Abstract

Accounting information is necessary to understand the financial situation of the firm and is used as the basis of investment decision-making. The study sought to determine the effect of accounting information on investment decision-making.

Specifically, the study sought to identify the relationship between accounting and investment decision-making in BAFCCUL, to identify the frequency of using accounting information on investment decisions in BAFCCUL, and to identify the problems associated with accounting information on investment decisions in BAFCCUL.

The study employed both qualitative and quantitative research paradigm. The study population was 30 persons who are the member of staff of the BAFCCUL. The researcher also made use of primary methods of data collection which include questionnaires. Secondary methods of data collection involved library research of relevant materials. Data collected was then analyzed by using SPSS software.

The study revealed that there is a significant relationship between accounting information and investment decisions and all the selected areas significantly depend on accounting information for investment decisions. It was also observed from the analysis of the opinion of the respondents where 53.4% of the respondents said always use accounting information for investment decisions.

The study findings show that bounded rationality, time constraints, and conflict are problems of effective decision-making in BAFCCUL. The researcher recommends that BAFCCUL should consult the accounting information before making investment decisions. It is concluded that there is a significant relationship between Accounting information and investment decision making.

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Accounting information plays a very important role in the management and success or failure of business institutions. Accounting information systems (AIS) are responsible for recording, analyzing, monitoring, and evaluating the financial situation of institutions, processing documents necessary for tax purposes, and providing information support to many other organizational functions (Amidu et al, 2011).

Every organization targets the attainment of its desired objectives and will therefore aim towards efficiency and proper effectiveness in conducting its affairs.  However, the level of the efficiency and effectiveness of any organization or the extent to which it is able to achieve its desired goals to a large extent depends on the quality of available accounting information and on how the organization utilizes the available information. The organization always makes use of information in allocating scarce resources to different alternative.

In addition, Financial Statements may consist different types of information which can be named as Financial Information/Accounting Information and Non-Financial Information/non-accounting Information.  Accounting Information is information that describes an account for a utility.

It processes financial transactions to provide external reporting to outside parties such as stockholders, investors, creditors, and government agencies.  Nonaccounting information is information that cannot be measured in monetary terms to make investment decisions by the investors.

Though the investors use non-financial information in order to make investment decisions, still conventional investors give more weight to financial information. In one of the studies carried out by the Bosten College (2007), 62 percent of respondents favored financial information, and only 38 percent favored to non-financial information for use in investment decisions. In the United Kingdom, it has been found that a non-financial statement is considered as the least effective means of communicating information (Guthrie, 2007).

The Decision-making process requires financial information and non-financial information as well. The most important financial information needed in the process of business decisions comes from accounting. Therefore, we can say that accounting is a service function to management. It basically, processes or gathers and studies “raw data” and converts them into suitable information in the process of decision making. The basic characteristics of accounting are Gathering, processing, and presenting accounting (financial) information; information considering the company’s business, and those directed towards different interested users.

The accounting process contains several phases. Basically, it is a process in which input data are converted into output information. (Katarina Zager, Lajos Zager, 2006). Organizations both public and private need to disclose financial information relating to their operations in order to assist investors in making investment decisions. They do so as a matter to satisfy the legal financial statements where the capital stock of an organization is widely held and its affairs are of interest to general public relations (Amedu, 2008).

This study is centered on the financial statement presented to shareholders and also available for potential investors, bondholders, and trade creditors as a tool of information for investment decisions. Financial statements are based on results, on the past, and interpreted as a basis for predicting the future rate of returns and assessment of risk. The nature of the financial statements is that financial statements are always related to a past period and hence they are called historical documents. Financial statements are expressed in monetary terms and it indicates profitabilities of the business through the balance sheet.

Financial statements are analyzed in order to use the information in financial statements to ascertain the profitability and financial soundness of the firm, to Judge the managerial efficiency for inter-firm comparison of similar nature, and to make valuable for costs. Financial statement analysis is critical in making effective stock investment decisions.

If investors will not do research for their stock investments, they will essentially engage in glorified gambling. The statement of financial position and statement of comprehensive income, cash flow statement, and statement of owners’ equity each offers unique insights. Combined, they can give you a good sense of a company’s overall financial picture.

Microfinance institutions have the responsibility to comprehensively prepare and publish their audited financial report for investors and other users. Investment decision involves the commitment of current funds into long tern projects for future benefits, as such financial information becomes important for the success of this investment opportunity. Williams (2002), views financial information as the result of business operation express in monetary terms.

The notion of financial information largely implies those aspects encapsulated in the financial statement of an organization which may be used to ascertain the financial position of such organization for investments decision making. Financial information relating to a business organization is important to users within and without the organization to enhance informed investment decision-making.

Investment decisions are very crucial and caution must be taken because huge, scarce and heart end resources are involved, irreversible in nature, risky and have long-term implications which no investor would want to be confronted with if a negative result occurs. Therefore, there is every need for investors to have good knowledge and understanding of the cash flow system, value-added statement, income statement, the price-earnings, value and dividend per share, and other relevant financial statements to avoid irrationality in investment decision making.

It must be noted that the financial information prepared by management as responsibility has to be revealed by independent external auditors and duly analyzed by a professional financial expert prior to investment decision making.

Decision-making is not the core of every investment activity (Okafor, 2006). A decision is a choice between two or more alternatives. The implementation of meaningful decisions gives way for the achievement of investment goals and objectives while implementation of wrong decisions positively gives rise to investment failures.

The ultimate objective for investment is profit maximization and growth thus it becomes necessary that capital decisions have to be made and implemented so as to achieve the aforementioned objectives. For a meaningful decision that will be used in this objective for an investment to be made available, analyzed, and studied and though what it derives, the decision is made and implemented whether for action, execution, or corrective measures where necessary. One of the important information needed about investment is concerned with the financial aspect and the record that contains the financial aspect of an investment is what is referred to as analysis of the financial statement.

Financial statements are analyzed in order to use the information in financial statements to ascertain the profitability and financial soundness of the firm, to Judge the managerial efficiency for inter-firm comparison of similar nature, and to make valuable for costs. Financial statement analysis is critical in making effective stock investment decisions.

If investors will not do research for their stock investments, they will essentially engage in glorified gambling. The statement of financial position and statement of comprehensive income, cash flow statement, and statement of owners’ equity each offers unique insights. Combined, they can give you a good sense of a company’s overall financial picture.

1.2 Statement of Problem

The importance of financial information to investment decision-making cannot be underestimated. Informed investment decision-making is important for minimization of the risks associated with loss of value for money invested.

Just about every investor has had challenges relating to investment decision-making at one point or the other. Some investors may have found themselves neck dip into investment projects before getting to know other financial implications of such investment opportunities; such investors might have prioritized non-financial factors as, social-political, climatic, demographic, face value, or mere share prices into their investment decision-making process rather than the financial factor.

While some other investors might have skipped the cost of engaging the services of financial experts for proper financial statement analysis prior to investment decision making. Therefore, the main concern of this study is the evaluation of the performance of a company in investment decisions making and how to determine the profitability of the company’s information.

1.3 Research Questions

This research work seeks to answer the following questions;

1.3.1 Main Research Question.

What is the effect of accounting information on investment decision-making in BAFCCUL?

1.3.2 Specific Research Question.

1. What is the significant relationship between accounting information and investment decision in BAFCCUL?
2. Is the accounting information used frequently for investment decisions in BAFCCUL?
3. Which problems are associated with accounting information on investment decisions in BAFCCUL?