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org/journals

ISSN: 2313-6758
*Ijeoma Ngozi Blessing (PhD)

Volume 3, Issue 10
October, 2015 Value Relevance of Accounting Information on
Pages: 328-344
Share Prices of Listed Firms

1. PhD Holder, This study empirically examined the value relevance of accounting information
Department of in Nigeria in order to ascertain whether certain accounting variables affect share
Accountancy, Nnamdi prices on the Nigerian capital market. The population of the study comprises of
Azikiwe University, 200 firms but due to non-availability of data of all listed firms, a sample of 120
Awka-Nigeria listed firms was used during the period 2001-2013. Data of share, book value per
share, earnings per share and return on equity were sourced from the Nigerian
Stock Exchange fact book and the Ordinary Least Square estimation technique
was used in analyzing the data obtained from the Nigerian Stock Exchange fact
book with the aid of Statistical Package for Social Sciences. The study indicated
a significant relationship between earnings, book value, returns on equity and
share prices of listed firms on the Nigerian Stock Exchange. The implication of
the findings is that certain variables of accounting play a significant role in share
price in the capital market, thus accounting information is value-relevant in
Nigeria. Based on the findings, it was recommended amongst others that listed
Email for correspondence:
firms on the Nigerian Stock Exchange should prepare Simplified Investors'
amaro4baya@yahoo.com
Summary Accounts (SISA) with emphasis on the most widely used accounting
information along with the mandatory detailed financial statements to suit
Nigerian peculiarities. In addition, the National accounting standard setters and
preparers of accounting information should gear effort towards improving the
quality of "earnings information" in financial statements. This could be done by
properly defining and reducing earnings management so as to avert room for
creative accounting where managers engage in the practice of manipulative
earnings.

Keywords: Value Relevance, Accounting Information, Share Prices, Nigerian Stock Exchange

