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ISSN: 2313-6758

Volume 3, Issue 10 October, 2015 Pages: 328-344

1. PhD Holder, Department of Accountancy, Nnamdi Azikiwe University, Awka-Nigeria

Email for correspondence: [email protected]

*Ijeoma Ngozi Blessing (PhD)

Value Relevance of Accounting Information on Share Prices of Listed Firms

This study empirically examined the value relevance of accounting information in Nigeria in order to ascertain whether certain accounting variables affect share prices on the Nigerian capital market. The population of the study comprises of 200 firms but due to non-availability of data of all listed firms, a sample of 120 listed firms was used during the period 2001-2013. Data of share, book value per share, earnings per share and return on equity were sourced from the Nigerian Stock Exchange fact book and the Ordinary Least Square estimation technique was used in analyzing the data obtained from the Nigerian Stock Exchange fact book with the aid of Statistical Package for Social Sciences. The study indicated a significant relationship between earnings, book value, returns on equity and share prices of listed firms on the Nigerian Stock Exchange. The implication of the findings is that certain variables of accounting play a significant role in share price in the capital market, thus accounting information is value-relevant in Nigeria. Based on the findings, it was recommended amongst others that listed firms on the Nigerian Stock Exchange should prepare Simplified Investors' Summary Accounts (SISA) with emphasis on the most widely used accounting information along with the mandatory detailed financial statements to suit Nigerian peculiarities. In addition, the National accounting standard setters and preparers of accounting information should gear effort towards improving the quality of "earnings information" in financial statements. This could be done by properly defining and reducing earnings management so as to avert room for creative accounting where managers engage in the practice of manipulative earnings.

Keywords: Value Relevance, Accounting Information, Share Prices, Nigerian Stock Exchange

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Value Relevance of Accounting Information

Blessing, I.N.

INTRODUCTION Value relevance of accounting information has been a primary paradigm in financial accounting research. A growing body of literature has suggested that accounting information have lost their value relevance because of a shift from a traditional capital-intensive economy to a high-technology, service oriented economy (Dontoh et al., 2012). In particular, It is claimed that financial statements are less relevant in assessing the fundamental value of listed firms on the capital market. These conclusions are based on studies that find a temporal decline in the association between stock prices and accounting information (earnings, book value, retained earnings, dividends, price earnings yield and so on). For instance, Francis and Schipper (1999), Lev and Zarowin (1999) found a decline in the value relevance of accounting information over time. These studies examined the association between a combinations of earnings, change in earnings and book value and contemporaneous stock prices or returns. Value relevance is defined as the ability of accounting numbers contained in the financial statements to explain the stock market measures (Beisland, 2009). Accounting numbers, such as earnings, book value, dividend, retained earnings are termed value relevant if they are significantly related to the dependent variable, which may be expressed by share price, return or abnormal return (Gjerde et al., 2007). Studies on value relevance of accounting information are motivated by the fact that listed companies use financial statements as one of the major media of communication with their equity shareholders and the public at large (Vishnani and Shah, 2008). However, due to the vital role published financial information plays in capital market, most countries have enacted laws enforcing implementation of these accounting standards by all entities doing business. For the purpose of this research, accounting information refers to written information contained in a complete or partial financial report-statement of financial position and profit or loss account or cash flow statements are values relevant in the Nigerian Stock Exchange or not. Consequently, it is an empirical question whether accounting information is useful to domestic and foreign investors in the Nigerian capital market. This can be measured by the

contemporaneous association between accounting information, stock returns and market value in which valuation models link market prices and return to different accounting measures of financial position and performance (Aiman and Mohammad, 2010). The valuation models based on accounting information show that equity value is related to accounting earnings (Ball and Brown,1968; Collins et al., 1989), and balance sheet measurements or both book value and earnings (Landsman,1986; Barth,1991; Shevlin,1991). Thus, this study aims at extending such work by investigating the value relevance of accounting information in the Nigerian capital market. There are two opposing views in the accounting literature as regards whether accounting information in relation to stock prices have lost their values. One view proposes that accounting information is value relevant, meaning that accounting information has not lost its values (Ball and Brown, 1968; Collins et al., 1989; Landsman, 1986; Barth, 1991; Brinble, 2003; Gjerde, 2007). On the contrary, the other view proposes that accounting information is not value relevant, meaning that accounting information has lost its value (Francis and Schipper 1999; Lev and Zarowin, 1999). Accounting researchers have produced numerous studies documenting the association between accounting information and stock prices in developed capital market. While there has been robust literature on value relevance of accounting information in relation to stock prices in developed capital market (Alford, 1993; Amir, 1993; Harris 1994; Francis and Schipper 1999; Lev and Zarowin, 1999; Brinble, 2003; Gjerde et al., 2007), to the best of our knowledge there are scanty empirical evidence that examines whether accounting information is value relevant or not in emerging capital market like Nigeria. However, there may be reasons for us to believe that accounting is value relevant or not in the Nigerian capital market. As an emerging market, it lacks alternative information sources other than published accounting reports such as earnings, book value, dividend, retained earnings, price-earnings ratio and a host of others. Besides, value relevance research is a field in 329 | P a g e

