Value Relevance Of Accounting Information Of Listed Industrial Goods Firms In Nigeria

Value Relevance Of Accounting Information Of Listed Industrial Goods Firms In Nigeria

Abstract

Conditioning in the Nigerian Stock Exchange( NSE) in the once times show that the Nigerian Industrial Goods enterprises is one of the sectors that contributed to the drop in the Nigerian Stock Exchange Development rate from21.86 in 2008 to13.26 in 2009, attributing to the decline in stock prices. thus, this study examined the extent to which partake price of the Listed Industrial Goods enterprises in Nigeria are associated with abecedarian account variables( that is, earnings per share, Book value per share and tips per share). The thesis investigates the value applicability of counting information in Listed Industrial Goods enterprises in Nigeria using data attained from the Nigerian Stock Exchange( N S E) fact book 2011, periodic report of the enterprises for the period 2007- 2013, and diurnal price list on the Cash Craft website. The study is grounded on thesemi-strong form of Effective request thesis applying the Ohlson( 1995) valuation model. originally, Ordinary Least Forecourt( OLS), Fixed goods( FE) and Random goods( shaft) models were employed as tools of analysis but after conducting applicable tests, REM is used in testing the suppositions of the study The population of the study comported of all the twenty- five( 25) enterprises that are listed on the Nigerian stock exchange under artificial goods sector of the frugality. After applying filtering system, 16 enterprises were named as sample of the study. The result revealed that all the explicatory variables statistically and significantly impact the explained variable. This implies that counting information published by listed artificial goods enterprises in Nigeria have high value applicability to the investors in making their investment decision on the enterprises. Specifically, earnings per share are the most value applicable account information followed by tip per share, also book value per share. It’s thus recommended that the operation of Nigerian artificial goods enterprises should maintain stability and thickness in their earnings by maintaining invariant account policy and diversification of operations, which will go a long way in adding request value of the enterprises. The account norms setters should also enhance the quality of the fiscal reporting in order to increase the value applicability of fiscal statements.

Chapter One

Preface

Background to the Study

Account is regarded as the language of business used by commercial enterprises in communicating their fiscal positions to their druggies through the publication of periodic fiscal statements containing the needed fiscal account information. fiscal account information is the product of commercial account and external reporting systems that measures and intimately discloses audited, quantitative data concerning the fiscal position and performance of intimately held enterprises. These fiscal statements, according to the Generally Accepted Accounting Principles( GAAP), have certain qualitative characteristics that should be met in order for it to succeed in its purpose. The statement should expose dependable, applicable, similar, timely and accessible information( ICAN, 2014).

For any account information to meet up with the below qualitative characteristics, it must be prepared and made public for the consumption of its target druggies. These druggies need different information at different times and as similar, it’s obligatory for preparers of these fiscal statements to prepare and present dependable information to help them in their decision making( ICAN, 2014). trustability has to do with the quality of information which assures that information is nicely free from error and bias and faithfully represents what it’s intended to represent. The International Accounting Standard Board( IASB) Framework( 2011) shows that counting information is only applicable when usersare suitable to estimate history, present or unborn events in taking profitable opinions. These druggies could be possessors, directors, or employeesValue applicability refers to the capability of counting information to be reflected in stock values( Francis & Schipper, 1999). Value applicability has to do with the summarization of counting information which affects stock values in such a way that the investors can come up with an informed decision, that has to do with an association. Valuation study is substantially aimed at relating account figures to a measure of firm value with a view to assessing the characteristics of account figures and their relation to value of the establishment( Barth, 2000). still, it’ll lead the investors to come up with the right investment decision that at the end will give them advanced returns on investment and minimize pitfalls of the investment, If counting information is prepared in such a way that it plays the places anticipated of it. Value applicability is seen as evidence of the quality and utility of account figures and as similar, it can be interpreted as the utility of account data for decision- making process of investors and its actuality is generally by a positive correlation between request values and book values( Takacs, 2012).

Studies on value applicability of counting information are motivated by the fact that listed companies use fiscal statements as one of the major media of communication with their equity shareholders and public at large( Vishnani & Shah, 2008). For case, in Nigeria, Companies and kindred Matters Act( CAMA, 1990) and the posterior emendations bear the Directors of all companies listed on the Nigerian Stock Exchange( NSE or the Exchange) to prepare and publish annually the fiscal statements. Beyond this, the Exchange authorizations all companies listed on first league request to submit daily,semi-annual and periodic statements of their accounts to the Stock Exchange. Companies on alternate league request are to submit their statements of accounts annually to the Stock Exchange.