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Value Relevance of Accounting Information
INTRODUCTION
Value relevance of accounting information has been a
primary paradigm in financial accounting research. A
growing body of literature has suggested that
accounting information have lost their value relevance
because of a shift from a traditional capital-intensive
economy to a high-technology, service oriented
economy (Dontoh et al., 2012). In particular, It is
claimed that financial statements are less relevant in
assessing the fundamental value of listed firms on the
capital market. These conclusions are based on studies
that find a temporal decline in the association between
stock prices and accounting information (earnings,
book value, retained earnings, dividends, price
earnings yield and so on). For instance, Francis and
Schipper (1999), Lev and Zarowin (1999) found a
decline in the value relevance of accounting
information over time. These studies examined the
association between a combinations of earnings,
change in earnings and book value and
contemporaneous stock prices or returns.
Value relevance is defined as the ability of accounting
numbers contained in the financial statements to
explain the stock market measures (Beisland, 2009).
Accounting numbers, such as earnings, book value,
dividend, retained earnings are termed value relevant
if they are significantly related to the dependent
variable, which may be expressed by share price,
return or abnormal return (Gjerde et al., 2007). Studies
on value relevance of accounting information are
motivated by the fact that listed companies use
financial statements as one of the major media of
communication with their equity shareholders and the
public at large (Vishnani and Shah, 2008). However,
due to the vital role published financial information
plays in capital market, most countries have enacted
laws enforcing implementation of these accounting
standards by all entities doing business.
For the purpose of this research, accounting
information refers to written information contained in
a complete or partial financial report-statement of
financial position and profit or loss account or cash
flow statements are values relevant in the Nigerian
Stock Exchange or not. Consequently, it is an
empirical question whether accounting information is
useful to domestic and foreign investors in the
Nigerian capital market. This can be measured by the
Blessing, I.N.
contemporaneous association between accounting
information, stock returns and market value in which
valuation models link market prices and return to
different accounting measures of financial position
and performance (Aiman and Mohammad, 2010). The
valuation models based on accounting information
show that equity value is related to accounting
earnings (Ball and Brown,1968; Collins et al., 1989),
and balance sheet measurements or both book value
and earnings (Landsman,1986; Barth,1991;
Shevlin,1991). Thus, this study aims at extending such
work by investigating the value relevance of
accounting information in the Nigerian capital
market.
There are two opposing views in the accounting
literature as regards whether accounting information
in relation to stock prices have lost their values. One
view proposes that accounting information is value
relevant, meaning that accounting information has not
lost its values (Ball and Brown, 1968; Collins et al.,
1989; Landsman, 1986; Barth, 1991; Brinble, 2003;
Gjerde, 2007). On the contrary, the other view
proposes that accounting information is not value
relevant, meaning that accounting information has
lost its value (Francis and Schipper 1999; Lev and
Zarowin, 1999).
Accounting researchers have produced numerous
studies documenting the association between
accounting information and stock prices in developed
capital market. While there has been robust literature
on value relevance of accounting information in
relation to stock prices in developed capital market
(Alford, 1993; Amir, 1993; Harris 1994; Francis and
Schipper 1999; Lev and Zarowin, 1999; Brinble, 2003;
Gjerde et al., 2007), to the best of our knowledge there
are scanty empirical evidence that examines whether
accounting information is value relevant or not in
emerging capital market like Nigeria. However, there
may be reasons for us to believe that accounting is
value relevant or not in the Nigerian capital market.
As an emerging market, it lacks alternative
information sources other than published accounting
reports such as earnings, book value, dividend,
retained earnings, price-earnings ratio and a host of
others. Besides, value relevance research is a field in
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Value Relevance of Accounting Information
which the empirical results are sometimes mixed. The
results presented in the literature are contradictory.
The belief is that the divergence of opinions is
somewhat due to econometric problems adopted in
these studies. Particularly the deviation of the
characteristics of accounting data from the
assumptions of the applied methods and the misuse
of statistical indicators led to contradicting inferences
in these literatures. It is important to investigate
whether the result will agree or digress from the
previous studies. To this end, this study adds
additional empirical evidence to literature on value
relevance of accounting information in the Nigerian
capital market.
The major objectives of this study was to examine the
value relevance of accounting information so as to
find out whether there is an association between
accounting information and stock prices of listed
firms on the Nigerian Stock Exchange. The specific
objectives are;
1. To establish whether there is an association between
earnings per share and share prices of firms listed
on the Nigerian Stock Exchange.
2. To ascertain whether there is an association
between book value per share and share prices of
firms listed on the Nigerian Stock Exchange.
3. To determine whether there is an association
between return on equity and share prices of firms
on the Nigerian Stock Exchange.
With regards to the foregoing objectives, the following
research questions were raised;
1. To what extent is there a relationship between
earnings per share and share prices of firms listed
on the Nigerian Stock Exchange?
2. To what extent is there a relationship between book
value per share and share prices of firms listed on
the Nigerian Stock Exchange?
3. To what extent is there a relationship between
return on equity and share prices of firms listed on
the Nigerian Stock Exchange?
LITERATURE REVIEW
Conceptual Framework
Research on accounting information and stock market
from late 1960s developed without much emphasis on
the precise structure of the relation between
Blessing, I.N.
accounting information and share prices in emerging
capital market (Benston, 1967; Ball and Brown, 1968;
Beaver, 1973; Anderson, 1975; Easton and Zmijewski,
1989; Easton and Harris, 1994). However, in the mid
1990s, researchers started to examine the role of book
value, earnings, return on equity, using a valuation
framework by Ohlson and Ohlson and Feltham,
which expresses share prices under certain conditions
as a function of both earnings and book value of
equity (Ohlson, 1995; Feltham and Ohlson, 1995;
Benard, 1995; Collins et al., 1997; Penman, 1998;
Francis and Schipper, 1999; Callao et al., 2006;
Beisland, 2009; Chang, Chen, Su and Chang, 2008 and
Negah, 2008). This section dealt with the conceptual
issues related to the theme of the research work.
Value Relevance
The term value relevance refers to the ability of
accounting information to capture or summarize
share price of firms listed on the stock market (Jang
and Lee, 2010). Value relevance can be defined as the