Value Relevance of Accounting Information which the empirical results are sometimes mixed. The results presented in the literature are contradictory. The belief is that the divergence of opinions is somewhat due to econometric problems adopted in these studies. Particularly the deviation of the characteristics of accounting data from the assumptions of the applied methods and the misuse of statistical indicators led to contradicting inferences in these literatures. It is important to investigate whether the result will agree or digress from the previous studies. To this end, this study adds additional empirical evidence to literature on value relevance of accounting information in the Nigerian capital market. The major objectives of this study was to examine the value relevance of accounting information so as to find out whether there is an association between accounting information and stock prices of listed firms on the Nigerian Stock Exchange. The specific objectives are; 1. To establish whether there is an association between earnings per share and share prices of firms listed on the Nigerian Stock Exchange. 2. To ascertain whether there is an association between book value per share and share prices of firms listed on the Nigerian Stock Exchange. 3. To determine whether there is an association between return on equity and share prices of firms on the Nigerian Stock Exchange. With regards to the foregoing objectives, the following research questions were raised; 1. To what extent is there a relationship between earnings per share and share prices of firms listed on the Nigerian Stock Exchange? 2. To what extent is there a relationship between book value per share and share prices of firms listed on the Nigerian Stock Exchange? 3. To what extent is there a relationship between return on equity and share prices of firms listed on the Nigerian Stock Exchange? LITERATURE REVIEW Conceptual Framework Research on accounting information and stock market from late 1960s developed without much emphasis on the precise structure of the relation between

Blessing, I.N. accounting information and share prices in emerging capital market (Benston, 1967; Ball and Brown, 1968; Beaver, 1973; Anderson, 1975; Easton and Zmijewski, 1989; Easton and Harris, 1994). However, in the mid 1990s, researchers started to examine the role of book value, earnings, return on equity, using a valuation framework by Ohlson and Ohlson and Feltham, which expresses share prices under certain conditions as a function of both earnings and book value of equity (Ohlson, 1995; Feltham and Ohlson, 1995; Benard, 1995; Collins et al., 1997; Penman, 1998; Francis and Schipper, 1999; Callao et al., 2006; Beisland, 2009; Chang, Chen, Su and Chang, 2008 and Negah, 2008). This section dealt with the conceptual issues related to the theme of the research work. Value Relevance The term value relevance refers to the ability of accounting information to capture or summarize share price of firms listed on the stock market (Jang and Lee, 2010). Value relevance can be defined as the ability of accounting numbers contained in the financial statements to explain the stock market measures (Beisland, 2009). When accounting numbers are able to influence the price of shares in the capital market, accounting numbers are deemed to be value relevant. Contrarily, if accounting numbers are unable to influence the prices of shares, accounting numbers are deemed value-irrelevant. Accounting numbers refers to such items such as earnings per share, book value per share, dividend per share ,return on equity, retained earnings, price earnings yield and so on (Gjerde et al., 2007). Studies on value relevance of information are motivated by the fact that listed firms use financial statements(i.e. accounting numbers)as one of the major media of communication with their equity shareholders and public at large (Vishnani and Shah, 2008). However, due to the vital role published financial information plays in capital market, most countries have enacted laws enforcing implementation of these accounting standards by all entities doing business. This study investigates whether these various items of financial statements are value-relevance in the Nigerian Stock Exchange or not. Consequently, it is an empirical question whether accounting information is useful to domestic and foreign investors in the Nigerian capital market. This can be measured by the contemporaneous association between accounting information and stock price in 330 | P a g e

Value Relevance of Accounting Information which valuation model link market prices and return to different accounting measures of financial position and performance (Aiman and Mohammad, 2010). Financial Reporting Financial reporting is the major wheel for communicating financial information about the operations and performance of firms, especially to those that have interest in such corporation. Thus, financial reporting remains a picturesque of the financial transaction of a defined entity over a specified period (Okafor, 2009). Financial transaction reporting essentially involves preparing and issuing accounting information. Accounting information is one of the most significant sources of financial information for the investment analysts and valuing the companies is one of the most important application to which they address themselves (Rodney, 2012). The primary objective of financial reporting is to provide information that would enrich the understanding of users about the activities and/or performance of the corporation. Business organizations render two broad categories of financial reports: internal and external financial reports. (a) Internal Financial Reports: These are financial memoranda prepared by operational units of a firm to facilitate discussions or decision making by staff and management. They are meant for internal consumption and guidance and not for the outsider users. (b) External Financial Reports: These are summarized statements of financial operations over a definite period. They are meant to provide financial information about a firm to the general public and are therefore published documents. This study used external financial reports which are summarized statements of financial operations over a definite period. Perspective of share price Measurement There are two perspectives of shared prices measurement in the capital market: information and measurement perspectives. (a) Information Perspective: Information perspective measures the usefulness of accounting to individual users without much emphasis on the precise structure

