The Relationship between Financial Accounting Information and Market Values of Quoted Firms in Nigeria

Transcription

1 The Relationship between Financial Accounting Information and Market Values of Quoted Firms in Nigeria Adaramola Anthony Olugbenga, Department of Banking and Finance, Faculty of Management Sciences, Ekiti State University, Ado Ekiti, Nigeria. Oyerinde Adewale Atanda, Department of Management and Accounting, Obafemi Awolowo University, Ile Ife, Nigeria. Abstract This paper examines the value relevance of accounting information in the Nigerian stock market with a view to determining whether accounting information has the ability to significantly affect share prices of quoted firms. This study used secondary data to investigate the value relevance of accounting data. The secondary data were sourced from the Nigerian Stock Exchange Fact Books, Annual Financial reports of companies quoted on the Nigerian Stock Exchange and the Nigerian Stock Market Annual reports. The Generalized Least Squared (GLS) regression method was employed on the panel model for the analysis. Findings show that there is a significant relationship between accounting information and share prices of companies listed on the Nigerian Stock Exchange. Information on earnings, dividend, book value and cash flows can be used to predict share prices of quoted firms. This implies that accounting information serves as a guide to investors investment decisions in Nigeria. As a result, this paper recommends that any effort geared towards improving quality of accounting information is in a right direction. It is also recommended that standards should be better complied with by Nigerian companies and that more standards that can improve quality of accounting information should be issued. Key Words: Value Relevance, Accounting Information, Book Value, Market Value Historical Cost, Cash Flow, Financial Statement JEL Classification: C 13, C23, G 12 22

2 1. Introduction Ball and Brown (1968) were among the first researchers to examine the relationship between accounting information and equity valuation and found that accounting information contained in financial statement affects share price. Since then, there have been numerous empirical studies seeking to measure association between accounting numbers and equity values especially in the developed world Literature Review 2.1 Conceptual Framework In a given economy, a rise and fall in corporation s market value depend largely on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession, depression, or financial crisis could eventually lead to a stock market crash. In this work the movement of corporations market values in the Nigerian capital market is assumed to be an indicator of the general trend in the economy as well as the available accounting information. Therefore the relationship between the corporation s market value and accounting numbers or information can be argued to be cyclic. This is summarized in the following figure. Supports Accounting Information A firm s Market Value Stimulates Figure 1: Relationship between a Firm s Market Value and Accounting Information 2.2 Review of empirical Studies Value Relevance of Earnings The most important component of financial reports is the income statement (Kallunki, 1996) as it indicates the result of operation of the period. Empirical findings by Ball and Brown (1968) indicate that fifty percent of all available information a firm is embedded in the income statement. Value relevance of earnings is ascertained by regressing stock returns on accounting earnings (Ball and Brown, 1968) or the abnormal stock return on expected earnings (Beacver, 1968). While regression of share price on earnings measures the sensitivity of share price to the size earning, the other measure the relation of unexpected portion of share price change and earnings (Edwards and Bell, 1961). 23

