Value Relevance of Accounting Information and Share Price in Financial Service Industry

Kayode O Bankole ,Israel O Ukolobi

doi:10.7176/rjfa/11-8-14

Abstract

This paper examined the value reliance of accounting information in financial service companies in Nigeria. Three research questions were raised which are: what is the relationship between return on net worth and share price? to what extent does dividend per share influence share price? to what extent does cash flow from operations affect share price? To address these questions, we used data from 2012-2018 of 20 financial service companies listed in the Nigerian Stock exchange. Eviews 10 was used to analyse the data collected for this study. Least square regression method was adopted to make our statistical decisions. After conducting Hausman Test, the result indicated that random effect is more appropriate than the fixed effect model. There is positive and significant relationship between share price and firm size. We also found that there is negative and insignificant relationship between DPS, EPS, CFO, BVS and SP. The study concluded that there is relationship between share price and firm size. Also we conclude that there is no value relevance between information in financial statements and share price. The details of cash flow, dividend per share, earnings per share, book value of share and dividend per share disclosed in financial statements will not necessarily influence share price. We therefore recommend to companies to always fully disclose all the information related to their operations especially information relating to their sales revenue and assets. Also we recommend that companies should diligently follow the International Financial Reporting Standards in preparation and presentation of their financial statements. Keywords: share price, dividend per share, earnings per share, book value of share, firm size DOI: 10.7176/RJFA/11-8-14 Publication date: April 30 th 2020

Highlights

Financial Statements consist of different types of information such as financial information, non-financial or accounting information and non-accounting information (Balasundaram, 2014)
In order to fill the gap in knowledge, this study investigates the relationship between value relevance of accounting information and share price in Nigeria from 2012-2018
The following models were formulated in line with the research hypotheses in order to empirically determine the relationship between accounting information and share price: Hypothesis 1: There is no significant relationship between return on net worth and share price

Summary

Introduction

Financial Statements consist of different types of information such as financial information, non-financial or accounting information and non-accounting information (Balasundaram, 2014). Financial accounting information is the product of corporate accounting and external reporting systems that measure and publicly disclose audited, quantitative data concerning the financial position and performance of publicly held firms These financial statements, according to international financial reporting standards (IFRS) have four main qualitative characteristics that should be met in order for it to succeed in its purpose: relevance, reliability, understandability, and comparability. The International Accounting Standard Board (IASB) Framework (2011) shows that accounting information is only relevant when users are able to evaluate past, present or future events in taking economic decisions. These users could be owners, managers, or employees. In the wake of the recent accounting scandals and economic meltdown where billions of naira of investment and retirement wealth have disappeared, the very integrity and survivability of the value relevance of financial accounting information has been called to question

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