Accounting Numbers and Stock Prices in the Nigerian Stock Market

Abstract

This work investigates the value relevance of accounting data in theNigerian stock market, with a view to determining whether accountinginformation has the ability to capture data that affect share prices offirms listed on the Nigerian Stock Exchange (NSE). Piece of accountingdata is termed value relevant if it is significantly related to thedependent variable, which may be expressed by the stock price. Themethods used for gauging information contents of various accountingnumbers were Ordinary Least Squared (OLS), Random Effects Model (REM),and Fixed Effects Model (FEM). The findings show that there is asignificant relationship between accounting information and share pricesof companies listed on the NSE. Dividends are the most widely usedaccounting information for investment decisions in Nigeria, followed byearnings and net book value. The study therefore recommends that thefirms should improve the quality of earnings as manipulated earnings (ofwhich dividends are sub-sets) have large effects on share prices. Thepaper also recommends that all companies listed on Nigerian StockExchange should prepare Simplified Investor's Summary Accounts (SISA)with emphases on the most widely used accounting information along therequired mandatory detailed financial statements to suit Nigerianpeculiarities.