ABSTRACT
The study examined the relationship between selected key performance indicators on share price of Nigerian banks. To achieve the objective of this study, four banks operating in the Nigerian banking industry were selected and analyzed for the study using judgmental sampling technique. In addition, the corporate annual reports for the period 2007-2011 were used for the study. The study modeled the effect of EPS, ROA, and NAVPS on the share price of listed operating firm in the Nigeria banking industry using linear regression model applying ordinary least square techniques. The study as part of its findings, observed that there is positive relationship between financial performance indicators and the market value of share price in the Nigerian banking industry. The study concluded that EPS and NAVPS have positive relationship with the market value of share price of the Nigeria banks. Hence, investors should focus and study the varying significance of these indicators to have a better evaluation at predicting the values and prices of shares.
TABLE OF CONTENTS
Title Page ii
Approval Page iii
Dedication iii
Acknowledgement iv
Abstract ix
Table of Contents x
CHAPTER ONE: INTRODUCTION
- Background of the study 1
- Statement of the Problem 5
- Objective of the study 6
- Research Questions 7
- Formulation of Hypotheses 7
- Significance of the Study 9
- Scope/ Delimitation of the Study 10
- Definition of Terms 11
References
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 Impact of Earnings per share on Shares 14
2.2 The Impact of Return Asset on Shares 18
2.3 Net Asset and its Influences on Stock 20
2.4 Shares 22
2.5 Classes of Shares 24
2.6 Shares Prices 28
2.7 Behavior of Share Price 29
2.8 Share Price Determination 32
2.9 The Capital Markets 35
2.10 The Securities and Exchange Commission 39
2.11 Variables Studies on Share Price 41
2.12 The Efficient Market Hypothesis 45
References
CHAPTER THREE: METHODOLOGY-
3.1 Research Design 56
- Area of the Study 56
- Sources of Data 57
- Population of Study 57
- Analytical Method/ Technique 58
CHAPTER FOUR: DATA PRESENTATION AND RESULT
4.1 Analysis of Data 62
4.2 Graphical Representation of Banks 63
4.3 Descriptive Analysis 71
CHAPTER FIVE: CONCLUSIONS AND RECOMMENDATIONS
- Summary of Findings 74
- Conclusion 75
- Recommendation 77
Bibliography
Appendix
CHAPTER ONE
INTRODUCTION
- Background of the Study
In the business community, the use of tools is essential for the achievement of result. Companies over the time have employed different tools depending on their priorities or performance criteria. However, several attempts have been made to identify or study those factors that are most relevant to performance evaluation.
Some researchers have also tried to determine the correlation between selected factors (internal and external, market and non-market factors economic and non-economic factors) on stock prices. The outcomes of the studies vary depending on the scope of the studies, the assets price and factors examined.
Al-Tamini,(2007), identified a number of company internal factors and external factors as influencers of stock prices. He developed a simple regression model to measure the co-efficient of correlation between dependent and independent variables as follows, SP= (EPS, DPS, OL, GDP, CPI, INT, MS) where SP: stock prices EPS: Earnings per share; DPS: Dividend per share; OL: oil prices; GDP: Gross Domestic Product; CPI: Consumer price index; interest rate and MS: money supply. He discovered that the firms’ internal factors exercise the most significant impact on stock prices.
This study extends the knowledge of stock price relationship with the company’s key performance indicators by investigating the firm’s internal characteristics, which influences it. The key performance indicators are essential metrics that defines company’s performance from a stock investing perspective. It can be asserted that these metrics more often than not lead to great investment outcome.
Although there are other variables which are classified as external but for the purpose of these research work, we are more concerned with internal variables, which include earnings per share, net assets value per share and return on asset. The use of these indicators is much richer and rewarding in an achievement based on organic performance principles.
Earnings per share reflect the good or bad position of the company not only in the market price but also in P/E ratio, dividend cover, dividend yield and earning yield.
In addition, Graves et al (2010), provided evidence on a potential source of an analyst, superiority that humans could use post earning data to predict future earnings more accurately than mechanical time series model.
It is interesting to note that the Nigerian market responds, to its past prices and variables change over time.
Hribar et al(2006), stated that stock repurchases were widely supported by improved earnings per share. The repurchase of stocks boosted the earning per share due to reduction the number of shares.
Economic growth on any country depends on growth and development of capital. Investors persuading to gain further profits try to get the most return on assets.