Blessing, I.N. of the relation accounting data and firm value (Bernard, 1995). Most of the studies on information perspective assume that information content or usefulness can be determined by observing capital markets reactions to specific accounting information variables (Ball and Brown, 1968; Anderson, 1975; Benston,1967). Ball and Brown (1968) study was the first to document statistically a share price response to reported net income and their methodology is still employed today. The emphasis of information perspective is on contemporary associations between accounting earnings (or book value) and market returns or prices. In particular, it investigates capital market reactions to public disclosures such as earnings announcement, other firm-specific news and economy–wide macroeconomic news. This is synonymous with information content school. The information perspective measures accounting number broadly with respect to price formation in capital as: The relation between key accounting numbers, such as earnings, and securities prices; i. The relation between manager’s voluntary disclosure choices and capital markets; ii. How taxation affects the relation between accounting numbers and capital markets; iii. Changes over time in the relation between numbers reported in three financial statements and securities prices; iv. The extent to which behavioral theories can explain aspects of the relation between accounting numbers and capital market and v. Whether auditing practice affect the relation between security prices and accounting numbers. (b) Measurement Perspective: The measurement perspective assumes that share price movement can be determined by the degree of volume or price change following release of the information. The measurement perspective is rooted on the theoretical framework of equity valuation models (Ohlson,1995). The Ohlson valuation model expressed the value of a firm as a function of book value and earnings. However, attention has turned in recent years to valuation models that include dividend per share, net assets per share earnings yield, and the lots (Francis and Schipper, 1999). Many of these studies refer to the residual income model as their theoretical foundation. Hence, residual income measures are more frequently used in the business community to assess financial performance. 331 | P a g e

Value Relevance of Accounting Information Approaches to Share Prices Forecast in the Capital Market There is a growing body of evidence that the key to forecasting the stock market lies neither in value analysis nor in technical analysis. Rather, investor psychology seems to be the critical factor. Instead of treating investors psychology as noise, we should recognize that it is actually the signally that drives much of the day-to-day price fluctuations (Kaplan, 2001). One common argument against the possibility of forecasting share prices is the market efficiency argument. According to this point of view, if technical analysis, value investing, or any other method based on generally available information really work, then enough people would begin using it so that the very fact that traders are willing to pay for information indicates that markets cannot price forecasting in the capital market, which are technical and fundamental approaches but there is also the "technological approach". (a) Fundamental Approach: Fundamental analysts base their predictions on share price movement on factors which are “fundamental” or internal to a company, its industry, or the economy (for example earnings, products, management, competition, consumer spending and so on). According to Haleh et al. (2011), a market fundamentalist might issue a purchase recommendation for a company which has consistently shown year to year earnings increases and is in an industry that he/she believes will grow faster than the economy. In terms of fundamental analysts the capital market, has no memory and prices are changed randomly. (b) Technical Approach: Technical analysts, by contrast, hold that all such fundamental factors are reflected in the market behavior of the shares. Thus, to a pure technician, all data of importance are internal to the capital market, and future share price movement can be predicted from the diligent study of historical stock market information (for example, changes in share prices and trading volume). According to Haleh et al. (2011), a market technician might, therefore, base a buy recommendation on a certain pattern of recent price and volume changes. Technical analysts can calculate the intrinsic value of shares. They believe that the market has undergone a pseudo psychological mode and history is always

Blessing, I.N. repeatable and patterns at any time cause reputation of trends of price. Therefore by studying the past trend, the future could be predicted. The main purpose of technical analysis is predicting trends of share price. (c) Technological approach: With the advent of the digital computer, capital market prediction has since moved into technological realm. The most prominent technique involves the use of artificial neural networks (ANNs) and genetic algorithms (GAS). Azoff, (1994) asserts that ANNs is a mathematical function approximator. Their value in capital market prediction is that if a (potentially non linear) relationship exists, then it is possible that it could be found with enough indicator, the correct network structure and a large enough data set. Lo and Mackinlay (2002) opined that the most common form of ANNs in use for capital market prediction is the ‘feed forward network’ (FFN) utilizing the backward propagation of errors algorithm to update the network weights. These networks are commonly referred to as ‘Back-propagation network’ (BPN). Since ANNs require training and have a large parameter space, it is useful to modify the network structure for optimal predictive ability. Recently, this has involved pairing ANNs with genetic algorithms, a method of finding optimal in multi-dimension parameter spaces utilizing the biological concepts of evolution and natural selection. Moreover, some researchers have tried to extract meaningful indicators from the news flash and discussion rooms about a certain stock using data mining techniques. Nevertheless, people have different opinions about the same stock, at the same time. This approach of share price forecast is yet to be fully embraced by capital market analysts, especially with developing capital market like Nigeria. Accounting Information and Capital Market Accounting is all about providing information to users that are in need for useful decision making. This information of useful in making informed decision by capital market operators and the information is deemed useful when it is able to fulfill some criteria. According to Hendriksen and Van Breda (1992), accounting has qualitative characteristics that makes it decision useful information. They defined qualitative characteristics as attribute of accounting information 332 | P a g e

