Determinants Of Stock Price Fluctuation In Nigerian Quoted Firms
Chapters: 1-5 | Type: Project
Abstract
Stock prices serve as the basis for the assessment of whether a firm is breaking even or not. These prices are relevant metrics of returns to stakeholders, therefore the value attached to them matters so much to both existing and prospective investors in the capital market. This study thus examined by a means of robust analysis, factors that determine stock price movement in Nigeria for the period 2001 - 2011. Data were sourced from the financial statements of 99 listed firms in the Nigerian Stock Exchange. The analysis of the data sourced was done with the Ordinary Least Square (OLS) method. The results suggest that earnings per share, book value per share and dividend cover serve as factors in the determination of stock prices. The results of the study thus calls for recommendation that the government and policy makers in Nigeria should implement more stringent rules, backed up by legislations that will enhance the information reported in the financial statements of firms listed on the Nigeria Stock Exchange as well as compelling listed firms to adopt IFRS. Also, the accounting information reported in the capital market should constantly reposition itself in response to changing expectations. This implies that it should be viewed as an open system and in other words, feedback both from within and outside its environment should drive the constant repositioning of accounting information.
Chapter One
Introduction
1.1 Background of the Study
In recent years, the Nigerian economy has been subjected to a series of political and social reforms, political and economic. Before a decade after independence, the country was largely agrarian and various regional governments and largely achieved food security. Years, the establishment of the Nigerian Stock Exchange (formerly the Lagos Stock Exchange) encouraged private capital venture for development and growth in order to develop the capital market. Past and present scholars have estimated that the investment that promotes economic growth and development requires long-term funding, much longer than the period during which most investors are willing to commit their funds. In the capital market, both local and foreign investors to provide long-term funds in exchange for long-term financial assets offered by users of funds. Ologunde (2006) said that the market for both new issues (primary) market and secondary market embrace.
In general, the financial markets are the heart of any economy since their ability to respond instantly to changing the fundamental problems in all countries. In addition, it encourages savings and real investment in a healthy economic environment.
Aggregate savings are geared toward real investment that increases the capital stock and therefore the country"s economic growth. These capital market attributes allow the spirit of discernment to feed the momentum of such an economy. Nigeria Stock Exchange is not an exemption because it is expected to be influenced by external shocks, which are outside the domain of the capital market. External shocks are the macroeconomic indicators that should cause variation in the movement of stock prices. Maku and Atanda (2009) argued that these changes often result in the size and movement of share prices, the market index and market liquidity. Nevertheless, it is a known fact that market liquidity is an important attribute of the development of the stock market. Liquid markets essentially improve the mobilization and allocation of capital and thus improve growth prospects in the long term installation. Since liquidity allows investors to quickly adjust and at minimal cost, it performs less risky investments (Omole, 2007.) The recent financial crisis has made the Nigerian capital market illiquid, which caused the trend the decline in the market. In turn, the capital is becoming less attractive for long-term investors and very risky to invest. The perceived risks associated with investing in the Nigerian market are high. Because of this risk, foreign investors are patronizing other emerging markets, even before the recent global financial crisis.
According Nwude (2004), the capital market is a market for securities, where companies and governments can raise long- term assets. It is distinct as a market where cash is delivered for periods longer than one year, as the collection of short-term assets takes place on the cash market. The capital market includes the stock (shares) and the bond market (debt). Basically, financial regulators undertake surveillance of capital markets in their designated jurisdictions to protect investors against fraud, among other functions (Onoh, 2002).
The stock market has become an important market to play a vital role in the economic prosperity that the promotion of capital formation and support economic growth. Stock markets are more than a place to trade in securities; they function as a facilitator between savers and users of capital through the pooling of funds, risk sharing, and transfer of wealth. Stock markets are essential for economic development, as they guarantee the stream of assets to the most productive investment opportunities (Kurihara, 2006).
Stock Price fluctuation implies that share prices change because of supply and demand. If more people want to buy a stock (demand) than offer it (supply), then the cost goes up. Conversely, if more people wanted to sell a stock to buy, there would be more supply than demand, and prices fall (Joshua, 2014).
The inability to understand the issues surrounding the share price and its determinants has been the scourge of the financial provision of many societies today investor participation in the assets of a business is usually affected by its history of stock price; that sums up the quality of the company"s operations. It is pertinent to note that, after more than thirty-five years of exchanging on the Nigerian Stock Exchange, brokers must still evolve an acceptable and uniform pricing formula for listed securities on the exchange. There are cases of brokers justify movement in the price of a security solely because of demand or customer statement without reference to other parameters of the pricing.
In addition, managers of many businesses today are unaware of the effects of the composition of the Board on the action (Heaps, 2010). The market is characterized by poor infrastructure, thus causing delays in the completion of transactions between issuing houses, brokers, registrars, investors and their banks mainly due to the inadequacy of our services postal and telegraph. Hence this study aims to examine the effect of financial performance, dividend payments and leverage on the share price of companies operating on the market of the Nigerian Stock Exchange.
