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Impact of Audit Report Lag on Investors' Decision Making in the Nigerian Capital Market

Abstract

Audit report lag has become an important issue in financial reporting and capital market research because it affects the timeliness, relevance, and credibility of audited financial information available to investors and other stakeholders. Audit report lag refers to the period between a company's financial year-end and the date on which the independent auditor signs and issues the audit report. Timely publication of audited financial statements enhances market transparency, reduces information asymmetry, strengthens investor confidence, and enables investors to make informed investment decisions. Conversely, prolonged audit report lag may delay the release of critical financial information, create uncertainty regarding a company's financial position, increase information risk, and adversely influence investors' confidence and investment behaviour. In Nigeria, companies listed on the Nigerian Exchange Group (NGX) are required to publish audited financial statements within the timelines prescribed by the Nigerian Exchange Group Listing Rules, the Securities and Exchange Commission (SEC), the Financial Reporting Council of Nigeria (FRCN), the Companies and Allied Matters Act (CAMA), and the International Financial Reporting Standards (IFRS). Despite these regulatory requirements, some listed companies continue to experience delays in issuing audited financial statements due to audit complexity, internal control deficiencies, financial reporting challenges, corporate governance issues, regulatory compliance requirements, and operational constraints. Such delays may affect market efficiency, investor confidence, and the valuation of securities in the Nigerian capital market. Although previous studies have examined audit quality and financial reporting timeliness, empirical evidence regarding the impact of audit report lag on investors' decision making in the Nigerian capital market remains limited and inconclusive. Against this background, this study investigates the impact of audit report lag on investors' decision making in the Nigerian capital market. The study is anchored on Signaling Theory, Efficient Market Hypothesis (EMH), and Agency Theory. Signaling Theory posits that the timeliness of audited financial reports serves as an important signal of a company's financial health, transparency, and governance quality, thereby influencing investors' perceptions and investment decisions. The Efficient Market Hypothesis argues that capital markets rapidly incorporate publicly available information into security prices, making timely audit reports essential for efficient market functioning. Agency Theory explains that timely audited financial statements reduce information asymmetry between managers and shareholders, strengthen corporate accountability, and enhance investor confidence. Collectively, these theoretical perspectives provide a comprehensive framework for explaining the relationship between audit report lag and investors' decision making in the Nigerian capital market. The study adopts a quantitative research design using a structured questionnaire administered to institutional investors, individual investors, stockbrokers, financial analysts, investment advisers, portfolio managers, fund managers, securities dealers, and other active participants in the Nigerian capital market. A stratified random sampling technique will be employed to ensure adequate representation of respondents from brokerage firms, investment management companies, pension fund administrators, insurance companies, mutual fund organizations, and retail investor associations. Audit report lag will be measured using perceived audit reporting timeliness, delay in financial statement publication, audit completion period, timeliness of audited financial reports, and reporting efficiency, while investors' decision making will be measured using investment intention, investment confidence, portfolio allocation decisions, perceived investment risk, investment satisfaction, and willingness to invest. Primary data collected from respondents will be analyzed using descriptive statistics to summarize respondents' demographic characteristics and perceptions regarding audit report lag and investment decisions. Structural Equation Modeling (SEM) will be employed to examine the impact of audit report lag on investors' decision making. The measurement model will be evaluated using Cronbach's Alpha, Composite Reliability (CR), Average Variance Extracted (AVE), and Confirmatory Factor Analysis (CFA) to establish the reliability and validity of the research instrument. Additional diagnostic tests, including multicollinearity assessment, common method bias analysis, and model fit indices such as the Comparative Fit Index (CFI), Tucker-Lewis Index (TLI), Root Mean Square Error of Approximation (RMSEA), and Standardized Root Mean Square Residual (SRMR), will be conducted to ensure the adequacy, consistency, reliability, and robustness of the structural model. The study anticipates that audit report lag will have a significant impact on investors' decision making in the Nigerian capital market. Timely issuance of audited financial reports is expected to improve the relevance and credibility of financial information, reduce information asymmetry, strengthen investor confidence, and facilitate informed investment decisions. Companies that consistently publish audited financial statements within regulatory deadlines are also anticipated to experience greater investor trust, improved market reputation, enhanced market liquidity, and stronger demand for their securities. Furthermore, timely audit reporting is expected to improve capital market efficiency, reduce uncertainty, strengthen corporate transparency, and support effective portfolio management. Conversely, prolonged audit report lag may create uncertainty about a company's financial condition, reduce investor confidence, increase perceived investment risk, and discourage investment activities, thereby adversely affecting capital market performance. Consequently, timely audit reporting is expected to contribute significantly to improving investors' decision making, market confidence, and the overall efficiency of the Nigerian capital market. This study is expected to make significant theoretical and empirical contributions to the literature on accounting, auditing, corporate governance, and capital market research by providing comprehensive evidence on the relationship between audit report lag and investors' decision making in the Nigerian capital market. Unlike previous studies that primarily examined audit report lag in relation to financial reporting quality or firm characteristics, this research specifically evaluates its influence on investors' decision making using primary data and Structural Equation Modeling (SEM). The findings will provide valuable insights for the Nigerian Exchange Group (NGX), the Securities and Exchange Commission (SEC), the Financial Reporting Council of Nigeria (FRCN), listed companies, audit firms, investors, financial analysts, professional accounting bodies, policymakers, and academic researchers regarding the strategic importance of timely audit reporting in promoting investor confidence and capital market efficiency. The study will also provide evidence-based recommendations for improving audit efficiency, strengthening corporate governance, enhancing regulatory compliance with financial reporting deadlines, reducing audit delays, promoting financial reporting transparency, and fostering sustainable development within the Nigerian capital market.

Keywords: Audit report lag, investors' decision making, Nigerian capital market, audit timeliness, financial reporting, investor confidence, Structural Equation Modeling (SEM), Nigerian Exchange Group (NGX), auditing, Nigeria.