Activities in the Nigerian Stock Exchange  (NSE) in the past years show that the Nigerian Industrial Goods firms is one of the sectors that contributed to the drop in the Nigerian Stock Exchange Turnover Ratio from 21.86% in 2008 to 13.26% in 2009, attributing to the decline in stock prices.. Therefore, this study examined the extent to which share price of the Listed Industrial Goods firms in Nigeria are associated with fundamental accounting variables (that is, earnings per share, Book value per share and dividends per share). The thesis investigates the value relevance of accounting information in Listed Industrial Goods firms in Nigeria using data obtained from the Nigerian Stock Exchange (N S E) fact book 2011, annual report of the firms for the period 2007-2013, and daily price list on the Cash Craft website. The study is based on the semi-strong form of Efficient Market Hypothesis applying the Ohlson (1995) valuation model. Initially, Ordinary Least Square (OLS), Fixed Effects (FE) and Random Effects (RE) models were employed as tools of analysis but after conducting relevant tests, REM is used in testing the hypotheses of the study The population of the study consisted of all the twenty-five

(25) firms that are listed on the Nigerian stock exchange under industrial goods sector of the economy. After applying filtering method, 16 firms were selected as sample of the study. The result revealed that all the explanatory variables statistically and significantly influence the explained variable. This implies that accounting information published by listed industrial goods firms in Nigeria have high value relevance to the investors in making their investment decision on the firms. Specifically, earnings per share are the most value relevant accounting information followed by dividend per share, then book value per share. It is therefore recommended that the management of Nigerian industrial goods firms should maintain stability and consistency in their earnings by maintaining uniform accounting policy and diversification of operations, which will go a long way in increasing market value of the firms. The accounting standards setters should also enhance the quality of the financial reporting in order to increase the value relevance of financial statements.


Table 3.2: Variable Measurement 73

Table 4.1: Summary of Descriptive Statistics 76

Table 4.2: Correlation matrix of dependent and independent variables 79

Table 4.3: Regression Results… 81

Table 4.4: Variables coefficients 88

Table 4.5: Summary of Hypotheses Testing 94

List of Figure

Figure 2.1: Conceptual Framework of models of the study 15


Title page

Certification i

Declaration ii

Dedication iii

Acknowledgments iv

Abstract vi

List of Tables vii

List of Figures viii


Background to the study1

Statement of the Problem…4

Objectives of the Study6

Hypotheses of the Study7

Scope of the Study7

Significance of the Study9



Conceptualization of Value Relevance variables11

Value Relevance Research15

Review of Previous Studies on Value Relevance of Earnings, Book Value of Equity and Dividends18

Theoretical Framework60




Research Design66

Population and Sampling of the Study66

Sources and Methods of Data Collection67

Data Description68

Techniques of Data Analysis69

Model Specification70

Variable Measurement73




Descriptive Statistics75

Correlation Matrix78

Presentation and Analysis of Regression Results80

Robustness Test of Dependent and Independent Variables83

Hypothesis Testing88





Limitations of the Study100


Areas for future research…102

References 103

Appendices 112


Background to the Study

Accounting is regarded as the language of business used by corporate firms in communicating their financial positions to their users through the publication of annual financial statements containing the required financial accounting information. Financial accounting information is the product of corporate accounting and external reporting systems that measures and publicly discloses audited, quantitative data concerning the financial position and performance of publicly held firms. These financial 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 disclose reliable, relevant, comparable, timely and understandable information (ICAN, 2014).

For any accounting information to meet up with the above qualitative characteristics, it must be prepared and made public for the consumption of its target users. These users need different information at different times and as such, it is mandatory for preparers of these financial statements to prepare and present reliable information to assist them in their decision making (ICAN, 2014). Reliability has to do with the quality of information which assures that information is reasonably free from error and bias and faithfully represents what it is intended to represent. The International Accounting Standard Board

(IASB) Framework (2011) shows that accounting information is only relevant when users

are able to evaluate past, present or future events in taking economic decisions. These users could be owners, managers, or employees.