Stock prices are the basis for determining whether a business is the break even or not. These prices are the relevant performance measures for stakeholders; therefore, the value attached to them is so important for current and potential investors in the capital market. The data were drawn from the financial statements of companies listed on the Nigerian Stock Exchange. Data analysis will be from ordinary least squares (OLS). The results suggest that earnings per share, book value per share and dividend cover are used as factors in determining stock prices. The results of the study therefore requests the recommendation that the government and policy makers in Nigeria should implement stricter rules, supported by legislation that will improve the information presented in the financial statements of listed companies Nigeria Stock Exchange and compelling listed companies to adopt IFRS. In addition, the accounting information reported in the capital market must constantly reposition themselves in response to changing expectations. This implies that it should be considered as an open system and in other words, the ratings for both indoor and outdoor environment should allow constant repositioning of accounting information.
According to Joshua, (2014) the stock market is basically a mammoth closeout - just rather than collectibles and family heirlooms, it"s ownership in companies is at stake shares trade at places called exchange. During these exchanges, traders buy and sell shares of companies. Usually the cost of an offer is dictated by supply and request. For example, if there are more people who want to buy a stock than sell it, the price will be driven up because those actions are rare and people will pay a higher price for them. On the other hand, if there are many shares to sell and are not interested in buying, the price will quickly drop. For this reason, the market may appear to fluctuate generally. Regardless of the possibility that there is nothing amiss with an organization, a shareholder who wants to sell millions of shares at a time can drive the share price down, simply because there not enough people interested in buying the stock, it is trying to sell. Since there is no genuine interest for the organization he sells, he is forced to accept a lower price (Joshua, 2014).
1.2 Statement of the Problem
Stock price fluctuates in the opposite direction of its worth. Novel verdicts or evaluation improvements and benefit the prediction of change in share price. It is impossible to invent a model able to predict the price change of the action precisely because the stock price is going around rather than its value is for the most part. It makes no sense to test a financial model bases or assessment on the accuracy of forecasting stock price in most cases. Although it would be unthinkable to wait an accurate prediction, the prediction can undoubtedly underpin the investment decision of relevant decisions and regulatory policy.
Companies of reality can respond to events or changes in their operations. Such as fierce competition from other companies, changes in demand from (companies" sales customers), in particular the cost of changing input costs or variable costs, the change in price of the product in force the market, etc. These changing circumstances affect the profits of the companies and their stock value and prices.
Stock prices change every day in light of business sector strengths. By this we imply that share prices change because of supply and demand. If more people need to buy a stock (demand) than sell it (supply), at that point the price goes up. Conversely, if more people wanted to sell a stock to buy, there would be more supply than demand, and prices fall.
Understand supply and demand is easy. What is challenging to comprehend is what makes people like a specific stock and like another stock. Which is to determine what news is positive for the company and what news is negative. There are numerous responses to this issue and pretty much any speculator you ask has their own particular thoughts and methodologies.
The most important factor that affects the value of a company is earnings. The gains are the result of a business does, and in the long term No business can survive without them. It bodes well when you consider it. On the off chance that an organization never makes money, it will not stay in business.
Stock prices can rise and fall for a countless of reasons. When looking at short-term changes in the price of a stock, you must recognize if the price is the result of a catalyst or just the day to day fluctuations of trading. If the catalyst is a serious threat to the profitability of a company, it may be prudent to sell (or at least reduce the position) the stock, even at a misfortune.
Then again, if an impetus diminishes the cost of a stock and has no impact on the consequences of a substantial business or future development, consider buying at the lowest price to get a good deal.
Prices change in the long term, mainly in response to the growth of a particular stock earnings and earnings. Stock prices also move in the long term based on the actions of the Federal Reserve and the general state of the economy in these things influence the results of the companies in the long term. Ignore changes in the Fed and the economy at a peril. The essential things to get a handle on about this subject are the accompanying:
At the most fundamental level, the supply and demand on the market that determines the stock price.
Price times the number of outstanding shares (market capitalization) is the value of a company. By simply comparing the price of the shares of two companies is meaningless.
Theoretically, earnings are what affect the valuation of company investors, but there are other indicators that investors use to predict stock prices. Remember, its feelings, attitudes and expectations of investors that affect ultimately the stock price.
There are several theories that attempt to explain how stock prices move as they do. Unfortunately, there is not a theory that can explain everything.
1.3 Purpose of Study
The general purpose is to investigate determinants of Stock Price Fluctuation in Nigerian Quoted Firms,
Specifically the study sought to:
Examine causes of stock price fluctuation in Nigerian quoted firms
Discover the variation in financial structure of Nigerian quoted firms
Establish the efficacy of financial regulators in undertaking surveillance of capital markets
Identify stock price fluctuation problems in Nigerian quoted firms. Stock Price Fluctuation
1.4 Research questions
How does stock price fluctuation affect the performance of Nigerian quoted firms?
What are the internal and external financial regulations mechanisms in place regarding stock price fluctuation problems?
