Financial Reporting Quality and the Influence on Investor Confidence in Ethiopia Securities Market

Abstract This study investigates the link between financial reporting quality and investor confidence. The research employs a mixed-methods approach, utilizing both primary survey data and secondary financial data from Ethiopian banks and insurance companies (2012–2026). The Modified Jones Model was applied to the secondary data to measure FRQ through Discretionary Accruals (DA). Multiple linear regression analysis was then utilized to determine the influence of FRQ proxies. The empirical results reveal a significant "Trust Paradox" in the Ethiopian market. Secondary analysis via the Jones Model indicates a moderate-to-high level of earnings management, with a mean absolute discretionary accrual. However, primary data shows high investor confidence. Regression results audit reputation and regulatory oversights are the primary drivers of confidence, while direct trust in financial statements remained statistically insignificant. The study provides strong support for Signaling theory, JEL classification: G1, G18, M41, G14, O16