ability of accounting numbers contained in the
financial statements to explain the stock market
measures (Beisland, 2009). When accounting numbers
are able to influence the price of shares in the capital
market, accounting numbers are deemed to be value
relevant. Contrarily, if accounting numbers are unable
to influence the prices of shares, accounting numbers
are deemed value-irrelevant. Accounting numbers
refers to such items such as earnings per share, book
value per share, dividend per share ,return on equity,
retained earnings, price earnings yield and so on
(Gjerde et al., 2007). Studies on value relevance of
information are motivated by the fact that listed firms
use financial statements(i.e. accounting numbers)as
one of the major media of communication with their
equity shareholders and public at large (Vishnani and
Shah, 2008). However, due to the vital role published
financial information plays in capital market, most
countries have enacted laws enforcing
implementation of these accounting standards by all
entities doing business. This study investigates
whether these various items of financial statements
are value-relevance in the Nigerian Stock Exchange or
not. Consequently, it is an empirical question whether
accounting information is useful to domestic and
foreign investors in the Nigerian capital market. This
can be measured by the contemporaneous association
between accounting information and stock price in
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Value Relevance of Accounting Information
which valuation model link market prices and return
to different accounting measures of financial position
and performance (Aiman and Mohammad, 2010).
Financial Reporting
Financial reporting is the major wheel for
communicating financial information about the
operations and performance of firms, especially to
those that have interest in such corporation. Thus,
financial reporting remains a picturesque of the
financial transaction of a defined entity over a
specified period (Okafor, 2009). Financial transaction
reporting essentially involves preparing and issuing
accounting information.
Accounting information is one of the most significant
sources of financial information for the investment
analysts and valuing the companies is one of the most
important application to which they address
themselves (Rodney, 2012). The primary objective of
financial reporting is to provide information that
would enrich the understanding of users about the
activities and/or performance of the corporation.
Business organizations render two broad categories of
financial reports: internal and external financial
reports.
(a) Internal Financial Reports: These are financial
memoranda prepared by operational units of a firm to
facilitate discussions or decision making by staff and
management. They are meant for internal
consumption and guidance and not for the outsider
users.
(b) External Financial Reports: These are summarized
statements of financial operations over a definite
period. They are meant to provide financial
information about a firm to the general public and are
therefore published documents.
This study used external financial reports which are
summarized statements of financial operations over a
definite period.
Perspective of share price Measurement
There are two perspectives of shared prices
measurement in the capital market: information and
measurement perspectives.
(a) Information Perspective: Information perspective
measures the usefulness of accounting to individual
users without much emphasis on the precise structure
Blessing, I.N.
of the relation accounting data and firm value
(Bernard, 1995). Most of the studies on information
perspective assume that information content or
usefulness can be determined by observing capital
markets reactions to specific accounting information
variables (Ball and Brown, 1968; Anderson, 1975;
Benston,1967). Ball and Brown (1968) study was the
first to document statistically a share price response to
reported net income and their methodology is still
employed today. The emphasis of information
perspective is on contemporary associations between
accounting earnings (or book value) and market
returns or prices. In particular, it investigates capital
market reactions to public disclosures such as
earnings announcement, other firm-specific news and
economy–wide macroeconomic news. This is
synonymous with information content school.
The information perspective measures accounting
number broadly with respect to price formation in
capital as: The relation between key accounting
numbers, such as earnings, and securities prices;
i. The relation between manager’s voluntary
disclosure choices and capital markets;
ii. How taxation affects the relation between
accounting numbers and capital markets;
iii. Changes over time in the relation between numbers
reported in three financial statements and securities
prices;
iv. The extent to which behavioral theories can explain
aspects of the relation between accounting numbers
and capital market and
v. Whether auditing practice affect the relation
between security prices and accounting numbers.
(b) Measurement Perspective: The measurement
perspective assumes that share price movement can
be determined by the degree of volume or price
change following release of the information. The
measurement perspective is rooted on the theoretical
framework of equity valuation models (Ohlson,1995).
The Ohlson valuation model expressed the value of a
firm as a function of book value and earnings.
However, attention has turned in recent years to
valuation models that include dividend per share, net
assets per share earnings yield, and the lots (Francis
and Schipper, 1999). Many of these studies refer to the
residual income model as their theoretical foundation.
Hence, residual income measures are more frequently
used in the business community to assess financial
performance.
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Approaches to Share Prices Forecast in the Capital
Market
There is a growing body of evidence that the key to
forecasting the stock market lies neither in value
analysis nor in technical analysis. Rather, investor
psychology seems to be the critical factor. Instead of
treating investors psychology as noise, we should
recognize that it is actually the signally that drives
much of the day-to-day price fluctuations (Kaplan,
2001). One common argument against the possibility
of forecasting share prices is the market efficiency
argument. According to this point of view, if technical
analysis, value investing, or any other method based
on generally available information really work, then
enough people would begin using it so that the very
fact that traders are willing to pay for information
indicates that markets cannot price forecasting in the
capital market, which are technical and fundamental
approaches but there is also the "technological
approach".
(a) Fundamental Approach: Fundamental analysts
base their predictions on share price movement on
factors which are “fundamental” or internal to a
company, its industry, or the economy (for example
earnings, products, management, competition,
consumer spending and so on). According to Haleh et
al. (2011), a market fundamentalist might issue a
purchase recommendation for a company which has
consistently shown year to year earnings increases
and is in an industry that he/she believes will grow
faster than the economy. In terms of fundamental
analysts the capital market, has no memory and prices
are changed randomly.
(b) Technical Approach: Technical analysts, by
contrast, hold that all such fundamental factors are
reflected in the market behavior of the shares. Thus, to
a pure technician, all data of importance are internal