Value Relevance of Accounting Information which tends to enhance the usefulness. These qualitative characteristics according to Hendriksen and Van Breda (1992) can be classified as:  Robust i.e. stands the test of time.  Pervasive i.e. applies to all accounting entities.  Implementable i.e. capable of application; and  Susceptible to objective verification. The above are the qualitative characteristics proposed by Hendriksen and Van Breda (1992) but the most acceptable qualitative characteristics of accounting as decision usefulness has been put forward by the financial accounting standard board (FASB) where it stressed that the two prime qualities of accounting information are relevance and reliability. In an attempt to define relevance and reliability as the two prime qualities of accounting information, Rodney (2012) opined that relevance is all about the capacity of that information meant to influence decision making process of users as it will enable them to make future predictions (predictive ability of accounting information) and conform a previous estimate (feedback of accounting information). Reliability on the other hand as the second prime quality of accounting information refers to accounting information that is free from error and bias but can be verified from existing data which represents what is to represent and not what it ought to represent. According to Codjia (2012), the special role of accounting information in capital market includes: I. Corporate solvency: analyzing corporate solvency enables investors to set financially viable companies apart from moribund firms. In a global market place in which companies interact with international business partners, investors generally make sure companies have sufficient cash to operate domestically and overseas. Securities-exchange participants use statement of financial position information to appraise corporate solvency. Specifically, they review a firm’s assets, liabilities and equity capital. Net worth is an important indicator that lifts the veil on a company’s ability to repay its debts. For businesses, being able to meet financial commitment is important. Consequently, investors with a long term perspective want to make sure companies will still be in business in five or ten years.

Blessing, I.N. II.

Profitability: corporate profitability is a constant priority for stock-exchange players, especially those who make long-term investments bets. Appraising a firm’s profitability trends requires analytical skills, attention to detail and financial acumen. When reviewing corporate profitability, investors sift through various accounting reports, including statement of profit or loss, budgets and financial ratios. Reporting consistently positive result is a confidence building exercise for companies, as it improves corporate reputation in the investment community. Financial metrics covering corporate profitability include gross profit margin, which equals total sales minus cost of goods sold divided by total sales. The ratio calculates how much a firm earns on each dollar of sales.

III.

Liquidity analysis: publicly listed companies must disclose information related to operating liquidity movements, indicating to investors and the public how much cash is in corporate coffers. Disclosure requirements are stricter for large, multinational companies that borrow on major securities exchanges, such as the New York stock exchange and Tokyo stock exchange. Failure to provide sufficient explanation about corporate cash inflows and outflows may cause a firm to come under regulatory scrutiny. Equity capital review: before making investment bets, financial market players seek to understand current players who are already in the game. In other words, investors who want to purchase a company’s equity shares generally sift through the list of current share holders. This in-depth systematic review is a key because it enables potential stockholders to gauge investors' faith in the company.

IV.

The Nigerian Stock Exchange and Regulatory Institution The Nigerian stock exchange is one of the critical financing sources for firms which are listed in the capital market. The Nigerian stock exchange which was established in 1960 as the Lagos stock exchange later becomes Nigerian stock exchange in December 1977 with thirteen (13) branches. The branch in Lagos 333 | P a g e