What are the systemic problems militating against stock price In Nigerian quoted firms?
What are the solutions to such problems?
1.5 Research Hypothesis
HO1: There is no significant relationship between stock price fluctuation and the performance of Nigerian quoted firms.
HO2: There is no significant influence of internal and external financial regulations on stock price.
HO3: There is no significant systemic problems militating against stock price In Nigerian quoted firms.
1.6 Scope of the Study
The scope of the study is restricted to the Determinants of Stock Price Fluctuation in Nigerian Quoted Firms with regard to five selected firms listed on the Nigerian Stock Exchange (NSE) which comprises of Dangote Flour Mills Plc, Flour Mills Nigeria plc, Guinness Nigeria plc, Honeywell Flour Mills plc, and Nestle Nigeria Plc
1.7 Significance of the Study
The stock market plays an imperative heroine in the economy of a country an important role in the allocation of resources, both directly as a source of funding and as a determinant of the value of companies and its ability to loan (Tease 2009). It provides boulevard for investment and capital formation and can act as an indicator or predictor of the overall economic situation. It functions as an intermediary between savers and companies seeking additional funding for business expansion, which led to industrialization and the creation of employment opportunities leading to better living standards of society. It provides a platform for individuals, governments, businesses and organizations to exchange and put resources into investment funds through the buy of shares.
A stock market is very important for sustainable economic growth, because it can ensure the flow of resources to the most productive investment opportunities. So, as an important institution of a country, the stock market is a big concern for investors, stakeholders and government. The price of a share market is a key factor affecting the decision to invest in the stock investors. The share price is one of the most important indicators available to investors for their decision to invest or not in a given action (Gill 2012). The share price on the market are not static, rather it changes every day. The most obvious factors that influence are factors of demand and supply. The price of a commodity is affected by both microeconomic and macroeconomic factors. According Gompers (2003), in the securities market, whether primary or secondary, the stock price may be strongly influenced by a number of environmental micro including dividend per share factors, the book value (value of assets ) of the company, earnings per share, price earnings ratio and dividend cover etc.
The study adds to the current collection of learning, as well as make up for the scarcity of scholarly papers in Nigeria on companies" financial structure and their market values. Also, the findings of this study will aid an effective also, productive financing choice of firms in Nigeria. Experts and financial analysts will find the study helpful in their financial and advisory services to failing and distressed companies.
It is believed that the proposition from this study will help the masses have more knowledge on what Stock Price Fluctuation is all about.
1.8 Limitations of the Study
Constraints are:
Time: The time has been a major obstacle which lobbied against the objectives of research, especially as the researcher had to carry out in the middle of the academic pressure.
Finance: Finance is the thread of life of any business and any research, posed a major obstacle that greatly militated against the realization of the acquisition of stationery necessary for work.
Negative attitude of some people interviewed some respondents are not willing to give the required information is necessary due to the fact that they think the research is to know about their private lives, this has militated against the achievement of objectives researchers. Stock Price Fluctuation.
Chapter Five
Conclusion / Recommendations
In the latest years, academic research has shown that in an increasing number of countries, certain accounting parameters affect stock price movements and also that this effect becomes stronger with time. In the context of this study, earnings per share, book value per share and dividend cover of 99 listed firms were examined in the Nigerian Stock Exchange during the period 2001-2011. The result is indicative that the explanatory power of earnings per share, book value per share and dividend cover are statistically significant in explaining the movement in stock prices. In an attempt to interpret this finding, it is assumed that earnings per share, book value per share and dividend cover are major determinants of stock price movement in the Nigerian Stock Exchange. We therefore argued that the importance of our study lies with the consideration that it is one of the few studies that explicitly evaluate other accounting parameters (earnings per share, book value per share and dividend cover). It is therefore concluded that sustainable development of the capital market in Nigeria can be boosted through reliable accounting information because without confidence in it, investor"s confidence erodes, liquidity dries up, fair and efficient markets simply cease to exist and in turn, investors will not invest adequately the capital market.
The results of the study thus calls for a recommendation that the government and policy makers in Nigeria should implement more stringent rules, backed up by legislations that will enhance the information reported in the financial statements of firms listed on the Nigeria Stock Exchange as well as compelling listed firms to adopt IFRS. The adoption of IFRS will compel diligence, accountability and responsibility in preparation and application of accounting standards. There should be an inclusion of flexibility of information into the accounting information system so that the awareness of its benefits can be created. The inclusion of information on flexibility is however only feasible if it provides decision-useful information (i.e. if it understood by users); Also, the accounting information reported in the capital market should constantly reposition itself in response to changing expectations. This implies that it should be viewed as an open system and in other words, feedback both from within and outside its environment should drive the constant repositioning of accounting information. Finally, stock prices are influenced by other factors like speculation, forced sales, gambling and rumour. These factors have been held constant and do not form part of this paper but should be considered in the determination of stock prices.
Click this button to request for the Determinants Of Stock Price Fluctuation In Nigerian Quoted Firms complete material
Chat on WhatsApp to Request Material