THE EFFECT OF FINANCIAL REPORTING ON INVESTMENT DECISIONS OF SMALL AND MEDIUM ENTERPRISES (SMES) IN LAFIA, NASARAWA STATE, NIGERIA

This study examines the effect of financial reporting practices on investment decisions among Small and Medium Enterprises (SMEs) in Lafia, Nasarawa State, Nigeria. Despite their critical role in economic growth, SMEs face challenges in financial reporting that hinder access to investment. Guided by the Theory of Information Asymmetry, the research objectives include assessing reporting practices, their impact on investment, identifying challenges, and proposing improvements. A descriptive survey design was employed, with data collected via questionnaires from 100 respondents (60 SME owners, 20 managers, 20 investors). Analysis using SPSS involved descriptive statistics, multiple linear regression, and Chi-square tests. Findings reveal that only 45% of SMEs regularly prepare financial statements, with 40% reporting high accuracy and transparency. Key challenges include financial illiteracy (80%) and limited accountant access (70%). Regression results (R² = 0.62, p < 0.001) show reporting quality significantly influences investor confidence, while 75% of investors declined opportunities due to poor reporting. Chi-square tests confirm associations between challenges and unreliable reports (p = 0.001) and between improvements and adoption likelihood (p = 0.02). All hypotheses were rejected, affirming significant effects. The study concludes that enhancing financial literacy, subsidizing accounting tools, and simplifying standards like IFRS for SMEs can bridge gaps, fostering investment and economic growth. Recommendations target policymakers, SMEs, and investors for targeted interventions.