Abstract
Purpose of the article: Management has traditionally used financial information for strategic decision-making. This study investigates the value relevance of financial information contained in earnings per share and operating cash flow per share for strategic decision-making and hence performance. It utilized secondary data extracted from annual reports and accounts of fortythree (43) listed firms on the Nigerian Stock Exchange over the period of 2006–2017. Methodology/methods: The collected data were subjected to analysis using the non-linear symmetric Generalized Autoregressive Conditional Heteroscedasticity (GARCH (1 1)) model, which is capable of handling time varying properties of financial time series to measure the statistical significance of the association between the variables of interest. Scientific aim: The paper is aimed at empirically investigating the value relevance of financial information to ascertain its potency for handling strategic decisions of listed firms in Nigeria. This is to digress from the contextual factors in the decision-making process and construct an integrated link between value relevance research and strategic management. Findings: The study found that earnings per share and operating cash flow per share are individually and jointly value relevant in strategic decisions and performance. Conclusion: It is necessary to pay attention to the financial information system of an organization to enhance the quality of services it can provide to strategic management. It is necessary to pursue the fundamental quality of relevance that guarantees predictive, materiality and confirmatory values and enhancing quality that measures usefulness by both management and regulators.
Highlights
Strategic decision-making is largely the responsibility of senior management of firms and it is concerned with choosing from among alternative corporate level strategies, i.e. among expansion, stability, retrenchment and combination strategies
With respect to financial information, the basic question can be posed as: Is the information contained in earnings per share (EPS) and operating cash flow per share (OCFPS) value relevant in the firm’s strategic decision-making and performance measured by the share price volatility? Resolving this issue is the fulcrum of this study
Secondary data on earnings per share, operating cash flow per share, and share price of listed equities are analysed to address the following specific objectives: (i) To examine the value relevance of information contained in EPS on strategic decision-making and performance; (ii) To determine the value relevance of information contained in OCFPS on strategic decision-making and performance; and (iii) To investigate the value relevance of information contained in both EPS and OCFPS on strategic decision-making and performance
Summary
Strategic decision-making is largely the responsibility of senior management of firms and it is concerned with choosing from among alternative corporate level strategies, i.e. among expansion, stability, retrenchment and combination strategies. The understanding that the strategic decisions of a firm must result to an increase in the firm’s market value seems to have been ignored Both financial and non-financial information is considered in decision-making. With respect to financial information, the basic question can be posed as: Is the information contained in earnings per share (EPS) and operating cash flow per share (OCFPS) value relevant in the firm’s strategic decision-making and performance measured by the share price volatility? Resolving this issue is the fulcrum of this study To this end, secondary data on earnings per share, operating cash flow per share, and share price of listed equities are analysed to address the following specific objectives: (i) To examine the value relevance of information contained in EPS on strategic decision-making and performance;. (ii) To determine the value relevance of information contained in OCFPS on strategic decision-making and performance; and (iii) To investigate the value relevance of information contained in both EPS and OCFPS on strategic decision-making and performance
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