to the capital market, and future share price
movement can be predicted from the diligent study of
historical stock market information (for example,
changes in share prices and trading volume).
According to Haleh et al. (2011), a market technician
might, therefore, base a buy recommendation on a
certain pattern of recent price and volume changes.
Technical analysts can calculate the intrinsic value of
shares. They believe that the market has undergone a
pseudo psychological mode and history is always
Blessing, I.N.
repeatable and patterns at any time cause reputation
of trends of price. Therefore by studying the past
trend, the future could be predicted. The main
purpose of technical analysis is predicting trends of
share price.
(c) Technological approach: With the advent of the
digital computer, capital market prediction has since
moved into technological realm. The most prominent
technique involves the use of artificial neural
networks (ANNs) and genetic algorithms (GAS).
Azoff, (1994) asserts that ANNs is a mathematical
function approximator. Their value in capital market
prediction is that if a (potentially non linear)
relationship exists, then it is possible that it could be
found with enough indicator, the correct network
structure and a large enough data set. Lo and
Mackinlay (2002) opined that the most common form
of ANNs in use for capital market prediction is the
‘feed forward network’ (FFN) utilizing the backward
propagation of errors algorithm to update the
network weights. These networks are commonly
referred to as ‘Back-propagation network’ (BPN).
Since ANNs require training and have a large
parameter space, it is useful to modify the network
structure for optimal predictive ability. Recently, this
has involved pairing ANNs with genetic algorithms, a
method of finding optimal in multi-dimension
parameter spaces utilizing the biological concepts of
evolution and natural selection. Moreover, some
researchers have tried to extract meaningful indicators
from the news flash and discussion rooms about a
certain stock using data mining techniques.
Nevertheless, people have different opinions about
the same stock, at the same time. This approach of
share price forecast is yet to be fully embraced by
capital market analysts, especially with developing
capital market like Nigeria.
Accounting Information and Capital Market
Accounting is all about providing information to
users that are in need for useful decision making. This
information of useful in making informed decision by
capital market operators and the information is
deemed useful when it is able to fulfill some criteria.
According to Hendriksen and Van Breda (1992),
accounting has qualitative characteristics that makes it
decision useful information. They defined qualitative
characteristics as attribute of accounting information
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which tends to enhance the usefulness. These
qualitative characteristics according to Hendriksen
and Van Breda (1992) can be classified as:
 Robust i.e. stands the test of time.
 Pervasive i.e. applies to all accounting entities.
 Implementable i.e. capable of application; and
 Susceptible to objective verification.
The above are the qualitative characteristics proposed
by Hendriksen and Van Breda (1992) but the most
acceptable qualitative characteristics of accounting as
decision usefulness has been put forward by the
financial accounting standard board (FASB) where it
stressed that the two prime qualities of accounting
information are relevance and reliability. In an
attempt to define relevance and reliability as the two
prime qualities of accounting information, Rodney
(2012) opined that relevance is all about the capacity
of that information meant to influence decision
making process of users as it will enable them to make
future predictions (predictive ability of accounting
information) and conform a previous estimate
(feedback of accounting information). Reliability on
the other hand as the second prime quality of
accounting information refers to accounting
information that is free from error and bias but can be
verified from existing data which represents what is
to represent and not what it ought to represent.
According to Codjia (2012), the special role of
accounting information in capital market includes:
I. Corporate solvency: analyzing corporate
solvency enables investors to set financially
viable companies apart from moribund firms.
In a global market place in which companies
interact with international business partners,
investors generally make sure companies have
sufficient cash to operate domestically and
overseas. Securities-exchange participants use
statement of financial position information to
appraise corporate solvency. Specifically, they
review a firm’s assets, liabilities and equity
capital. Net worth is an important indicator
that lifts the veil on a company’s ability to
repay its debts. For businesses, being able to
meet financial commitment is important.
Consequently, investors with a long term
perspective want to make sure companies will
still be in business in five or ten years.
Blessing, I.N.
II. Profitability: corporate profitability is a
constant priority for stock-exchange players,
especially those who make long-term
investments bets. Appraising a firm’s
profitability trends requires analytical skills,
attention to detail and financial acumen. When
reviewing corporate profitability, investors sift
through various accounting reports, including
statement of profit or loss, budgets and
financial ratios. Reporting consistently positive
result is a confidence building exercise for
companies, as it improves corporate reputation
in the investment community. Financial
metrics covering corporate profitability
include gross profit margin, which equals total
sales minus cost of goods sold divided by total
sales. The ratio calculates how much a firm
earns on each dollar of sales.
III. Liquidity analysis: publicly listed companies
must disclose information related to operating
liquidity movements, indicating to investors
and the public how much cash is in corporate
coffers. Disclosure requirements are stricter for
large, multinational companies that borrow on
major securities exchanges, such as the New
York stock exchange and Tokyo stock
exchange. Failure to provide sufficient
explanation about corporate cash inflows and
outflows may cause a firm to come under
regulatory scrutiny.
IV. Equity capital review: before making
investment bets, financial market players seek
to understand current players who are already
in the game. In other words, investors who
want to purchase a company’s equity shares
generally sift through the list of current share
holders. This in-depth systematic review is a
key because it enables potential stockholders
to gauge investors' faith in the company.
The Nigerian Stock Exchange and Regulatory
Institution
The Nigerian stock exchange is one of the critical
financing sources for firms which are listed in the
capital market. The Nigerian stock exchange which
was established in 1960 as the Lagos stock exchange
later becomes Nigerian stock exchange in December
1977 with thirteen (13) branches. The branch in Lagos
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Value Relevance of Accounting Information
was opened in 1961, Kaduna 1978, port Harcourt 1980,
Kano 1989, Onitsha 1990, Ibadan 1990, Abuja area
office 1999, Yola 2002, Benin 2005, Uyo 2007, Ilorin
2008, Abeokuta 2008, Owerri 2009, and Bauchi 2009
with Lagos as the head office. The Nigerian stock
exchange started operations in 1961 with nineteen
securities listed for trading. As at 2012, there were 263
securities listed on the exchange. In the year 2013, 63
securities listed on the exchange were delisted thereby
