IS MARKET PRICE SENSITIVITY TO ACCOUNTING MEASURES TIME DEPENDENT? EVIDENCE FROM NIGERIA STOCK EXCHANGE (NSE)

Abstract

This study empirically examines the relationships between share prices and accounting measures such as book value per share, earnings per share, dividend per share and cash flows per share. The study attempts to establish to what extent (period) can these accounting measures affect share price three to five months after the balance sheet date. Secondary data were obtained from official daily list of Nigeria Stock Exchange, Nigerian Stock Exchange facts books and yearly published annual report of 57 companies out of 201 listed on the Nigerian Stock Exchange as at 31st December 2010, which were selected randomly from all sectors of the economy from 2006-2010. Data were analyzed through descriptive statistics, correlation and least square regression analyses. The findings showed that there is significant relationship between share price and accounting measures considered at 5% level. Dividend per share (of N0.97) has the highest information content during the periods; followed by earnings (of N1.71) and book value (of N7.014). Cash flow information appears insignificant throughout the periods. Four months after balance sheet date was observed as highest information content period with adjusted R-squared of 70% in the three periods considered (three – five months). Hence, the value relevance of accounting measures is time dependent. Effort should be made to reduce the time allowed by the public companies to publish their audited annual reports and accounts to just three months after the balance sheet date of any public company regardless of whether financial or non-financial firm. Further investigation should be carried out to establish the reasons for low information content of cash flows.