3 Change in the value relevance of earnings has been investigate by several studies Collins, Maydew and Weisis (1997) employing a cross sectional regression over a period of 40years, find that the incremental value relevance of earnings declined over the time period They adduce the declined in value relevance of earnings to the shift in value relevance to book value from earning to increasing average size of the firm. Lev Zarowin (1999) support the finding of declining value relevance of earnings. Using a cross sectional regression to measure the association between change in earnings and stock return over a 20year period. They submitted that decrease in relationship between stock return and earnings measured by R 2 in the period from 6-12% in the first ten years to 4-8% in the last ten. Cheng, Liu and Schaeffer (1996) found that both earnings and earnings change are value relevant. They employed both levels and changes to examine the effect of earnings performance on the information content of cash flows. They argue that markets look to cash flow as alternative sources of information where earnings number prove insufficient. Lipe (1990) conclude that poor returns earnings association is due to lack of earnings persistence. They conclude that current earnings innovations contain information about the future as well as current equity benefits. The lack of timeliness for accounting numbers may also explain the low earning return association. Timeliness is the extent to which current earnings incorporate current period economic income (Ball, Kothari and Robin. 2000). Timeliness earnings may be affected by demands of accounting standard of objective and verifiability. These demands reduce the timeliness of earnings and thus reduce the association between earnings and stock returns. Their results show that stocks are not sensitive to earnings innovations. Easton and Harrist (1991) argue that extent research lacked a long term perspective, that poor earnings-return association may due to use of short-term data. They content that poor timeliness of earnings may occur in short rum, but over the long term the correlations between earnings and return increases, if long term data is employed. They show that expanding the return interval and earnings aggregated over long time intervals. There is increases in the return-earnings association. They provide confirmation of correlation between earning and return increase using long term accounting data. Beaver, McAnnally and Stinson (1997) offer different explanation of misspecification of statistical model as responsible for the poor earning return relationship. They argue that price earnings relation is a system of simultaneous equation, thus the explanatory variable (earnings) and the dependent variable (share price) act as if both are endogenously determined as they are affected by information which are difficult to specify. They provide evidence that changes in both variables are endogenous implying that the short coming of single equation 24

4 bias can be mitigated via joint estimation. Liu and Thomas (2000) support the thesis of misspecification of model as accounting for low Earnings Response Coefficient (ERC). Using a model in which additional regressors were included in the model in order to reflect information contained in forecast revisions and discount rate change occurring during the year. Compared to simple regression model this significantly increases the ERC. Earnings are made up of two components a cash flow component regarded as an objective part of earnings and accruals which is more inclined to subjective judgement and thus easily manipulated. Earnings management refers to the reasonable and legal management decision making and reporting intended to achieve stable and predictable financial results. Marqardt and Wicdman (2004) investigate the how earnings management impact upon value relevance. Using a sample of firms for which there is a priori expectation of earnings management they examine how earnings management impairs the value relevance of accounting information. In situations where managers participate in secondary issues of share. There often exist incentives and opportunities to manage earnings. Discretionary accruals are significantly positive in the years of secondary stock offering in firms where managers sell their shares in secondary offering (Marquardt and Wiedman, (2004). They also provide evidence that discretionary accruals are more positive in the year of secondary offering for firms whose manager participates in secondary offering than firms in which managers do not. There is significant decrease in estimated coefficient of net income and decrease in R 2 during year of secondary offering of share for those firm participating managers (Marquardt and Wiedman. 2004). In situations where the incentives for earnings management is greater, earnings announcement are less informative to investors according to Christensen, Hoyt and Patterson (1999). Studies of value of earnings across countries show interesting results. Ball, Kothari and Robin (1994) examine the value relevance of earnings in seven countries. They show that accounting earnings indicate significantly greater timeliness in common-law countries relative to code-law countries, this they attribute to income conservatism. Ali and Lee-Sheok (2000) examine the relationship between country specific characteristics and measures of value relevance. Their study show that value relevance is higher in countries exhibiting features of the British-American model in which tax rules impact on accounting measurements, relative to countries exhibiting features of continental accounting model. They also finds that countries that spend more on external auditing services have higher value relevance. The higher use of accrual accounting as opposed to cash flow accounting results in lower value relevance in countries with weak shareholder protections (Mingyi.2000). but for countries with strong shareholder protection there is no significant negative relationship between the use of accrual accounting and value relevance of accounting information. 25