Account information is any information attained from the account system of a establishment whether contained in a fiscal statement, a special report, or verbal statement( William, 1968). still, for the purpose of this exploration, counting information refers to written information contained in a complete or partial fiscal report, which include balance distance and profit and loss account or fund inflow statement. This study delved whether these colorful particulars of fiscal statements are value applicable to investors shareholders or not.

individualities or associations embark on investment opinions for several reasons. Some investors are only interested in the return on investment, that is, how far is the establishment suitable to pay tips to its stockholders. To these set of investors, tip payment is their target whenever they’re faced with investment decision. And as similar, tip per share will be the most value applicable account information. This means that there will be a significant impact of tips per share on share price of the assiduity under consideration. Investors will always be keen and alert as to tips advertisement of their investing enterprises. Their investment opinions are always geared towards which establishment pays advanced tips and how stable is the trend of tips payment( Karki & Adhikari, 2014).

Other investors consider value of the establishment and how the enterprises earnings wide adequacy from within and outside the country anyhow of whether or not the firm pay tip constantly. Proponents of this academy of study prefer long run benefits that accrue to them and thus look at the establishment ‟ s book value in their investment decision.

This study is meant to test whether counting information used – earnings per share, book value per share and tip per share has significant impact in the decision timber of prospective investors to invest in a establishment and the being investors to retain or increase their investment in their enterprises.

Statement of the Problem

Account information value depends on how well it meets the need of the druggies in taking applicable opinions. thus, the inflow of dependable information is pivotal to the growth of the Nigerian Stock Exchange without which investors may decide to keep liquid cash rather than investing them in feasible stocks that yield high returns on investment. Really, the exchange won’t serve well in the absence of applicable and dependable account information as needed by Law of the Country( CAMA, 1990).

Conditioning in the exchange in the once times show that the Exchange has recorded a drop in its Development rate from21.86 in 2008 to13.26 in 2009, contributing to the decline in stock prices( NSE Fact book, 2011). The Industrial Goods sector is one of the sub sectors that recorded low development from 2008 to 2011( NSE Fact book, 2012).

As a result of the nature of businesses of the Industrial Goods enterprises, it’s expectd that their fiscal statement shall contain counting information that shows the true and fair value of the enterprises’ means base. This will give prospective investors the capability to assess these enterprises grounded on the reported fiscal information. Notwithstanding, researches in the Industrial Goods Sector are minimum and concentrate substantially on some of its sub sectors not the sector as a whole. Some experimenters concentrated on structure accoutrements only( Maradun, 2009), others studied some tried enterprises in the NSE( Oyerinde, 2010; Abiodun, 2012; Olugbenga & Atanda, 2014) Abubakar( 2010) used New Economy enterprises as sphere of his study. There’s the need to know what’s actually passing in the sector which redounded to this low development in order to help the enterprises ameliorate their performances.

While studies on the value applicability of the account information has concentrated on the developed requests in North America and Europe, in developing requests like Nigeria only many inquiries were conducted. Some of the many studies in Nigeria are that of Oyerinde( 2009), Abubakar( 2010), Oyerinde( 2011), Abubakar( 2011), and Abiodun( 2012). The period covered by these studies stopped at 2009, which isn’t current. While Oyerinde ‟ s( 2009) period of study was 2001 to 2004, Abubakar( 2011)

studied the period 2006 to 2008, and Abiodun ‟ s( 2012) study covered the period of 1999 to 2009.

In addition, these studies produced mixed results collectively and inclusively on the relationship between counting information and share price of colorful enterprises. While Oyerinde( 2009) and Abubakar( 2011) set up that counting information of some tried enterprises in the NSE, especially earnings has value applicability, Abubakar( 2010) proved that counting information of listed new frugality enterprises in Nigeria have no value applicability. On the other hand, the study of Abiodun( 2012) revealed that, earning is further value applicable than book value. These mixed results were attained because of different enterprises used in the studies.

Because of this lack of agreement in the literature, it can be said that the account information of Industrial Goods enterprises contained applicable information for decision making purposes? To what extent does the account information of Industrial Goods enterprises in Nigeria mandate or impact the share price of the enterprises? Is the value applicability of all counting information of Industrial Goods enterprises in Nigeria the same? That’s why disquisition of the value applicability on fiscal information with applicability to the stock prices is an important issue for a developing country like Nigeria.

