Company fundamentals and stock price movements: The role of crude oil prices – Evidence from Nigerian Stock Exchange (NSE)

Tijjani Bashir Musa

doi:10.30585/jrems.v3i1.532

Abstract

This study analyzed company fundamentals on how it relates and predict stock price movements and the extent of the role of oil prices in moderating the influence of these company fundamentals in stock price movements. The study covered the period of 2014 to 2018. The study is a panel study. A total of 132 companies were sampled from 196 companies listed on the Nigerian Stock Exchange (NSE) as of December 2018. Data were collected from a secondary source. Multiple linear regression models were used to analyze the data. The study found that a relationship exists between selected companies' fundamentals and stock prices, and oil prices moderate the relationship. But EPS and Working Capital have high predictive power on stock price movements but moderating with oil prices the influence reduces significantly. The study recommends among others that Managers of companies in Nigeria should formulate policies and exert effort geared towards improving company fundamentals in the event of oil prices increases.

Highlights

The primary goal or objective of a company should be to maximize the value or prices of the company’s stock
The influence of each selected company fundamentals varies. This finding is in line with the finding of Puspitaningtya (2017), From the random effect model, this study revealed that there exists a significant relationship between company fundamentals and stock price movements on Nigerian Stock Exchange (NSE)
The significant relationship of earnings per share resulted in the high predictive power of company fundamentals to stock price movements in Nigeria

Summary

Introduction

The primary goal or objective of a company should be to maximize the value or prices of the company’s stock. While the internal factors are under the control of the company This internal factor is the approach of Fundamentalist as relating to Stock Price movements. Both the internal and external factors directly or impliedly affect stock prices as they affect company fundamentals. Jones & Kaul (1996) indicated that the oil price movement had a negative relationship with stock prices. This conclusion is rooted in the fact that rising in crude oil prices is associated with a rise in energy costs which is the center of the cost of production.

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