5 2.2.2 Value Relevance of Book Value Extant studies show that book value of equity is relevant and evidence point to the fact that there is stronger association between share price and firms book value relative to earnings (Ohlson and Penman, 1992; Collins, Maydew and Weiss, 1997: Barth, Beaver and Landsman, 1998; Dontoh, Radhakrishnan and Ronen, 2004). Collins et al (1997) recommend that for firms with small size and intangible intensities reporting negative earnings book value of equity be used for evaluation rather than earnings in the context of investor interest. They also show that relative value trade off between earnings and book value coefficients when earnings are negative, even after controlling for size, risk and earnings persistence. Chen, Chen and Su (1999) show that for firms with negative earning value relevance moves from earnings to book value. Gjerde, Knivsfla and Saettem (2003) examine the incremental value of relevance of book value, earnings and cash flow in share prices in the Korean stock market from They find that book value was most value relevant of the three, followed by cash flow. They also show that value relevance of book values and cash flow is stronger than that of book values and earnings. The value relevance of book values is sensitive to the valuation principles employed to various assets and debt components. A comparison of value relevance of historical cost to fair value estimates show that fair value estimates are more value relevant. (Barth et al 1996). Khurana and Kim (2003) find that for small bank holding companies historical cost measures of loan and deposit are more informative than fair value measures. This they attribute to the notion that fair value is generally less value relevant when subjective market value estimates are employed. The financial health of companies has effect on the degree of value relevance book value Barth, Beaver and Landsman (1998) find that sensitivity of book value to the market price of equity is a negative variant of financial health of the firm. Whereas for earnings as financial health decreases value relevance earning decreases. Barth et al (1998) argue that the role of the balance sheet is to furnish information on the liquidation value to assist loan decisions and monitoring of debt contract. Thus for distressed companies the book value of equity is more value relevant. They also examine the relatives value relevance of earnings and book value for firms with higher level of unrecognized intangible assets. They find that net income have higher explanatory power relative to book value for such firms. Dechow, Hutton and Sloan (1999) find that book value of equity conveys incremental information over earnings in explaining contemporaneous share prices. This supports the claim by Burgstahler and Dichev (1997) that omitting either earnings or book value in the model leads to model misspecification. 26

6 Ayers (1998) finds assets and liabilities are generally value relevant, he also finds that net pension liability and other post-retirement amounts are significantly related to market value of equity Value Relevance of Dividend Dividends are proportion of corporate profits paid to its ordinary shareholders or stockholders. This financial accounting metrics is extractable from the profit and loss account and to date, whilst empirical studies on value relevance have been tilting towards other financial accounting numbers, those on dividends and effects on share prices have been shrinking (Bernard, 1996) Value Relevance of Cash Flow One key use of the cash flow measures is that they are expected to provide value relevant information about the growth opportunities of the firm or lack of it. The ability of the firm to meet its internal needs for cash is indicated by the operating cash flow. The investing cash flow provides information as to the liquidation value of the firm s assets and its capital expenditure. The financing activities are indicated by the financial cash flows. Black (1998) investigates the relative value relevance of earnings and cash flow measures at different stage of the life cycle of firms. They provide evidence that cash flow are more value relevance at the growth stages than earnings. At the maturity stage earnings are more value relevant. Cheng, Liu and Schaefer (1996) find that earnings decrease in value relevance and operating cash flow increase in value relevance with a decrease in earnings performance. Bowen, Burgstahler and Daley (1987) investigate the effect of cash flow on share prices, in order to ascertain if cash flow has incremental information content relative to earnings. Using a sample of 98 US from 1972 to 1981, they find that cash flow are more value relevant than earnings. Sloan (1996) examines the information content of accruals and cash flow components of earnings. The study that accrual component has lower value relevance than the cash component. Sloan (1996) also shows that firms with high levels of accruals experience negative future abnormal stock returns that are concentrated around future earnings announcement, and positive returns in the case of lower levels of accruals. Dechow (1994) results are consistent with those of Sloan (1996). They report that cash flow and accruals do not significantly relate with security returns, but allowing for correction for past mis-pricing and mean revision, they report significant difference for cash flow and accruals in explaining security returns. Misund, Osmundsen and Asche (2005) examined the value relevance of cash flow and accruals in the international Oil and gas industry. Employing a sample of firms over