leaving about 200 firms listed on the Nigerian stock
exchange as at the end of 2013 (NSE, 2014).
The Nigerian stock exchange has companies listed
with both foreign and multinational affiliations
thereby representing a cross-section of the country’s
economy. Such cross-section of the companies listed
on the Nigerian stock exchange range from
agriculture, through manufacturing to services. The
stock exchange is a tested network of intermediaries
such as stockbrokerage firms, issuing houses,
practicing corporate law firms and over 50 quality
firms of auditors and reporting accountants of which
most are with international links. Therefore, the
market has in place a network of intermediating
organizations that can effectively and creditably meet
the challenges and growing needs of investors in
Nigeria (NSE, 2014). In 1999, the Nigerian stock
exchange introduced a computerized clearing,
settlement and delivery system for transaction in
listed shares known as the central securities clearing
system (CSCS). The CSCS is interfaced with the ATS
thereby facilitating a T+3 transaction settlement cycle.
In addition, the CSCS is responsible for
dematerializing share certificates of quoted companies
and storing them in electronic form in a central
depository. Other ICT adoptions include the CSCS
trade alert, phone-in-service, e-bonus and e-dividend
payments. The Nigerian stock exchange is
characterized by the following:
I. Integrity: Integrity happens to be the
watchword of the stock exchange. The public
trust in the Nigerian stock market has grown
tremendously, with about three million
individual investors and hundreds of
institutional investors (including foreigners
who own about 47% of the quoted companies)
using the facilities of the exchange.
Blessing, I.N.
II. Trading: The call over trading system was in
April 2014 replaced with the Automated
Trading System (ATS), with bids and offers
now matched by stockbrokers on the trading
floor of the Stock Exchange through a network
of computers.
III. Pricing: Prices of new issues are determined
by issuing houses/stockbrokers; while on the
secondary market prices are made by
stockbrokers only. The market/quote prices,
along with the All-Share Index, are published
daily in the Stock Exchange Daily Official List,
the Nigerian Stock Exchange CAPNET, the
Nigerian Stock Exchange website, Newspapers
and on the stock market page of the Reuters
Electronic Contributor System (RECS).
IV. The All-Share Index: The Exchange maintains
an All-Share index formulated in January 1984
(January 3, 1984=100), only common stocks
(ordinary shares) are included in the
computation of the index. The index is valued-
related and is computed daily.
V. Clearing, Delivery and Settlement: Clearing,
Delivery and Settlement of transactions on the
Exchange are done electronically by the Stock
Exchange. The CSCS Limited System (CSCS), a
subsidiary of the Stock Exchange. The CSCS
Limited ("the Clearing House") was
incorporated in 1992 as part of effort to make
the Nigerian Stock market more efficient and
investor-friendly. Apart from clearing,
settlement and delivery, the CSCS Limited
offers custodian services.
VI. Stock Market Legislations: Transactions in the
stock market are guided by the following
legislations: (a) Investments and Securities
Decree No. 45, 1999 (b) Companies and Allied
Matters Decree 1990 (c) Nigerian Investment
Promotion Commission Decree, 1995 (d)
Foreign Exchange (Miscellaneous Provision)
Decree, 1995.
VII. Regulation: Transactions on the Exchange are
regulated by the Nigerian Stock Exchange, as a
self-regulatory organization (SRO), and the
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Value Relevance of Accounting Information
Securities and Exchange Commission (SEC),
which administers the Investments and
Securities Decree.
VIII. Internationalization of the Stock Market:
Arising from the deregulation of the capital
market in 1993, the Federal Government in
1995 internationalized the capital market, with
the abrogation of laws that constrained foreign
participation in the Nigerian capital market.
Consequent upon the abrogation of the
Exchange Control Act in 1962 and the Nigerian
Enterprise Promotion Decree 1989, foreigners
can now participate in the Nigerian capital
market both as operators and investors. Also,
there are no limits any more to the percentage
of foreign holding in any company registered
in the country.
We present empirical research supporting the view
that accounting information in relation to stock prices
is relevant in capital market. For instance, ball and
brown (1968) provide evidence of security market
reaction to earnings announcements. On the basis of
their studies, they claim that accounting is useful to
investors in estimating the expected values of the risks
of security returns. Their result shows that accounting
information is value relevant. Pankoff and virgil
(1970) presented an inventory and ambitious
laboratory experiment in order to measure the
usefulness of accounting and other information to
professional security analysts who participate as
subject in the laboratory stock market. The study
found that accounting information is value relevant.
Chen and Su (1999) empirically examined whether
domestic investors in the Chinese stock market
perceive accounting information based on Chinese
GAAP to be useful in stock evaluation. The study was
motivated by the market-based value relevant
literature in the U.S. and by the recent development of
accounting and stock market in China. Using a sample
of all listed firms in Shanghai and Shenzhen stock
exchanges from 1991 to 1997 with available data, they
obtained evidence of value relevance of accounting
information in China based on a return and a price
model. Thus, the study reported fairly convincing
evidence that accounting information is value relevant
to investors in the Chinese market despite the young
age of the market and the perception of inadequate
Blessing, I.N.
accounting and financial reporting in China as at the
time of their research. Bao (2004) investigated value
relevance of operating income versus non-operating
income in the Taiwan stock exchange. He performed
three types of value relevance analysis-return on
equity analysis, price levels analysis and price change
analysis in this study, claiming that value can be
defined by the return of equity, stock price level, or
stock price change. The results of their study show
that the valuation models based on earning
components have a higher explanatory power than
those of earnings alone. The contribution of both
operating income and non-operating income are not
significantly dissimilar. Investors are counseled to
consider operating income as well as non- operating
income when analyzing firm value in Taiwan stock
exchange. Thus, accounting information is value
relevant. Jones and Danbolt (2005) studied empirical
evidence on the determinants of the stock market
reaction to production and market diversification
announcements. Their study used price earnings and
dividend yield as variables. The study found that
gains are higher for companies with high price
earnings low dividend yields. The study concluded
that accounting information is value relevant. Torre et
al. (2006), studied stock market development under
globalization withers the gains from reform. The
study used GDP as the dependent variable, interest
rate and market capitalization as the independent
variables. The findings show that stock market has
resulted into development of the economy. The study
concluded that accounting information is value
relevant. Imran and Mondal (2010) examined
determinants of stock price; a case study on Dhaka
stock exchange. The study used stock price as the
dependent variable. Profitability, growth, firm size