Value Relevance of Accounting Information was opened in 1961, Kaduna 1978, port Harcourt 1980, Kano 1989, Onitsha 1990, Ibadan 1990, Abuja area office 1999, Yola 2002, Benin 2005, Uyo 2007, Ilorin 2008, Abeokuta 2008, Owerri 2009, and Bauchi 2009 with Lagos as the head office. The Nigerian stock exchange started operations in 1961 with nineteen securities listed for trading. As at 2012, there were 263 securities listed on the exchange. In the year 2013, 63 securities listed on the exchange were delisted thereby leaving about 200 firms listed on the Nigerian stock exchange as at the end of 2013 (NSE, 2014). The Nigerian stock exchange has companies listed with both foreign and multinational affiliations thereby representing a cross-section of the country’s economy. Such cross-section of the companies listed on the Nigerian stock exchange range from agriculture, through manufacturing to services. The stock exchange is a tested network of intermediaries such as stockbrokerage firms, issuing houses, practicing corporate law firms and over 50 quality firms of auditors and reporting accountants of which most are with international links. Therefore, the market has in place a network of intermediating organizations that can effectively and creditably meet the challenges and growing needs of investors in Nigeria (NSE, 2014). In 1999, the Nigerian stock exchange introduced a computerized clearing, settlement and delivery system for transaction in listed shares known as the central securities clearing system (CSCS). The CSCS is interfaced with the ATS thereby facilitating a T+3 transaction settlement cycle. In addition, the CSCS is responsible for dematerializing share certificates of quoted companies and storing them in electronic form in a central depository. Other ICT adoptions include the CSCS trade alert, phone-in-service, e-bonus and e-dividend payments. The Nigerian stock exchange is characterized by the following: I.

Integrity: Integrity happens to be the watchword of the stock exchange. The public trust in the Nigerian stock market has grown tremendously, with about three million individual investors and hundreds of institutional investors (including foreigners who own about 47% of the quoted companies) using the facilities of the exchange.

Blessing, I.N. II.

Trading: The call over trading system was in April 2014 replaced with the Automated Trading System (ATS), with bids and offers now matched by stockbrokers on the trading floor of the Stock Exchange through a network of computers.

III.

Pricing: Prices of new issues are determined by issuing houses/stockbrokers; while on the secondary market prices are made by stockbrokers only. The market/quote prices, along with the All-Share Index, are published daily in the Stock Exchange Daily Official List, the Nigerian Stock Exchange CAPNET, the Nigerian Stock Exchange website, Newspapers and on the stock market page of the Reuters Electronic Contributor System (RECS).

IV.

The All-Share Index: The Exchange maintains an All-Share index formulated in January 1984 (January 3, 1984=100), only common stocks (ordinary shares) are included in the computation of the index. The index is valuedrelated and is computed daily.

V.

Clearing, Delivery and Settlement: Clearing, Delivery and Settlement of transactions on the Exchange are done electronically by the Stock Exchange. The CSCS Limited System (CSCS), a subsidiary of the Stock Exchange. The CSCS Limited ("the Clearing House") was incorporated in 1992 as part of effort to make the Nigerian Stock market more efficient and investor-friendly. Apart from clearing, settlement and delivery, the CSCS Limited offers custodian services.

VI.

Stock Market Legislations: Transactions in the stock market are guided by the following legislations: (a) Investments and Securities Decree No. 45, 1999 (b) Companies and Allied Matters Decree 1990 (c) Nigerian Investment Promotion Commission Decree, 1995 (d) Foreign Exchange (Miscellaneous Provision) Decree, 1995.

VII.

Regulation: Transactions on the Exchange are regulated by the Nigerian Stock Exchange, as a self-regulatory organization (SRO), and the 334 | P a g e

Value Relevance of Accounting Information Securities and Exchange Commission (SEC), which administers the Investments and Securities Decree. VIII.

Internationalization of the Stock Market: Arising from the deregulation of the capital market in 1993, the Federal Government in 1995 internationalized the capital market, with the abrogation of laws that constrained foreign participation in the Nigerian capital market. Consequent upon the abrogation of the Exchange Control Act in 1962 and the Nigerian Enterprise Promotion Decree 1989, foreigners can now participate in the Nigerian capital market both as operators and investors. Also, there are no limits any more to the percentage of foreign holding in any company registered in the country.

We present empirical research supporting the view that accounting information in relation to stock prices is relevant in capital market. For instance, ball and brown (1968) provide evidence of security market reaction to earnings announcements. On the basis of their studies, they claim that accounting is useful to investors in estimating the expected values of the risks of security returns. Their result shows that accounting information is value relevant. Pankoff and virgil (1970) presented an inventory and ambitious laboratory experiment in order to measure the usefulness of accounting and other information to professional security analysts who participate as subject in the laboratory stock market. The study found that accounting information is value relevant. Chen and Su (1999) empirically examined whether domestic investors in the Chinese stock market perceive accounting information based on Chinese GAAP to be useful in stock evaluation. The study was motivated by the market-based value relevant literature in the U.S. and by the recent development of accounting and stock market in China. Using a sample of all listed firms in Shanghai and Shenzhen stock exchanges from 1991 to 1997 with available data, they obtained evidence of value relevance of accounting information in China based on a return and a price model. Thus, the study reported fairly convincing evidence that accounting information is value relevant to investors in the Chinese market despite the young age of the market and the perception of inadequate