Objects Of The Study

The main ideal of the study is to assess the value applicability of counting information bared in the fiscal statements of enterprises listed in the Nigerian Industrial Goods sector. The specific objects grounded on the linked problem are to

estimate the effect of earnings per share on share prices of enterprises listed in the Nigerian Industrial Goods sector;

determine the effect of book value per share on share price of enterprises listed in the Nigerian Industrial Goods sector;

assess the effect of tips per share on share prices of enterprises listed in the Nigerian Industrial Goods sector;

Suppositions Of The Study

In order to validate data analysis, the following null suppositions were tested

H01 Share prices of enterprises listed in the Industrial Goods sector aren’t significantly affected by their earnings per share;

H02 Share prices of enterprises listed in the Industrial Goods sector aren’t significantly affected by their book value per share;

H03 Share prices of enterprises listed in the Industrial Goods sector aren’t significantly affected by their tip per share;

compass of the study

The study examined value applicability of counting information. It laid emphasis on enterprises listed in Nigeria under the Industrial Goods sector only and covered a period of seven times( 2007- 2013). This period was chosen because it’s a period within which the Nigerian Industrial Goods sector recorded low development in the Exchange. The Nigerian Industrial Goods sector remains a minor catalyst in the growth and development equation within the period of our study. The sector contributed from1.34 to4.16 to Gross Domestic product in 2010( NSE Fact book, 2012).

Share price is the dependent variable of the study while earnings per share, book value per share and tips per share are independent variables of the study. Earnings per share is the rate of earnings after duty but beforeextra-ordinary particulars to the rearmost outstanding ordinary shares in issue. Book value per share is the rate of the shareholders ‟ fund of each establishment to the rearmost outstanding ordinary shares in issue. tip per share is the rate of tips declared for the time to outstanding ordinary shares in issue.

It’s important to note that earnings per share and tip per share are income statement numbers which reflect conditioning of the enterprises within one account time, while book value per share is a balance distance item which reflects conditioning of the establishment beyond one account period. thus, this study covered branch of fiscal account with special reference to enterprises ‟ fiscal reporting as specified by the IASI.

Earnings per share, book value per share and tip per share aren’t the only account information variables. But the study is limited to these three independent variables because utmost of the literature reviewed concentrated on a combination of two or all of these variables depending on the model chosen by the experimenter. And as similar, the exploration decided to use the three so as to enable a comparison of the work with the literature reviewed and arrive at conclusions.

The artificial Goods sector listed on the NSE comprises of four different sub sectors videlicet erecting accoutrements , the electrical and electronics products, the packaging/ vessel, and the tool and ministry( NSE Fact book, 2012). The sector is made up of a order of companies that are involved in the tools, accoutrements , factors, ministry, and other products used in construction, manufacturing and other artificial operations. Their products are different from the consumer goods sector, which are meant to be bought by the general public. As at 2013, the sector is considered for expansion by the NSE because there are 100 companies presently eyeing listing in the sector. According to the than NSE Director General, Oscar Onyema, as part of the sweats to make the sector more seductive for investors thereby encourage further rosters, the NSE introduced the NSE Industrial indicator. This indicator comprises the most capitalized and liquid companies in the artificial goods sector. It’s because of this raft attention given to the artificial goods sector that our study aimed at studying the sector as a whole.

Significance of the Study

Industrial Goods sector in Nigeria is regarded as the bedrock of profitable and technological advancement but yet, little is known about the capability of counting information to explain changes to the security prices of enterprises listed in this sector. The little substantiation attained from value applicability researches in this area is attained from the US or Western European countries whose requests are more sophisticated compared to utmost developing countries.

The significance of this study can not be overemphasized. This study aimed at furnishing empirical substantiation on the relationship between share price and counting information under the Nigerian condition. This substantiation will enlighten individual and commercial investors on their investment decision as well as aid planning of their investment. This exploration will help the preparers of counting information and norms setters to further enhance value applicability of the most extensively used account number by furnishing a companion as to which account data is or isn’t valued by investors.

Also, the study supported in testing the operation of being valuation propositions under violent conditions not present in developed husbandry where utmost of the previous studies were carried out. The exploration also supported the public norms setters in setting invariant account norms grounded on the nature of demand placed on counting information by their original investors, stakeholders and the general public. Specifically and more importantly, the Nigerian Account Standards Board will profit from the study as it’ll serve as a feedback channel to the board on which account number is most

extensively used for equity valuation in Nigeria. Eventually, the study will fill the gap in the being literature by probing the value applicability of account data in the Nigerian Industrial Goods Sector.