Value relevance refers to the ability of accounting information to be reflected in stock values (Francis & Schipper, 1999). Value relevance has to do with the summarization of accounting 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 organization. Valuation study is mainly aimed at relating accounting numbers to a measure of firm value with a view to assessing the characteristics of accounting numbers and their relation to value of the firm (Barth, 2000). If accounting information is prepared in such a way that it plays the roles expected of it, it will lead the investors to come up with the right investment decision that at the end will give them higher returns on investment and minimize risks of the investment. Value relevance is seen as proof of the quality and usefulness of accounting numbers and as such, it can be interpreted as the usefulness of accounting data for decision-making process of investors and its existence is usually by a positive correlation between market values and book values (Takacs, 2012).

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 public at large (Vishnani & Shah, 2008). For instance, in Nigeria, Companies and Allied Matters Act (CAMA, 1990) and the subsequent amendments require the Directors of all companies listed on the Nigerian Stock Exchange (NSE or the Exchange) to prepare and publish annually the financial

statements. Beyond this, the Exchange mandates all companies listed on first tier market to submit quarterly, semi-annual and annual statements of their accounts to the Stock Exchange. Companies on second tier market are to submit their statements of accounts annually to the Stock Exchange.

Accounting information is any information obtained from the accounting system of a firm whether contained in a financial statement, a special report, or verbal statement (William, 1968). However, for the purpose of this research, accounting information refers to written information contained in a complete or partial financial report, which include balance sheet and profit and loss account or fund flow statement. This study investigated whether these various items of financial statements are value relevant to investors/shareholders or not.

Individuals or organizations embark on investment decisions for several reasons. Some investors are only interested in the return on investment, that is, how far is the firm able to pay dividends to its stockholders. To these set of investors, dividend payment is their target whenever they are faced with investment decision. And as such, dividend per share will be the most value relevant accounting information. This means that there will be a significant impact of dividends per share on share price of the industry under consideration. Investors will always be keen and alert as to dividends announcement of their investing firms. Their investment decisions are always geared towards which firm

pays higher dividends and how stable is the trend of dividends payment (Karki & Adhikari, 2014).

Other investors consider value of the firm and how the firms gains wide acceptability from within and outside the country regardless of whether or not the firm pay dividend constantly. Proponents of this school of thought prefer long run benefits that accrue to them and therefore look at the firm‟s book value in their investment decision.

This study is meant to test whether accounting information used – earnings per share, book value per share and dividend per share has significant impact in the decision making of prospective investors to invest in a firm and the existing investors to retain or increase their investment in their firms.

Statement of the Problem

Accounting information value depends on how well it meets the need of the users in taking relevant decisions. Therefore, the flow of reliable information is crucial to the growth of the Nigerian Stock Exchange without which investors may decide to keep liquid cash rather than investing them in viable stocks that yield high returns on investment. Really, the exchange will not function well in the absence of relevant and reliable accounting information as  required by Law of the Country (CAMA, 1990).

Activities in the exchange in the past years show that the Exchange has recorded a drop in its Turnover Ratio from 21.86% in 2008 to 13.26% 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 turnover from 2008 to 2011 (NSE Fact book, 2012).

As a result of the nature of businesses of the Industrial Goods firms, it is expectd that their financial statement shall contain accounting information that shows the true and fair value of the firms' assets base. This will give prospective investors the ability to assess these firms based on the reported financial information. Notwithstanding, researches in the Industrial Goods Sector are minimal and focus mainly on some of its sub sectors not the sector as a whole. Some researchers focused on building materials only (Maradun, 2009), others studied some sampled firms in the NSE (Oyerinde, 2010; Abiodun, 2012; Olugbenga & Atanda, 2014) Abubakar (2010) used New Economy firms as domain of his study. There is the need to know what is actually happening in the sector which resulted to this low turnover in order to help the firms improve their performances.

While studies on the value relevance of the accounting information has focused on the developed markets in North America and Europe, in developing markets like Nigeria only few researches were conducted. Some of the few published 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 is not 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 individually and collectively on the relationship between accounting information and share price of various firms. While Oyerinde (2009) and Abubakar (2011) found that accounting information of some sampled firms in the NSE, especially earnings has value relevance, Abubakar (2010) documented that accounting information of listed new economy firms in Nigeria have no value relevance. On the other hand, the study of Abiodun (2012) revealed that, earning is more value relevant than book value. These mixed results were obtained because of different firms used in the studies.