7 2003, they show that earnings calculated before the expensing of depreciation are more value relevant relative to net earnings. Dechow (1994) argued that cash flow and accruals may be more value relevance than earnings. He argues that cash flow is in short is in short term a stronger explanation of performance measured by future cash flow and earnings, while accrual component though related to future earnings but not to future cash flow. Consequent on the above, we hypothesize that: H 0 : Market values of quoted companies in Nigeria are not significantly affected by financial accounting information. 3. Methodology 3.1 Research Question As indicated in introduction, we have one major research question. We are set to find out whether financial accounting information have a force to bear on the market values of quoted companies in Nigeria. 3.2 Modeling This study employs panel model analysis for estimating the regression models. Panel model is employed because it solves issues of few data points for regression model and generates additional degrees of freedom. Also, incorporating information relating to both cross-section and time-series variables can substantially reduce the problem emanating from omitted variable. The study adopts the valuation framework developed by Ohlson (1995) to examine the value relevance or degree of association between the stated variables. In the empirical models, market price is a linear function of earnings, book value, dividends and cash flow. Four simple linear regression models are developed. Significant (positive or negative) estimates of regression co-efficient for the accounting variables indicate the relationship between the variables. The equations are as follows: P jt = β o + β 1 E jt + jt (1) P jt = β o + β 2 BV jt + jt (2) P jt = β o + β 3 DIV jt + jt (3) P jt = βo + β 4 CFOPS jt + jt (4) Where: P jt = share price for firm j at the end of the third month of the year E jt = earnings before ordinary items per share for firm j at the end of year t BV jt = book value of equity per share for firm j at the end of year t DIV jt = dividends per share for firm j at the end of year t CF jt = cash flow from operations per share for firm j at the end of year t β o = the intercept 28

8 = error term (part of the share price which is not interpreted by the model) 3.3 Data The study employed secondary data only. The financial statements of the chosen listed companies comprising of the Profit and Loss accounts, Balance Sheet and Cash flow statements provide the source of data we used for this study. For meaningful analysis, variables from the financial statements including bottom line earnings Profit after tax, book value of equity, dividends from profit and loss account and net cash flow from operations were extracted. The firms included in the sample are combination of financial and nonfinancial firms. Data were collected in both time series and cross sectional levels for 57 firms between 1991 and Results and Discussion The results of the pooled regression exploring the functional relationship between earnings, book values, dividends, cash flow and share prices in Nigeria are presented in appendices 1 to 4. The results showed that information on earnings has a direct/positive relationship with share prices in Nigeria. That is, movement in share prices are significantly influenced by movement in company earnings. The result also showed that earning is statistically significant in explaining variations in share prices at 5% level of significance. Testing the overall significance of the model, the results also confirmed that the model is statistically significant at 5% level of significance. Durbin-Watson statistics of 1.98 showed that the data are free from problem of serial correlation. Secondly, the relationship between book values and share prices was analyzed empirically. From the results, it could also be deduced that accounting information on book values has a positive relationship with share prices in Nigeria. That is, trends in share prices are significantly influenced by trends in company book values. The result also showed that information on book values is statistically significant in explaining variations in share prices at 5% level of significance. Testing the overall significance of the model, The F-statistic of confirmed that the model is statistically significant at 5% level of significance. Durbin- Watson statistics of 1.89 showed that the data are free from problem of serial correlation. Also, the relationship between dividends and share prices was analyzed in the same manner and the results of the pooled regression showed that accounting information on dividend payments has a positive relationship with share prices in Nigeria. That is, trends in share prices are significantly influenced by trends in dividend payment. The result also showed that information on dividend payment is statistically significant in explaining variations in share prices at 5% level of significance. Testing the overall significance of the model, The F-statistic of confirmed that the model is statistically significant at 5% level 29

