords: accounting quality, capital allocation efficiency, Sub-Saharan Africa, emerging markets, GMM.