and dividend per share as the independent variables.
The findings show that accounting information affects
stock prices. The study concluded that accounting
information is value relevant. Al-shubiri, (2010)
analyzed the determinants of market stock price
movement in Jordanian commercial banks. The study
used 14 commercial banks of Amman stock exchange
for the period of 2005 -2008 with simple and multiple
regression analysis. The findings revealed that there is
a high positive significant relationship between
market price of stock and net asset value per share,
market price of stock dividend and gross domestic
product. The study concluded that accounting
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Value Relevance of Accounting Information
information is value relevant. Ramasawmy and
Ramen, (2010) studied an investigation on the
usefulness of accounting information for financial
analyst with the case study of an emerging state. The
study used 70 items of the accounting information
taken from the checklist of IASI and the lists provided
by FASB. The findings revealed that most mandatory
information is quantitative in nature and most
voluntary accounting information is non-quantitative
in nature. The study concluded that accounting
information is value relevant.
Rapidly changing business environment in
contemporary times and reports from some
researchers have shown that in the capital market, the
use of accounting information and the share price
movement have lost their relevance as evidenced in
the study of Lev and Zarowin, (1999) and Francis and
schipper, (1999). Cheng et al. (2008) studied earnings
announcements; the impact of firm size on share
prices. The study used abnormal returns as the
dependent variable and risk adjusted return on
security, unexpected earnings and market value as the
independent variables. The findings revealed that no
incremental information content was beyond earnings
except that the direction of the effect was negative.
The study concluded that the accounting information
is irrelevant. Aiman and Mohammad (2010) examines
empirically whether national and international
investors in the Egyptian stock market perceive
accounting information based on the Egyptian
accounting standard to be useful in stock valuation.
Using a sample of all available listed firms in the
emerging market data base (EMDB) form 1998 to
2002, we obtain evidence of value relevance of
accounting information in Egypt based on both return
and price models. More importantly the result
suggests that stock prices in Egypt are less
informative about the future value of the firm than is
accounting information. The study concluded that
accounting information has higher value relevance in
Egypt. Dontoh et al. (2012) empirically explored the
declining value relevance of accounting information
and non-information base trading. The study shows
that when non-information based trading increases,
the R-squares of a regression of stock price on
accounting information declines. Additionally, the
empirical test confirms that the decline in the
association between stock prices and accounting
Blessing, I.N.
information as measured by R-squares is driven by an
increase in non-information based. Thus, accounting
information is value irrelevant. Based on the empirical
studies, majority of the studies support the view that
accounting information is value relevant. More so,
concerns over research design and conflicting findings
caused earlier researchers to fail in addressing the
position above. Thus, it is on this note that this study
investigates whether the result will agree or digress
from the previous study.
METHODOLOGY
Research Design and Source of Data Collection
A research design refers to the approaches,
framework or the overall strategy of conducting
research studies. Nachmias and Nachimias(2009)
opined that research design is the blueprint that
enables the investigator to come up with solutions to
the problems and guide the researcher in the various
stages of the research. In carrying out this study, the
researcher adopted the expost-facto research design.
This design was adopted because it seeks to establish
the factors that are associated with certain occurrence
or type of behavior by analyzing past events of
already existing condition. Here the researcher has no
control over certain factors or variables as the events
already exist and can neither be manipulated or
changed. The population of the study refers to the
totality of all the elements or variables under study
from which the researcher draws his sample. The
study population comprised of 200 firms quoted on
the Nigerian Stock Exchange (NSE, 2014).
The data collection method was secondary data. The
secondary data-earnings per share, book value per
share and returns on equity were obtained from the
Nigerian Stock Exchange Fact Book and Annual
Reports and Accounts of the firms quoted on the
Nigerian Stock Exchange. These data have been
deemed valid by standard and recognized bodies that
regulate capital market in Nigeria. This study adopted
the stratified random sampling technique by selecting
one hundred and thirty-three (133) corporate firms
drawn from various industries listed on the Nigerian
Stock Exchange. The sample size was determined
using Taro Yamani's Formula since the population
size was 200 (Yamani, 1967). Due to non-availability
of data, the researcher was able to generate data on
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Value Relevance of Accounting Information
120 firms which formed the adequate sample
employed in this study.
Model Specification
For the purpose of this study, a multiple regression
model was designed which has the ability to estimate
Share price as a function of certain accounting
numbers (earnings per share, book value per share
and returns on equity). The model for the study was
expressed as
LDSPit   0 EPSit  1 BVPSit   3 ROE  U it
where, LDSP represents Last Day Share Price; EPS
represents Earnings per Share; BVPS represents Book
Value per Share, ROE represents Return on Equity; t
represents Time dimension and i represents
Individual firm. In this study, LDSP is the
dependent/response variable; and EPS, BVPS, ROE
are the independent/explanatory variables. LDSPit
was measured at the end of December at year t+1.
BVPSit is the book value per share at fiscal year end
and EPSit is the earnings per share for year t and ROEit
is the return on equity for year t. The error term (eit) is
used as surrogate for other variables not included in
the model. EPS is the amount earned on behalf of
each outstanding common stock not the distributed
amount earned on behalf of each outstanding
common stock not the distributed to shareholders.
This is perhaps the most important factor for deciding
the health of any firm and they influence the buying
tendency in the market. Practically, EPS is the profit
after tax-preference dividends divided by the number
of ordinary shares ranking for dividend and derived
by the number of ordinary shares. Investors resort to
using book value per share in the event when
earnings and dividend fail to address their needs.
ROE is the ratio of return on equity underscores
which implies that investors would be interested in
investing in such corporation and indicate that such a
corporation will survive.
DATA ANALYSIS
Descriptive Statistics Analysis
The relevance of the variables (earnings per share,
book value per share and return on equity) on share
prices for all the sampled firms by conducting a
sensitivity test was recognized in this section.
Blessing, I.N.
Insert Tables-1,2,3,4,5&6 here
DISCUSSION
Result obtained in Table 1 showed the estimates
earnings per share sensitivity to share prices on the
Nigerian Stock Exchange. It was observed that
earnings per share coefficient for the sample firms