9 of significance. Durbin-Watson statistics of 1.87 showed that the data are free from problem of serial correlation. Finally, the relationship between cash flow from operations and share prices was also analyzed in a testable form and results showed clearly that accounting information on cash flows from operations has a positive relationship with share prices in Nigeria. That is, trends in share prices are significantly influenced by trends in cash flows from operations. The result also showed that information on cash flows is statistically significant in explaining variations in share prices at 5% level of significance. Testing the overall significance of the model, The F-statistic of confirmed that the model is statistically significant at 5% level of significance. Durbin-Watson statistics of 1.88 showed that the data are free from problem of serial correlation. 5. Conclusions and Recommendations Findings from this research revealed that financial accounting information on earnings is value relevant. This is consistent with the study of Beaver (1968) and Foster (1976). This is also consistent with the conceptual framework of this study. From the results on table 1 of the appendices, financial accounting information on earnings also has a positive impact on share prices. This is an indication that share prices can be predicted by trends in earnings. Results also revealed that the net book value has a positive significant relationship with share prices in Nigeria. Results on table 2 revealed that accounting information on earnings has more value relevance than book value. Furthermore, results showed that there is a significant positive relationship between accounting information on dividend payment and share prices in Nigeria. As a matter of fact and with reference to this study, the variable with the least value relevance is dividend payment. This confirms the usefulness and the applicability of the Dividend Irrelevance Theory of Modigliani and Miller in Nigeria. Though, results on table 3 of the appendix revealed that changes/movements in dividend payment can be used to predict stock price movement in Nigeria and implication, a company with poor record of dividend payment is displaying an indication of poor performance. This may appear to be so if dividends contain information about expected earning of the firms (Adaramola; 2012). Lastly it was also revealed that financial accounting information on cash flows has a positive impact on share prices. This is an indication that share prices can be predicted by changes in cash flows from operation. Adjusted R 2 of 70.4% is an indication that financial accounting information on cash flow has a very strong value relevance of share prices in Nigeria. There is no doubt based on the findings of this study that Nigeria investors and policy makers might forecast changes in firms market values with changes in accounting information. The importance of the quality of information sourced from accounting statements cannot be overemphasized. Any effort geared towards improving information 30

10 quality of accounting from accounting records is in a right direction. In view of this, this study therefore recommends that standards should be better complied with by Nigerian companies and that more standards that can improve quality of accounting information should be issued. References Adaramola A. O. (2012), Information Content of Dividend: Evidence from Nigeria, Developing Country Studies, 2(2): Ali A. and Lee-Sheok H. (2000), Country-Specific Factors Related to Financial Reporting and the Value Relevance of Accounting Data. Journal of Accounting Research. 38: Ayers B. C. (1998), Deferred tax accounting under SFAS No. 109: an empirical investigation of its incremental value-relevance relative to APB No. 11. Accounting Review 25(3): 1-34 Ball R. and Brown P. (1968). An Empirical Examination of Accounting Income Numbers Journal of Accounting Research, 6: Ball R., Kothari S. P. and Robin A. (2000). The effect of international institutional factors on properties of accounting earnings. Journal of Accounting and Economics. 29(1): 1-51 Barth M. E., Beaver W. H., and Landsman W. R. (2001), The relevance of the Value Relevance Literature for Financial Accounting Standard Setting: Another View, Journal of Accounting Economics, 31: Barth M. E., Beaver, W. H., and Landsman W. R. (1998), Relative Valuation Roles of Equity Book Value and Net Income as Function of Financial Health Journal of Accounting Economics, 25: Beaver W. H. (1968), The information Content of Annual Earnings Announcements. Journal of Accounting Research, 6: Beaver, W.H., McAnnally, M.L. & Stinson, C.H. (1997). The information content of earnings and prices: a simultaneous equation approach. Journal of Accounting and Economics 23; Bernard V. L. (1996), The Feltham-Ohlson Framework: Implication for Empiricist. Contemporary Accounting Research, 11: Black E. L. (1998) Which is more value relevant: earnings or cash flow? A life cycle examination. Working paper, University of Arkansas, Fayettelville. Arkansas. Bowen R., Burgstahler D., and Daley L. (1987), Evidence of the relationship between earnings and various measures of cash flow. Accounting Review 61: Burgstahler D. C. and Dichev I. D. (1997), Earnings, Adaptation and equity Value, The Accounting Review, April,

