Abstract
This ex-post facto design study examined the link between asset composition and accounting and market performance of insurance, banking and manufacturing firms quoted on Nigeria Stock Exchange using cross sectional secondary data from 2013 to 2017. The asset structure decomposed into plant property and equipment, long term investment, intangible asset and current assets were regressed against accounting measures of return on asset and return on equity on the one hand and market measures of price earnings ratio, earnings yield, Tobin’s Q and market valuation on the other hand. Property plant and equipment, long term investments, intangible asset and current assets all returned a positive and statistically significant relationship with return on assets. Similar result were equally returned by the assets components in relation to return on equity except property, plant and equipment and long-term investment that posted negative and statistically significant result. The result further indicate a positive but not statistically significant relationship of current assets with price earnings ratio contrary to the negative but statistically significant relationship of property, plant and equipment with the same performance measure. Also, long term investment and intangible assets both have a positive and statistically significant relationship with price earnings ratio. The result also indicate that long term investment and current assets have a positive and statistically significant relationship with earnings yield. Conversely, property plant and equipment and intangible asset posted a negative and statistically significant relationship with earnings yield. Intangibles and current asset have a positive and statistically significant relationship with market valuation while on the other hand increases in property, plant and equipment and long term investment reduces market valuation and Tobin’s Q in view of their negative but statistically significant relationship. The macroeconomic control variables of inflation and GDP and the microeconomic control variables of leverage and liquidity effectively performed their moderating roles between the dependent and the independent variables by differentially returning both positive and negative relationships. We recommend that IPO firms should invest less in PPE and Long-Term Assets to avoid negative investors pricing while at the same time increasing investment in current assets and developing intangibles. Also, firms with high asset base should increase leverage to enjoy tax advantage. We also recommend that firms with low asset base should avoid increased borrowing to mitigate risk of bankruptcy Keywords: Earnings Yield, Price Earnings Ratio, Tobin’s Q, Return on Assets, Return on Equity, Gross Domestic Product, Inflation, Leverage DOI : 10.7176/JESD/10-22-01 Publication date: November 30 th 2019
Highlights
The contribution of firms to the economic growth of Nigeria is tremendous
The raw secondary data used in this study are essentially financial accounting data obtained from annual reports and financial statements published by firms in insurance, banking and manufacturing sectors in their website and the other information were sourced from the Nigerian Stock exchange (NSE) Fact Book over the period of covered by the study (2013 to 2017)
From Model I and table 4.3 we examine the relation between the components of assets; current asset to total asset (CA/TA), PPE/TA, LTI/TA and INT/TA and Price earnings ratio
Summary
The contribution of firms to the economic growth of Nigeria is tremendous. The recession that ensued recently and the consequential slowdown in economic growth adversely affected myriads of firms leading to declining performance. This result in retrenchment worsening unemployment, decline in demand for goods and services and low capacity utilization by firms. Many firms have been delisted from the stock exchange because of low trading activity and low performance. This is contrary to the expectations of various stakeholders who span across shareholders, employees, consumers, and government among others
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