Blessing, I.N. accounting and financial reporting in China as at the time of their research. Bao (2004) investigated value relevance of operating income versus non-operating income in the Taiwan stock exchange. He performed three types of value relevance analysis-return on equity analysis, price levels analysis and price change analysis in this study, claiming that value can be defined by the return of equity, stock price level, or stock price change. The results of their study show that the valuation models based on earning components have a higher explanatory power than those of earnings alone. The contribution of both operating income and non-operating income are not significantly dissimilar. Investors are counseled to consider operating income as well as non- operating income when analyzing firm value in Taiwan stock exchange. Thus, accounting information is value relevant. Jones and Danbolt (2005) studied empirical evidence on the determinants of the stock market reaction to production and market diversification announcements. Their study used price earnings and dividend yield as variables. The study found that gains are higher for companies with high price earnings low dividend yields. The study concluded that accounting information is value relevant. Torre et al. (2006), studied stock market development under globalization withers the gains from reform. The study used GDP as the dependent variable, interest rate and market capitalization as the independent variables. The findings show that stock market has resulted into development of the economy. The study concluded that accounting information is value relevant. Imran and Mondal (2010) examined determinants of stock price; a case study on Dhaka stock exchange. The study used stock price as the dependent variable. Profitability, growth, firm size and dividend per share as the independent variables. The findings show that accounting information affects stock prices. The study concluded that accounting information is value relevant. Al-shubiri, (2010) analyzed the determinants of market stock price movement in Jordanian commercial banks. The study used 14 commercial banks of Amman stock exchange for the period of 2005 -2008 with simple and multiple regression analysis. The findings revealed that there is a high positive significant relationship between market price of stock and net asset value per share, market price of stock dividend and gross domestic product. The study concluded that accounting 335 | P a g e

Value Relevance of Accounting Information information is value relevant. Ramasawmy and Ramen, (2010) studied an investigation on the usefulness of accounting information for financial analyst with the case study of an emerging state. The study used 70 items of the accounting information taken from the checklist of IASI and the lists provided by FASB. The findings revealed that most mandatory information is quantitative in nature and most voluntary accounting information is non-quantitative in nature. The study concluded that accounting information is value relevant. Rapidly changing business environment in contemporary times and reports from some researchers have shown that in the capital market, the use of accounting information and the share price movement have lost their relevance as evidenced in the study of Lev and Zarowin, (1999) and Francis and schipper, (1999). Cheng et al. (2008) studied earnings announcements; the impact of firm size on share prices. The study used abnormal returns as the dependent variable and risk adjusted return on security, unexpected earnings and market value as the independent variables. The findings revealed that no incremental information content was beyond earnings except that the direction of the effect was negative. The study concluded that the accounting information is irrelevant. Aiman and Mohammad (2010) examines empirically whether national and international investors in the Egyptian stock market perceive accounting information based on the Egyptian accounting standard to be useful in stock valuation. Using a sample of all available listed firms in the emerging market data base (EMDB) form 1998 to 2002, we obtain evidence of value relevance of accounting information in Egypt based on both return and price models. More importantly the result suggests that stock prices in Egypt are less informative about the future value of the firm than is accounting information. The study concluded that accounting information has higher value relevance in Egypt. Dontoh et al. (2012) empirically explored the declining value relevance of accounting information and non-information base trading. The study shows that when non-information based trading increases, the R-squares of a regression of stock price on accounting information declines. Additionally, the empirical test confirms that the decline in the association between stock prices and accounting

Blessing, I.N. information as measured by R-squares is driven by an increase in non-information based. Thus, accounting information is value irrelevant. Based on the empirical studies, majority of the studies support the view that accounting information is value relevant. More so, concerns over research design and conflicting findings caused earlier researchers to fail in addressing the position above. Thus, it is on this note that this study investigates whether the result will agree or digress from the previous study. METHODOLOGY Research Design and Source of Data Collection A research design refers to the approaches, framework or the overall strategy of conducting research studies. Nachmias and Nachimias(2009) opined that research design is the blueprint that enables the investigator to come up with solutions to the problems and guide the researcher in the various stages of the research. In carrying out this study, the researcher adopted the expost-facto research design. This design was adopted because it seeks to establish the factors that are associated with certain occurrence or type of behavior by analyzing past events of already existing condition. Here the researcher has no control over certain factors or variables as the events already exist and can neither be manipulated or changed. The population of the study refers to the totality of all the elements or variables under study from which the researcher draws his sample. The study population comprised of 200 firms quoted on the Nigerian Stock Exchange (NSE, 2014). The data collection method was secondary data. The secondary data-earnings per share, book value per share and returns on equity were obtained from the Nigerian Stock Exchange Fact Book and Annual Reports and Accounts of the firms quoted on the Nigerian Stock Exchange. These data have been deemed valid by standard and recognized bodies that regulate capital market in Nigeria. This study adopted the stratified random sampling technique by selecting one hundred and thirty-three (133) corporate firms drawn from various industries listed on the Nigerian Stock Exchange. The sample size was determined using Taro Yamani's Formula since the population size was 200 (Yamani, 1967). Due to non-availability of data, the researcher was able to generate data on 336 | P a g e

