For correspondence:-
Published: 26 September 2018
Citation: The Inter-Play between Financial Ratios and Stock Market Prices of Deposit Money Banks in Nigeria. Account Tax Rev 2003; 2(2):117-130 doi:
© 2003 The authors.
This is an Open Access article that uses a funding model which does not charge readers or their institutions for access and distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0) and the Budapest Open Access Initiative (http://www.budapestopenaccessinitiative.org/read), which permit unrestricted use, distribution, and reproduction in any medium, provided the original work is properly credited..
Abstract
This study examines the influence of financial ratios on stock market prices of banks in Nigeria. The study adopted the ex-post-facto research design and data covering 7-year period 2009-2015 were collated from annual reports of banks and the Nigeria Stock Exchange daily official list. Panel multiple regression was used to estimate the relationship between these financial ratios and stock prices. Stock prices were adopted as the dependent variable, while the independent variables included Return on Asset (ROA), Cash Deposit Ratio (CDR), Debts to Total Asset Ratio (DTAR), Net Assets Per Share (NAPS) and Earnings Per Share (EPS). The result emanating from this study revealed the following: (i) returns on assets had about 47% correlation with stock price, suggesting a positive but statistically insignificant association with stock prices of selected banks in Nigeria (ii) cash deposit ratio showed a negative and significant association with stock price with a beta coefficient of -0.8531 (iii) debt to assets ratio showed a negative effect on stock prices and this association fails to be statistically significant at 5%. The beta coefficient was -0.7294 (iv) The relationship between net asset per share with stock prices negative coefficient of -0.0137. The result was not statistically significant at 5% (v) Earnings per share (EPS) was found to have a significant and positive association with stock prices of money deposit banks and the statistical significance is within the acceptable bound of 5%. The beta coefficient of EPS was 0.1170. The study therefore recommends among others that financial analysts and prospective investors should rely more on earnings per share and cash deposit ratios in predicting the behaviour of stock prices banks in Nigerian. It is therefore concluded that greater reliance on earnings per share of banks in predicting share price movements will assist investors and financial analysts in determining when to invest and when not to invest and thereby avoid loss of funds occasioned by share price declines.
Fulltext in PDF