According to Ala(2005), the main resource which can convey a rich and resourceful insight about information relevant to a given company and investor is principle financial statement of that company like balance sheet and retained earnings statement.
The objectives of this research are primarily having an idea about the factors affecting the equity return of studied banks. Secondarily to identify whether there is a significant relationship between market return of the listed commercial banks operating in Nigeria with some micro indicators.
To give an analytical study background, the researcher took the liberty of screening out the share prices, earning per share, return on assets and net asset value per share over the years between 2007 and 2011 of the following banks, First Bank plc, First city monument bank, Diamond Bank, Plc, and Fidelity Bank plc.
- Statement of the Problem
It is therefore at this point that this project work becomes necessary. It is the researcher’s aspiration to find out ways of breaking through the constraints facing investors at stock evaluation.
The investors as well as the shareholders would question and consider the key indicators that are most relevant and how they can be applied to stock investment.
Using the key indicators EPS, ROA, NAVPS, the researcher wants to see how these indicators can affect movement in share prices so as to provide better guide for stock investors.
- Objectives of the Study
General objective of this study is to evaluate the relationship between selected performance indicators on share prices movement.
However, the specific objectives are:
- To evaluate the relationship between earning per share and share price of Nigerian banks.
- To evaluate the relationship between return on asset and share price of Nigerian banks.
- To evaluate the relationship between net asset value per share and share price of Nigerian banks.
- Research Questions
- To what extent does earning per share determine movement in share price in Nigerian banks?
- To what extent does return on asset determines movement in share price in Nigerian banks?
- To what extent does net assets value per share determine movement in share prices in Nigerian banks?
- Research Hypothesis
In order to put forward practical demonstration and find true answers to the question raised in the statement of problem, the following hypotheses are necessary.
- H0: Earnings per share do not have a significant
Influence on share prices in Nigerian banks.
H1: Earnings per share have a significant influence on share price in Nigerian banks.
- H0: Return on asset does not have any effect on the
Share price in Nigeria banks.
H1 Return on assets affects share prices in
Nigerian banks.
- H0: Net asset value per share does not affect share
Price in Nigeria banks.
H1: Net asset value per share affects the movement in share prices in Nigeria banks.
1.6 Significance of Study
Many a time investors face various challenges when making investment decisions. However, it is impossible to eliminate all risks when undertaking an investment. Since the higher the risk involved, the higher the return. Therefore, managing and understanding the risks surrounding investments becomes necessary.
It is undeniable that indicators are the ultimate measure of performance. They are tools shareholders, potential investors and customer will use when evaluating company’s profitability before investment can take place.
The research study is therefore necessitated by the need for investors and firms to be aware of the affects of performance indicators on share prices.
1.7 Scope and Limitation of the Study
The researcher recognized that there is need to do an in-depth study of the entire business sphere but taking into consideration the space and the time available; however, the researcher intends to limit this study to the selected key performance among four listed banks.
The limitations experienced in conducting this study were numerous. They ranged from the fact the project topic is entirely new in the society, which led to internet browsing for competent materials.
Other factors like, finance, power fluctuation, environmental constraints and the limited time of the researcher amounted to much more a greater limitation.
1.8 Definition of Terms
In a highly technical topic such as the one under discussion, it is necessary to define the major operational terms to put the researcher and the reader in the same perspective.
- Key Performance Indicator: (KPI)- A selected indicator considered for monitoring the performance of a strategic objective outcome or key result area important to the success of an entity and growth of the organization
- Indictor: It refers to specific information. A qualitative or quantitative factor or variable that provides a simple and reliable means to measure achievement.
- Investment Decision: this has to do with decision to allocate and or reallocate capital an asset no longer justifies the capital committed to it or for the purpose of expansion.
- Measure: A number or a quality that records directly observable value or performance.
- Evaluation: A systematic determination of a subject; merit, worth and significance using criteria governed by a set of standard.
- Performance: The accomplishment of a given task measured against preset known standards of accuracy, completeness cost and speed.
REFERENCES
Ala, E. (2005), Investment Management Principle in Stock
Exchange: Tahuru Pub first Print Tehran, Iran. Agah publication.
Al-Tamini (2007), Determinant of Equity prices in the stock
market: “Bangladesh, Sharma publication.
Graves J, A, (2010), Forecast of Earnings Per share: Possible
`Sources of Analyst Superiority and Bias Contemporary Account: India, marshuk publishers.
Hribar (2006), Stock Repurchase as an earning Management
Device: Malaysia, W.B Johnson publication.
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