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12 Lipe R. (1990), The Relation Between Stock Returns and Accounting Earnings Given Alternative Information. The Accounting Review. January, Liu J. and Thomas J. (2000). Stock returns and accounting earnings. Journal of Accounting Research. 38: Marquardi C. A. and Wiedman C. I. (2004), The Effect of Earnings Management on the Value of Relevance of Accounting Information. Journal of Business Finance Accounting 31: Mingyi H. (2000), Accounting Standards and Value Relevance of Financial Statement: An International Analysis Journal of Accounting Economic 30: Misund B., Osmunden. P. and Asche F. (2005) Valuation of International oil companies. Energy Journal 27:49-64 Ohlson J. A. and Penman S. H. (1992). Disaggregated accounting data as explanatory variables for returns Journal of Accounting, Auditing & Finance 7 (4): Ohlson J. A. (1995), Earnings, Book Values and Dividends in Equity Valuation Contemporary Accounting Research, 11(2: ) Sloan R. G. (1996), Do stock prices fully reflect information in accruals and cash flows about future earnings? Journal of Accounting and Economics 71(3)14-19 Appendices Table 1: Relationship between Share Price (STK) and Earnings (ERN) Dependent Variable: STK? Method: Pooled Least Squares Sample: Included observations: 20 Number of cross-sections used: 57 Total panel (unbalanced) observations: 710 Variable Coefficient Std. Error t-statistic Prob. C _NBL--ERN_NBL* _MOB--ERN_MOB* _MEYER--ERN_MEYER* _UACN--ERN_UACN* _SCOA--ERN_SCOA* _JBREW--ERN_JBREW* _NGCHEM--ERN_NGCHEM* _STUDIO--ERN_STUDIO* _BRISCOE--ERN_BRISCOE* _CAPPA--ERN_CAPPA* _UNIPRESS--ERN_UNIPRESS* _CONOIL--ERN_CONOIL* _AP--ERN_AP* _ENAMEL--ERN_ENAMEL* _CADBURY--ERN_CADBURY* _JHOLT--ERN_JHOLT* _ACAPRESS--ERN_ACAPRESS* _NBC--ERN_NBC*

13 _OANDO--ERN_OANDO* _CCNN--ERN_CCNN* _MANDRID--ERN_MANDRID* _ROADS--ERN_ROADS* _AVONS--ERN_AVONS* _PHADEKO--ERN_PHADEKO* _NROPES--ERN_NROPES* _MAYBAKR--ERN_MAYBAKR* _ASHAKA--ERN_ASHAKA* _ARBICO--ERN_ARBICO* _BPAINT--ERN_BPAINT* _NWIRE--ERN_NWIRE* _UNILEVER--ERN_UNILEVER* _VONO--ERN_VONO* _FLOURMIL--ERN_FLOURMIL* _NESTLE--ERN_NESTLE* _AGLEVENT--ERN_AGLEVENT* _GUINESS--ERN_GUINESS* _PZ--ERN_PZ* _ABOS--ERN_ABOS* _ZENITH--ERN_ZENITH* _STANBIC--ERN_STANBIC* _DIAMOND--ERN_DIAMOND* _WEMA--ERN_WEMA* _UNION--ERN_UNION* _FINLAND--ERN_FINLAND* _FIRST--ERN_FIRST* _AFRI--ERN_AFRI* _ACCESS--ERN_ACCESS* _INTER--ERN_INTER* _UBA--ERN_UBA* _FCMB--ERN_FCMB* _STERLING--ERN_STERLING* _OCEANIC--ERN_OCEANIC* _FIDELITY--ERN_FIDELITY* _ECO--ERN_ECO* _UNITY--ERN_UNITY* _GTB--ERN_GTB* _SKYE--ERN_SKYE* R-squared Mean dependent var Adjusted R-squared S.D. dependent var S.E. of regression Sum squared resid F-statistic Durbin-Watson stat Prob(F-statistic) Note: * significant at 5% Source: Authors Computation Using E-Views Statistical Package. Table 2: Relationship between Share Price (STK) and Book Values (BVL) Dependent Variable: STK? Method: Pooled Least Squares Date: 04/28/13 Time: 04:15 Sample: Included observations: 20 Number of cross-sections used: 57 34

