Comparative Study of Value Relevance of Financial Information in the Oil and Gas and Manufacturing Sectors in Nigeria

Wa Adesola ,Uket E Ewa ,Nya Edem

doi:10.7176/rjfa/11-12-03

Abstract

This paper conducted a comparative study on the value relevance of accounting information in the Oil and Gas and manufacturing sector using five quoted companies which were randomly selected from each of these sectors. Data were collected on the Market Price per Share, Earning per Share and Book Value of Equity for the period 2014 to 2018 from the annual financial reports of the selected companies. We hypothesized that Value relevance in the oil sector do not have more significant effect on the earnings per share in the manufacturing sector and, also that Value relevance in the oil sector do not have more significant effect on the market price per share in the industrial sector. We regress book value of equity on both market price per share and earnings per share on the two sectors under consideration using simple linear regression techniques. The regression results revealed that accounting information of the companies in the industrial sector is more relevant compared to the financial information disclosed by companies in the Oil and Gas sector. The study recommends that the regulators of the market should carry out yearly Cross-sectional studies to ascertain the trend and include this comparison requirement as one of the yardsticks of measuring performance. Keywords: value relevance, earnings per share, book value of equity DOI: 10.7176/RJFA/11-12-03 Publication date: June 30th 2020

Highlights

Financial statements provide accounting information for its users to take decisions
The parameter in the model has a negative sign implying that an increase in book value of equity led to a decrease in the market price per share of the oil and gas sector
The parameter entered the model with a positive sign implying that an increase in book value of equity led to an increase in the market price per share of the industrial sector

Summary

Introduction

Financial statements provide accounting information for its users to take decisions. Qualitative features of accounting information are relevance and faithful representation while other enhancing characteristics are comparability, verifiability, timeliness and understandability.Accounting information is considered value relevant if it is correlated with market value of a company. In 2002, Enron, a major energy company, collapsed as a result of manipulation of accounting figures in relation to share price manipulation. In 2009, several CEOs of banks in Nigeria were sacked as a result of manipulation of financial figures, share price manipulation, non-adherence to corporate governance codes and distortion of the financial statements. If the performances of each sector in terms of value relevance are known, it will enable the regulators and users of accounting information to narrow down to the sector facing the above challenges. It is important for existing and potential investors to know the performances of each sector based on the financial information provided to guide in decision making

Methods

Results

Discussion

Conclusion