THE VALUE RELEVANCE OF BOOK VALUE, EARNINGS AND PRICE EARNING RATIO ON SHARE PRICE OF DEPOSIT MONEY BANKS IN NIGERIA

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THE VALUE RELEVANCE OF BOOK VALUE, EARNINGS AND PRICE EARNING RATIO.pdf (2.24 MB)

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2011-12-01

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Department of Accounting Nasarawa State University Keffi.

Abstract

Book value and earnings are key variables in valuation process of firms' value. However, the way each of the variable impact on the valuation remains a question to be answered. This paper, therefore, is aimed at testing the value relevance of three accounting variables on share price of money deposit banks in Nigeria. Value relevance is the ability of a variable contained in financial statements to explain the stock market measures. Data is sourced from seven banks for five years period 2003 to 2007. Ohlson ’s model is modified to have Brice as a function of Book Values, Earnings and Price-Earnings Ratio. Linear regression is used as a technique. The results show that the all variables have a significant aggregate impact at 5c/o level of significant. On individual basis the paper establishes that there is positive relationship between all the variables and the market value of the firms. On the basis of these findings, the paper recommends that the firms should give more attention to comprehensive earnings as it can affect book value. The comprehensive earnings include net income from the income statement, foreign exchange translation, charges to balance sheet items and the opportunity cost of options exercised. Added to this, the banks should not purchase their own shares as it can decrease total book value.

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https://keffi.nsuk.edu.ng/handle/20.500.14448/693

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