EARNINGS PER SHARE AND MARKET VALUE OF COMPANIES IN NIGERIA
This study is motivated by a desire to examine earnings per share and market value of companies. In light of the empirical review and other discussions, a number of questions arose as to whether there significant relationship between earnings per share and market value. Using the Ordinary Least Square (OLS) regression technique with the aid of computer software, the empirical findings revealed among other things that there significant relationship between earnings per share and market value. Recommendations were however made by the researcher
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
Background to the Study
Statement of the Research
Objectives of the Study
Scope of the Study
Significance of the Study
CHAPTER TWO: LITERATURE REVIEW
Theoretical Review of Earnings Per Share and
Market Value of an Equity Share
Earnings Management of Firms in Nigeria
Market Value of Firms in Nigeria
Earnings Management and Market Values of
Firms in Nigeria
Market Reaction to Earning Management
CHAPTER THREE: METHODOLOGY
The Population and Sampling
Sources of Data
The Research Instrument
CHAPTER FOUR: PRESENTATION AND ANALYSIS OF RESULT
4.2 Presentation of Data
4.3 Analysis of Data
4.4 Regression Analysis
4.6 Hypotheses Testing and Discussion
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
Summary of Findings
BACKGROUND TO THE STUDY
Equity valuation is a central question which the academicians and researchers in the field of capital markets are trying to address through different angles. At the same time, the practitioners in the field of stock trading have been working through different clues. Use of accounting information for equity valuation is a field of research which has seen a lot of activities. As described by Kothari (2001) in the recent past this field made seminal contribution with the publication of Ball and Brown (1968). The literature has grown rapidly with over 1000 publications in leading International academic Accounting and Finance journals in the past three decades.
A number of accounting variables have been used to explain equity value and equity return. Book value, profitability in many forms, operating assets, earning, earning per share (EPS), residual value, growth in earnings per share, growth in profitability, growth of the company measured in different ways, dividend per share, growth in dividend per share, real option to grow, real option to abandon are some of the variables used to explain equity valuation.
Earning is an important variable affecting the market value of equity share. Company producing and selling goods and services useful to citizens in a society and earning revenue covering its cost of production adds to its reserve and build up the same. Once a successful company starts building up reserves it will also look for expanding its scale of operations and thus increase its earnings. Once a company starts earning attractive sum, the equity share will have more and more demand which will result in increase in market value of the equity.
The researcher of this intends to examine earnings per share and market value of companies.
STATEMENT OF THE RESEARCH
Earnings after interest, depreciation and tax belong to the equity shareholders. Earnings per share is computed by dividing earnings after interest, the depreciation and tax by total number of outstanding shares. Dividend may be distributed out of these earnings; whether it is distributed as dividend to shareholders or not, it belongs to the shareholders. Hence earning per share is a measure which the stock brokers and investors will watch carefully and consider it while deciding the market value of the equity share.
In the light of this, the following research questions are raised:
Is there significant relationship between earnings per share and market value?
Is there significant relationship between dividend per share and market value?
Is there significant relationship between book value per share and market value?
OBJECTIVES OF THE STUDY
The broad objective of the study is to examine earnings per share and market value of companies.
The specific objectives are:
To examine the relationship between earnings per share and market value.
To determine the significant relationship between dividend per share and market value.
To verify significant relationship between book value per share and market value.
The following hypothesis will be tested in the course of this study.
There is a significant relationship between earnings per share and market value.
There is a significant relationship between dividend per share and market value.
There is a significant relationship between book value per share and market value.
SCOPE OF THE STUDY
This research work is an empirical study on earnings per share and market value of companies in Nigeria.
The population of the study is entire quoted companies in the Nigeria Stock Exchange, while the sample size is selected banks operating in Nigeria.
The length of period covered by the study was three years (2007 – 2011).
Geographically, the study will be conducted in Benin City, Edo State.
SIGNIFICANCE OF THE STUDY
It is expected that this study would consolidate existing literature on the issues surrounding the relationship between auditor tenure and auditor independence. The study would also facilitate the examination of the effects of auditor tenure and auditor independence in Nigeria and thus boosting the empirical evidence from Nigeria.
Furthermore, given the empirical nature of the study, the outcome of this study would aid policy makers and regulatory bodies and policy simulation with respect to the selected variables examined in the study.
The result of the study would be of benefits to education analysts, and institutions in examining the effectiveness of auditor tenure and auditor independence.
It will also be useful in stimulating public discourse given the dearth of empirical researchers in this area from emerging economies like Nigeria.
Finally, it would also add to the available literature on the areas of study while also providing a platform for other researchers who may want to further this study.
Smallness of sample size: It is interesting to emphasize that the findings of this empirical research are not to be generalize for all industry, since our limited to a number of companies.
The inability to obtain a completely random sample.
Imprecise measurement of variables.
Inappropriate test statistic.
Ball, R., Brown, P., (1968), ‘An empirical evaluation accounting income numbers,’ Journal of Accounting Research6, 159-177.
Kothari, S., P., (2001), ‘Capital Markets Research in Accounting’, Journal of Accounting and Economics 31(1-3) 105-231.
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