Derivative Instrument and Financial Report Quality Does Institutional Investors Matter?

The study investigates the relationship between financial derivatives and quality of financial reporting among Nigerian commercial banks, using institutional investors as a moderator. Based on a sample of eight commercial banks listed on the Nigerian Exchange Group over seven years (2016–2022), the study employs mixed effect regression estimation technique to evaluate both linear and moderated relationships between the variables. The findings revealed that the linear relationship between derivative usage (both assets and liabilities) and financial reporting quality is statistically insignificant. However, the moderating effect of institutional ownership is found to significantly influence the relationship between derivative asset usage and reporting quality, suggesting that institutional investors play a vital role in enhancing the transparency and accuracy of financial disclosures. This supports the argument that institutional investors, with their resources and expertise, can reduce information asymmetry, thereby improving corporate governance and promoting higher financial reporting standards. The study concludes by recommending the implementation of regulations to promote transparency in derivative disclosures, encouraging institutional investors to advocate for better reporting practices, and strengthening corporate governance through policy reforms