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Effect of Companies’ Earnings Performance on Annual Stock Values of Listed Companies on Nigerian Exchange Group: Emphasy on Eps And P/E Ratios
Abstract
An extensive body of academic research in accounting develops theory and empirical evidence on the relation between earnings information and stock returns. This study appraised the effect of companies’ earnings performance (earnings per share, price earnings ratio) on share price in the Nigerian Exchange Group. Specifically, the objectives of this study assess the effect of price earnings ratio (P/E) on share price and also evaluate the relationship between earnings per share (EPS) on share price of listed companies in Nigerian Exchange Group. Secondary data were used in the study while random sampling method was adopted to select ten (10) out of the 156 listed first tier companies on the Exchange. The study covered ten (10) years from 2011 to 2020. Descriptive statistics were used to test the volatility of the capital market, while Panel data analysis was used to analyze the effect of P/E, EPS on share prices of listed companies.
The descriptive statistics results from the study showed that Mean and Standard deviation (SD) of Share Price (SP) are (20.7341; 28.89917), EPS (18.19655; 26.94986), P/E (14.16076; 15.75829). These show that capital market is volatile with the SD being farther away from the mean. The general result of panel regression analysis showed that p-value = 0.0000 which indicates the significance of the regression model tested at 1% level of significance. Analysis of P/E on share price also showed a non-significant result of p= 0.0739 while EPS with p= 0.0001 showed a positive significant relationship. The two variables were tested for unit root and were found stationary. The study concluded that earnings per share; a performance index affect company performances on the NGX because it’s a good estimator of companies share price speculation. Hence a well-informed investor on earnings is better informed on the choice of portfolio. It is hereby recommended that investors should pay much attention to companies’ earnings results analysis by experts before investing on the Exchange.
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