Value Relevance of Accounting Information 120 firms which formed the adequate sample employed in this study. Model Specification For the purpose of this study, a multiple regression model was designed which has the ability to estimate Share price as a function of certain accounting numbers (earnings per share, book value per share and returns on equity). The model for the study was expressed as

LDSPit   0 EPSit  1 BVPSit   3 ROE  U it where, LDSP represents Last Day Share Price; EPS represents Earnings per Share; BVPS represents Book Value per Share, ROE represents Return on Equity; t represents Time dimension and i represents Individual firm. In this study, LDSP is the dependent/response variable; and EPS, BVPS, ROE are the independent/explanatory variables. LDSPit was measured at the end of December at year t+1. BVPSit is the book value per share at fiscal year end and EPSit is the earnings per share for year t and ROEit is the return on equity for year t. The error term (eit) is used as surrogate for other variables not included in the model. EPS is the amount earned on behalf of each outstanding common stock not the distributed amount earned on behalf of each outstanding common stock not the distributed to shareholders. This is perhaps the most important factor for deciding the health of any firm and they influence the buying tendency in the market. Practically, EPS is the profit after tax-preference dividends divided by the number of ordinary shares ranking for dividend and derived by the number of ordinary shares. Investors resort to using book value per share in the event when earnings and dividend fail to address their needs. ROE is the ratio of return on equity underscores which implies that investors would be interested in investing in such corporation and indicate that such a corporation will survive. DATA ANALYSIS Descriptive Statistics Analysis The relevance of the variables (earnings per share, book value per share and return on equity) on share prices for all the sampled firms by conducting a sensitivity test was recognized in this section.

Blessing, I.N. Insert Tables-1,2,3,4,5&6 here DISCUSSION Result obtained in Table 1 showed the estimates earnings per share sensitivity to share prices on the Nigerian Stock Exchange. It was observed that earnings per share coefficient for the sample firms range between 0.356 and 0.876 minimum and maximum values respectively with mean value of 0.444. Also, 99(82.5%) of the firms were positively sensitive while 21(17.5%) were adversely (negatively) sensitive to share price. Thus, the result indicated that majority of the firms earnings per share are sensitive to share price with the large proportion being positively sensitive to share prices. This implies that accounting information is value relevant. The result displayed in Table 2, showed that the book value per share coefficient for the sampled firm range between 0.446 and 0.944 minimum and maximum values respectively with mean value of 0.446. Also, 111(92.5%) of the firms were positively sensitive while 9(7.5%) were adversely (negatively) sensitive to share price. Thus, the result indicated that majority of the firms' book value per share are sensitive to share price with the large proportion being positively sensitive to share prices. This implies that accounting information is value relevant. Also, result obtained in Table 3, showed that the return on equity coefficient for the sampled firm range between 0.213 and 0.567 minimum and maximum values respectively with mean value of 0.312. Also, 78(65%) of the firms were positively sensitive while 42(35%) were adversely (negatively) sensitive to share price. Thus, the result indicated that majority of the firms return on equity are sensitive to share price with the large proportion being positively sensitive to share prices. This implies that accounting information is value relevant. The result of the goodness of fit showed the independent variables were able to explain about 92.1% of the variation in the dependent variable since the R-Square value was obtained as 0.921 (see Table 4). This implies that the obtained model provided a good fit to the behaviour of share price.

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Value Relevance of Accounting Information The result obtained in the ANOVA table (Table 5) showed that the independent variables contributed significantly to the model with an F-value of 140.154 and a P-value of 0.00 which falls on the rejection region of the hypothesis assuming a 95% confidence level (P-value=0.00 < α=0.05). This result implies that the model is adequate in determining the behaviour of share price. The result of the partial regression analysis displayed in Table 6 revealed that all the independent variables contributed significantly to the model with t-test values of 9.358, 2.726, 2.642, and 2.138 respectively and corresponding P-values of 0.008, 0.010 and 0.008 which falls on the rejection region of the hypothesis assuming a 95% confidence level (P-value=0.00 < α=0.05). This result validates the value relevance of accounting information. Also, the designed model can be expressed as: Share Price= 45214 + 0.098 X EPS + 0.522 X BVPS + 0.648 X ROE CONCLUSION AND RECOMMENDATION Conclusion This study empirically examined the value relevance of accounting information in Nigeria in order to ascertain whether certain accounting variables have the ability to affect share price on the Nigerian Stock Exchange. The scope of the study is limited to the data of 2001 to 2013. Rapidly changing business environment in contemporary times and reports from some researchers have shown that in the capital market, the use of accounting information to forecast share price have lost their relevance while others studies assert that accounting information has not lost its value. The result of the analysis revealed that majority of the firms' earnings per share is sensitive to share price with large proportion being positively sensitive to share price. Also, it was found that there exists significant relationship between earnings per share and share prices of firms listed on the Nigerian Stock Exchange. Findings also showed that majority of the firms’ book value are sensitive to share price with large proportion being positively sensitive to share price. Also, it was found that there exists significant relationship between book value and share prices of firms listed on the Nigerian Stock Exchange. Also, it was found that majority of the firms' return on