range between 0.356 and 0.876 minimum and
maximum values respectively with mean value of
0.444. Also, 99(82.5%) of the firms were positively
sensitive while 21(17.5%) were adversely (negatively)
sensitive to share price. Thus, the result indicated that
majority of the firms earnings per share are sensitive
to share price with the large proportion being
positively sensitive to share prices. This implies that
accounting information is value relevant.
The result displayed in Table 2, showed that the book
value per share coefficient for the sampled firm range
between 0.446 and 0.944 minimum and maximum
values respectively with mean value of 0.446. Also,
111(92.5%) of the firms were positively sensitive while
9(7.5%) were adversely (negatively) sensitive to share
price. Thus, the result indicated that majority of the
firms' book value per share are sensitive to share price
with the large proportion being positively sensitive to
share prices. This implies that accounting information
is value relevant.
Also, result obtained in Table 3, showed that the
return on equity coefficient for the sampled firm range
between 0.213 and 0.567 minimum and maximum
values respectively with mean value of 0.312. Also,
78(65%) of the firms were positively sensitive while
42(35%) were adversely (negatively) sensitive to share
price. Thus, the result indicated that majority of the
firms return on equity are sensitive to share price with
the large proportion being positively sensitive to share
prices. This implies that accounting information is
value relevant.
The result of the goodness of fit showed the
independent variables were able to explain about
92.1% of the variation in the dependent variable since
the R-Square value was obtained as 0.921 (see Table
4). This implies that the obtained model provided a
good fit to the behaviour of share price.
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Value Relevance of Accounting Information
The result obtained in the ANOVA table (Table 5)
showed that the independent variables contributed
significantly to the model with an F-value of 140.154
and a P-value of 0.00 which falls on the rejection
region of the hypothesis assuming a 95% confidence
level (P-value=0.00 < α=0.05). This result implies that
the model is adequate in determining the behaviour of
share price.
The result of the partial regression analysis displayed
in Table 6 revealed that all the independent variables
contributed significantly to the model with t-test
values of 9.358, 2.726, 2.642, and 2.138 respectively
and corresponding P-values of 0.008, 0.010 and 0.008
which falls on the rejection region of the hypothesis
assuming a 95% confidence level (P-value=0.00 <
α=0.05). This result validates the value relevance of
accounting information. Also, the designed model
can be expressed as:
Share Price= 45214 + 0.098 X EPS + 0.522 X BVPS +
0.648 X ROE
CONCLUSION AND RECOMMENDATION
Conclusion
This study empirically examined the value relevance
of accounting information in Nigeria in order to
ascertain whether certain accounting variables have
the ability to affect share price on the Nigerian Stock
Exchange. The scope of the study is limited to the data
of 2001 to 2013. Rapidly changing business
environment in contemporary times and reports from
some researchers have shown that in the capital
market, the use of accounting information to forecast
share price have lost their relevance while others
studies assert that accounting information has not lost
its value. The result of the analysis revealed that
majority of the firms' earnings per share is sensitive to
share price with large proportion being positively
sensitive to share price. Also, it was found that there
exists significant relationship between earnings per
share and share prices of firms listed on the Nigerian
Stock Exchange. Findings also showed that majority
of the firms’ book value are sensitive to share price
with large proportion being positively sensitive to
share price. Also, it was found that there exists
significant relationship between book value and share
prices of firms listed on the Nigerian Stock Exchange.
Also, it was found that majority of the firms' return on
Blessing, I.N.
equity is sensitive to share price with large proportion
being positively sensitive to share price. Also, it was
found that there exists significant relationship
between return on equity and share prices of firms
listed on the Nigerian Stock Exchange. In addition, it
was found that earnings per share is the most widely
used accounting variable for investment decision in
Nigeria, followed by book value per share and return
on equity. The findings are consistent with findings
from studies such as Pankoff and Virgil (1970); Chen
and Su, (1999); Bao and bao (2004); Al-Shubiri, (2010);
Ramasawmy and Ramen (2010) and Abiodun (2012).
The conclusion reached was that in Nigeria,
accounting information has not lost its value (i.e
accounting information is value relevant).
Recommendations
Based on the findings of the study, the following
recommendations are proffered:
1. Due to the importance of earnings, book value
and return on equity in investment decisions,
the study recommends that all firms listed on
the Nigerian Stock Exchange should prepare
Simplified Investor’s Summary of Annual
Reports and Accounts(SISARA)with emphasis
on the most widely used accounting
information along with the mandatory
detailed financial statements to suit Nigerian
peculiarities. This is expected to remove
information over-load especially for non-
accountants and financial analysts.
2. National accounting standard setters and
prepares of accounting information should
gear effort toward improving the quality of
earnings information which is the most widely
used accounting numbers in Nigeria for
investment decisions. This is because earnings
management can be defined in different ways
thereby making room for creative accounting.
Managers who engage in the practice of
manipulative earning management should be
identified and brought to book.
3. Investors should critically and objectively
analyze the company’s overall characteristics
when making investment decisions. This is
because accounting information are not the
same across the industries. Whether book
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Value Relevance of Accounting Information
value or earnings or return on equity is value
relevant depends on both the firms (and
industry’s) overall characteristics and its
performance in the particular period.
4. Investors should consider using book value for
investment decisions when earnings are
negative since book value compensates for
negative earnings. Investors should use book
values of equity to evaluate firms with small
sizes and high intangible assets.
The findings of this study have important policy
implication for Nigerian accounting standard setters,
prepares of accounting information and government
policy makers-particularly the Securities and
Exchange Commission (SEC) which serves as the apex
regulatory body in capital market operations in
Nigeria. Positive results of the test serve as proof of
the quality of accounting standards, accounting
practice and the local stock market in Nigeria in view
of the fact that, quality of accounting standards
influences the users' perception of quality of financial
information. High quality accounting standards and
their proper enforcement are perceived as providing
relevant and reliable financial information. The
evidence indicates that accounting information
particularly earnings-plays a significant role in
investment decision making and by implication, stock
market development.
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Value Relevance of Accounting Information Blessing, I.N.