Because of this lack of consensus in the literature, it can be said that the accounting information of Industrial Goods firms contained relevant information for decision making purposes? To what extent does the accounting information of Industrial Goods firms in Nigeria dictate or influence the share price of the firms? Is the value relevance of all accounting information of Industrial Goods firms in Nigeria the same? That is why investigation of the value relevance on financial information with relevance to the stock prices is an important issue for a developing country like Nigeria.

Objectives of the Study

The main objective of the study is to assess the value relevance of accounting information disclosed in the financial statements of firms listed in the Nigerian Industrial Goods sector. The specific objectives based on the identified problem are to:

a. evaluate the effect of earnings per share on share prices of firms listed in the Nigerian Industrial Goods sector;

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

c. assess the effect of dividends per share on share prices of firms listed in the Nigerian Industrial Goods sector;

Hypotheses of the Study

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

H01: Share prices of firms listed in the Industrial Goods sector are not significantly affected by their earnings per share;

H02: Share prices of firms listed in the Industrial Goods sector are not significantly affected by their book value per share;

H03: Share prices of firms listed in the Industrial Goods sector are not significantly affected by their dividend per share;

Scope of the Study

The study examined value relevance of accounting information. It laid emphasis on firms listed in Nigeria under the Industrial Goods sector only and covered a period of seven years (2007-2013). This period was chosen because it is a period within which the Nigerian Industrial Goods sector recorded low turnover 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 from 1.34% to 4.16% 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 dividends per share are independent variables of the study. Earnings per share is the ratio of earnings after tax but before extra-ordinary items to the latest outstanding ordinary shares in issue. Book value per share is the ratio of the shareholders‟ fund of each firm to the latest outstanding ordinary shares in issue. Dividend per share is the ratio of dividends declared for the year to outstanding ordinary shares in issue.

It is important to note that earnings per share and dividend per share are income statement figures which reflect activities of the firms within one accounting year, while book value per share is a balance sheet item which reflects activities of the firm beyond one accounting period. Therefore, this study covered branch of financial accounting with special reference to firms‟ financial reporting as specified by the IAS I.

Earnings per share, book value per share and dividend per share are not the only accounting information variables. But the study is limited to these three independent variables because most of the literature reviewed focused on a combination of two or all of these variables depending on the model chosen by the researcher. And as such, the research decided to use the three so as to enable a comparison of the work with the literature reviewed and arrive at conclusions.

The industrial Goods sector listed on the NSE comprises of four different sub sectors namely: building materials, the electrical and electronics products, the packaging/container, and the tool and machinery (NSE Fact book, 2012). The sector is made up of a category of companies that are involved in the tools, materials, components, machinery, and other products used in construction, manufacturing and other industrial applications. 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 currently eyeing listing in the sector. According to the than NSE Director General, Oscar Onyema, as part of the efforts to make the sector more attractive for investors thereby encourage more listings, the NSE introduced the NSE Industrial index. This index comprises the most capitalized and liquid companies in the industrial goods sector. It is because of this raft attention given to the industrial 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 economic and technological advancement but yet, little is known about the ability of accounting information to explain changes to the security prices of firms listed in this sector. The little evidence obtained from value relevance researches in this area is obtained from the US or Western European countries whose markets are more sophisticated compared to most developing countries.

The significance of this study cannot be overemphasized. This study aimed at providing empirical evidence on the relationship between share price and accounting information under the Nigerian condition. This evidence will enlighten individual and corporate investors on their investment decision as well as aid planning of their investment. This research will help the preparers of accounting information and standards setters to further enhance value relevance of the most widely used accounting number by providing a guide as to which accounting data is or is not valued by investors.

Also, the study assisted in testing the application of existing valuation theories under intense conditions not present in developed economies where most of the prior studies were carried out. The research also assisted the national standards setters in setting uniform accounting standards based on the nature of demand placed on accounting information by their local investors, stakeholders and the general public. Specifically and more importantly, the Nigerian Accounting Standards Board will benefit from the study

as it will serve as a feedback channel to the board on which accounting number is most

widely used for equity valuation in Nigeria. Finally, the study will fill the gap in the existing literature by investigating the value relevance of accounting data in the Nigerian Industrial Goods Sector.



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