14 Total panel (unbalanced) observations: 773 Variable Coefficient Std. Error t-statistic Prob. C _NBL--BVL_NBL _MOB--BVL_MOB _MEYER--BVL_MEYER _UACN--BVL_UACN _SCOA--BVL_SCOA _JBREW--BVL_JBREW _NGCHEM--BVL_NGCHEM _STUDIO--BVL_STUDIO _BRISCOE--BVL_BRISCOE _CAPPA--BVL_CAPPA _UNIPRESS--BVL_UNIPRESS _CONOIL--BVL_CONOIL _AP--BVL_AP _ENAMEL--BVL_ENAMEL _CADBURY--BVL_CADBURY _JHOLT--BVL_JHOLT _ACAPRESS--BVL_ACAPRESS _NBC--BVL_NBC _OANDO--BVL_OANDO _CCNN--BVL_CCNN _MANDRID--BVL_MANDRID _ROADS--BVL_ROADS _AVONS--BVL_AVONS _PHADEKO--BVL_PHADEKO _NROPES--BVL_NROPES _MAYBAKR--BVL_MAYBAKR _ASHAKA--BVL_ASHAKA _ARBICO--BVL_ARBICO _BPAINT--BVL_BPAINT _NWIRE--BVL_NWIRE _UNILEVER--BVL_UNILEVER _VONO--BVL_VONO _FLOURMIL--BVL_FLOURMIL _NESTLE--BVL_NESTLE _AGLEVENT--BVL_AGLEVENT _GUINESS--BVL_GUINESS _PZ--BVL_PZ _ABOS--BVL_ABOS _ZENITH--BVL_ZENITH _STANBIC--BVL_STANBIC _DIAMOND--BVL_DIAMOND _WEMA--BVL_WEMA

15 _UNION--BVL_UNION _FINLAND--BVL_FINLAND _FIRST--BVL_FIRST _AFRI--BVL_AFRI _ACCESS--BVL_ACCESS _INTER--BVL_INTER _UBA--BVL_UBA _FCMB--BVL_FCMB _STERLING--BVL_STERLING _OCEANIC--BVL_OCEANIC _FIDELITY--BVL_FIDELITY _ECO--BVL_ECO _UNITY--BVL_UNITY _GTB--BVL_GTB _SKYE--BVL_SKYE R-squared Mean dependent var Adjusted R-squared S.D. dependent var S.E. of regression Sum squared resid F-statistic Durbin-Watson stat Prob(F-statistic) Note: * significant at 5% Source: Authors Computation Using E-Views Statistical Package. Table 3: Relationship between Share Price (STK) and Dividends (DIV) Dependent Variable: STK? Method: Pooled Least Squares Date: 04/28/13 Time: 04:17 Sample: Included observations: 20 Number of cross-sections used: 54 Total panel (unbalanced) observations: 547 Cross sections without valid observations dropped Variable Coefficient Std. Error t-statistic Prob. C _NBL--DIV_NBL _MOB--DIV_MOB _MEYER--DIV_MEYER _UACN--DIV_UACN _SCOA--DIV_SCOA _NGCHEM--DIV_NGCHEM _STUDIO--DIV_STUDIO _BRISCOE--DIV_BRISCOE _CAPPA--DIV_CAPPA _UNIPRESS--DIV_UNIPRESS _CONOIL--DIV_CONOIL _AP--DIV_AP _ENAMEL--DIV_ENAMEL _CADBURY--DIV_CADBURY _JHOLT--DIV_JHOLT _ACAPRESS--DIV_ACAPRESS