Blessing, I.N. equity is sensitive to share price with large proportion being positively sensitive to share price. Also, it was found that there exists significant relationship between return on equity and share prices of firms listed on the Nigerian Stock Exchange. In addition, it was found that earnings per share is the most widely used accounting variable for investment decision in Nigeria, followed by book value per share and return on equity. The findings are consistent with findings from studies such as Pankoff and Virgil (1970); Chen and Su, (1999); Bao and bao (2004); Al-Shubiri, (2010); Ramasawmy and Ramen (2010) and Abiodun (2012). The conclusion reached was that in Nigeria, accounting information has not lost its value (i.e accounting information is value relevant). Recommendations Based on the findings of the study, the following recommendations are proffered: 1. Due to the importance of earnings, book value and return on equity in investment decisions, the study recommends that all firms listed on the Nigerian Stock Exchange should prepare Simplified Investor’s Summary of Annual Reports and Accounts(SISARA)with emphasis on the most widely used accounting information along with the mandatory detailed financial statements to suit Nigerian peculiarities. This is expected to remove information over-load especially for nonaccountants and financial analysts. 2. National accounting standard setters and prepares of accounting information should gear effort toward improving the quality of earnings information which is the most widely used accounting numbers in Nigeria for investment decisions. This is because earnings management can be defined in different ways thereby making room for creative accounting. Managers who engage in the practice of manipulative earning management should be identified and brought to book. 3. Investors should critically and objectively analyze the company’s overall characteristics when making investment decisions. This is because accounting information are not the same across the industries. Whether book 338 | P a g e

Value Relevance of Accounting Information value or earnings or return on equity is value relevant depends on both the firms (and industry’s) overall characteristics and its performance in the particular period. 4. Investors should consider using book value for investment decisions when earnings are negative since book value compensates for negative earnings. Investors should use book values of equity to evaluate firms with small sizes and high intangible assets. The findings of this study have important policy implication for Nigerian accounting standard setters, prepares of accounting information and government policy makers-particularly the Securities and Exchange Commission (SEC) which serves as the apex regulatory body in capital market operations in Nigeria. Positive results of the test serve as proof of the quality of accounting standards, accounting practice and the local stock market in Nigeria in view of the fact that, quality of accounting standards influences the users' perception of quality of financial information. High quality accounting standards and their proper enforcement are perceived as providing relevant and reliable financial information. The evidence indicates that accounting information particularly earnings-plays a significant role in investment decision making and by implication, stock market development. REFERENCES

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Value Relevance of Accounting Information

Blessing, I.N.

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Value Relevance of Accounting Information

Blessing, I.N.

APPENDIX Sample =120

Table 1: Sensitivity of Earnings per Share to Share Price Mean Minimum Maximum

Sensitivity Coefficient (  i ):

.444

.356

Sign of Sensitivity Coefficient (  i ):

.876 Positive: 99(82.5%) Negative: 21(17.5%)

Source: SPSS Output Table 2: Sensitivity of Book Value per Share to Share Price Sample =120 Mean Minimum Maximum .456 .446 .944 Sensitivity Coefficient (  i ): Sign of Sensitivity Coefficient (  i ):

Positive: 111(92.5%) Negative: 9(7.5%)

Source: SPSS Output Table 3: Sensitivity of Return on Equity per Share to Share Price Sample =120 Mean Minimum Maximum .312 .213 .567 Sensitivity Coefficient (  i ): Sign of Sensitivity Coefficient (  i ):

Positive: 78(65%) Negative: 42(35%)

Source: SPSS Output

Model 1

R .951

Table 4: Test of Goodness of fit R Square Adjusted R Square .921 .831

Std. Error of the Estimate .63146

Source: SPSS Output Model 1 Regression Residual Total

Sum of Squares 9.124 13.212 22.336

Table 5: ANOVA df Mean Square 1 119 120

2.419 .227

F

Sig

140.154

.000a

Source: SPSS Output

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Value Relevance of Accounting Information Variables Constant EPS BVPS ROE Source: SPSS Output

Table 6: Regression Coefficients Coefficients t-statistics 45214 9.358 .098 2.726 .522 2.642 .648 2.138

Blessing, I.N. Sig .000 .008 .010 0.008

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