APPENDIX

Table 1: Sensitivity of Earnings per Share to Share Price

Sample =120 Mean Minimum Maximum

Sensitivity Coefficient (  i ): .444 .356 .876

Sign of Sensitivity Coefficient (  i ): Positive: 99(82.5%)

Negative: 21(17.5%)

Source: SPSS Output

Table 2: Sensitivity of Book Value per Share to Share Price

Sample =120 Mean Minimum Maximum
Sensitivity Coefficient (  i ): .456 .446 .944
Sign of Sensitivity Coefficient (  i ): Positive: 111(92.5%)
Negative: 9(7.5%)
Source: SPSS Output

Table 3: Sensitivity of Return on Equity per Share to Share Price

Sample =120 Mean Minimum Maximum
Sensitivity Coefficient (  i ): .312 .213 .567
Sign of Sensitivity Coefficient (  i ): Positive: 78(65%)
Negative: 42(35%)

Source: SPSS Output

Table 4: Test of Goodness of fit

Model R R Square Adjusted R Square Std. Error of the Estimate
1 .951 .921 .831 .63146

Source: SPSS Output

Table 5: ANOVA
Model Sum of df Mean Square F Sig
Squares
1 Regression 9.124 1 2.419 140.154 .000a
Residual 13.212 119 .227
Total 22.336 120

Source: SPSS Output

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Table 6: Regression Coefficients

Variables Coefficients t-statistics Sig
Constant 45214 9.358 .000
EPS .098 2.726 .008
BVPS .522 2.642 .010
ROE .648 2.138 0.008
Source: SPSS Output

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