16 _NBC--DIV_NBC _OANDO--DIV_OANDO _CCNN--DIV_CCNN _MANDRID--DIV_MANDRID _ROADS--DIV_ROADS _AVONS--DIV_AVONS _PHADEKO--DIV_PHADEKO _NROPES--DIV_NROPES _MAYBAKR--DIV_MAYBAKR _ASHAKA--DIV_ASHAKA _ARBICO--DIV_ARBICO _BPAINT--DIV_BPAINT _NWIRE--DIV_NWIRE _UNILEVER--DIV_UNILEVER _VONO--DIV_VONO _FLOURMIL--DIV_FLOURMIL _NESTLE--DIV_NESTLE _AGLEVENT--DIV_AGLEVENT _GUINESS--DIV_GUINESS _PZ--DIV_PZ _ABOS--DIV_ABOS _ZENITH--DIV_ZENITH _STANBIC--DIV_STANBIC _DIAMOND--DIV_DIAMOND _WEMA--DIV_WEMA _UNION--DIV_UNION _FINLAND--DIV_FINLAND _FIRST--DIV_FIRST _AFRI--DIV_AFRI _ACCESS--DIV_ACCESS _INTER--DIV_INTER _UBA--DIV_UBA _FCMB--DIV_FCMB _STERLING--DIV_STERLING _FIDELITY--DIV_FIDELITY _UNITY--DIV_UNITY _GTB--DIV_GTB _SKYE--DIV_SKYE R-squared Mean dependent var Adjusted R-squared S.D. dependent var S.E. of regression Sum squared resid F-statistic Durbin-Watson stat Prob(F-statistic) Note: * significant at 5% Source: Authors Computation Using E-Views Statistical Package. Table 4: Relationship between Share Price (STK) and Cash Flows from Operations (CFL) Dependent Variable: STK? Method: Pooled Least Squares Date: 04/28/13 Time: 04:21 Sample: Included observations: 20 Number of cross-sections used: 57 Total panel (unbalanced) observations: 670 Variable Coefficient Std. Error t-statistic Prob. C

17 _NBL--CFL_NBL _MOB--CFL_MOB _MEYER--CFL_MEYER _UACN--CFL_UACN _SCOA--CFL_SCOA _JBREW--CFL_JBREW _NGCHEM--CFL_NGCHEM _STUDIO--CFL_STUDIO _BRISCOE--CFL_BRISCOE _CAPPA--CFL_CAPPA _UNIPRESS--CFL_UNIPRESS _CONOIL--CFL_CONOIL _AP--CFL_AP _ENAMEL--CFL_ENAMEL _CADBURY--CFL_CADBURY _JHOLT--CFL_JHOLT _ACAPRESS--CFL_ACAPRESS _NBC--CFL_NBC _OANDO--CFL_OANDO _CCNN--CFL_CCNN _MANDRID--CFL_MANDRID _ROADS--CFL_ROADS _AVONS--CFL_AVONS _PHADEKO--CFL_PHADEKO _NROPES--CFL_NROPES _MAYBAKR--CFL_MAYBAKR _ASHAKA--CFL_ASHAKA _ARBICO--CFL_ARBICO _BPAINT--CFL_BPAINT _NWIRE--CFL_NWIRE _UNILEVER--CFL_UNILEVER _VONO--CFL_VONO _FLOURMIL--CFL_FLOURMIL _NESTLE--CFL_NESTLE _AGLEVENT--CFL_AGLEVENT _GUINESS--CFL_GUINESS _PZ--CFL_PZ _ABOS--CFL_ABOS _ZENITH--CFL_ZENITH _STANBIC--CFL_STANBIC _DIAMOND--CFL_DIAMOND _WEMA--CFL_WEMA _UNION--CFL_UNION _FINLAND--CFL_FINLAND _FIRST--CFL_FIRST _AFRI--CFL_AFRI _ACCESS--CFL_ACCESS _INTER--CFL_INTER _UBA--CFL_UBA _FCMB--CFL_FCMB _STERLING--CFL_STERLING _OCEANIC--CFL_OCEANIC _FIDELITY--CFL_FIDELITY _ECO--CFL_ECO _UNITY--CFL_UNITY _GTB--CFL_GTB _SKYE--CFL_SKYE

18 R-squared Mean dependent var Adjusted R-squared S.D. dependent var S.E. of regression Sum squared resid F-statistic Durbin-Watson stat Prob(F-statistic) Note: * significant at 5% Source: Authors Computation Using E-Views Statistical Package. 39