Effect of Firm Characteristics on Shareholders’ Funds
Chapter One
Research Objective
To determine how firm characteristics affect share returns of corporations quoted at the NSE.
CHAPTER TWO:
LITERATURE REVIEW
Introduction
This chapter highlights the reviewed theories under the theoretical review, the various determinants of share returns and a number of studies on the study variables under the empirical review. The chapter also presents the study’s conceptual model and finally a summary of the reviewed studies.
Theoretical Review
The efficient market hypothesis, the market power hypothesis and the resource-based model were adopted as the main theories for this study.
Efficient Market Hypothesis
Fama (1970) developed the EMH which suggests that in an efficient market, any information released by the company bad or good will reflect in its share price quickly, bad information will immediately result to decline in the price and good price immediate appreciation of the price (Pech, Noguera & White, 2015). The theory postulates that equity values will entirely reflect all the obtainable information, and make even unaware stockholders who buy a diversified investments based on market prices as generous as the expert achieves (Degutis & Novickytė, 2014).
The theory applies the notion of rational principles to conclude that stockholders purchase equities with above-average returns, and those who with lower returns (Degutis & Novickytė, 2014). By doing so, they increase stock prices, which are expected to generate above-average returns, and lower prices for those who are expected to underperform. Stock prices will be adjusted until the expected risk-adjusted returns are no longer equal for all stocks (Malaolu, Ogbuabor & Orji, 2013). The theory supports that a fundamental analysis of the business features is a convenient tool for stockholders to predict share returns (Iqbal, Khattak & Khattak, 2013).
The EMH asserts that stockholders try to beat the assets market by forecasting prospect stock market happenings (Iqbal, Khattak, & Khattak, 2013). The theory suggests that the stochastic behaviour of shares prices provides information regarding market prospects and investors attitudes towards risks (Pech, Noguera & White, 2015). In this study, the EMH explains that an investor will make their investment plans based on a fundamental analysis and will depend on various sources of information about the company, such as income statement, balance sheet, annual reports and corporate pronouncements.
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CHAPTER THREE:
RESEARCH METHODOLOGY
Introduction
This section highlights the study design, the population, the procedure of data gathering and the data analysis approach comprising of the analytical model and the tests of significance.
Research Design
A study design refer to the tactic by which the investigator answers the study problem and entails the tools of collecting data and the techniques of data analysis a researcher intends to use (Upagade & Shende, 2012). To realize the research aims, a descriptive research design was employed. A descriptive tactic helps to identify who, what, where, and in what way an event is the core aim of a study. A descriptive design is generally organized and precisely intended to study the characteristics termed in the research questions (Sekaran & Bougie, 2011).
Population of the Study
Population entails the total group of things or individuals that the investigator is keen in drawing conclusions as well as suggestions (Sekaran & Bougie, 2011). This study’ population consisted of the 64 NSE quoted enterprises. The study undertook a census of the 64 since the population was small and well defined.
CHAPTER FOUR:
DATA ANALYSIS, RESULTS AND INTERPRETATIONS
Introduction
This chapter presents the outcomes of the evaluated study data which entails the descriptive and inferential statistics. The chapter also present an interpretation of the research results.
CHAPTER FIVE:
SUMMARY, CONCLUSION AND RECOMMENDATIONS
Introduction
This chapter entails a summary of the study findings, conclusions as well as the study recommendations. The section highlights the study limitations and parts that require additional research.
Summary of Findings
This study intended at determining how firm characteristics impacts on equity returns of companies quoted at NSE. The efficient market hypothesis, the market power hypothesis and the resource-based model were adopted as the main theories for this study. To realize the study goals, a descriptive research design was employed and population consisted of the 64 corporations at NSE. Data for the research was secondary in nature and was gathered via a data collection sheet for a 5 years period ranging from 2014 to 2018. Descriptive statistical tools were adopted to summarize data and the regression model, which used to assess the link between the response and explanatory variables. Complete data was obtained from 57 companies thus an 89.1% response rate.
Descriptive results revealed that the mean value for share returns was -0.07745 with a minimum while the average value of firm size was 15.9833 whilst the mean value for revenue growth was -0.00752 correspondingly. The study documented that the average value for age of the entities was 60.26 while the average ROA was 0.02282 whereas the average value for dividend payout (DPR) was 0.25752 respectively. Based on the findings, the average value for market capitalization was 18.2077 while the average value for board size was 8.91 respectively.
Correlation results documented that firm size a weak and negative association on share returns while revenue growth had a weak but positive relationship with share returns respectively. The results also revealed that firm age, ROA and DPR had weak and positive correlations with share prices respectively. Finally, the correlations between market capitalization, board size were found to be weak and positive respectively.
The regression findings revealed that firm size positively and significantly impacted share returns whilst revenue growth positively and significantly impacted share returns respectively. The results also indicate that firm age had insignificant but a positive link with share returns while profitability (ROA) had a significant and positive relation with equity returns respectively. The study also documented a positive and insignificant relation between DPR and equity returns whereas the relation between market capitalization and share returns was positive and significant while board size had a negative and insignificant linkage with equity yields respectively.
Conclusions
The study outcomes documented a positive and significant link between firm size and share returns. The study thus concludes that firm size positively and significant affects share returns for NSE quoted entities. The author also documented that revenue growth had a positive and significant relation with share returns. The researcher therefore concludes that revenue growth significantly affects share returns of NSE quoted corporations.
The study findings further documented that firm age had insignificant and a positive relation with equity yields. The author thus concludes that firm age does not significantly impact equity returns of NSE listed companies. The results also documented that profitability had a significant and positive relation with share returns. The study concludes that profitability significantly affects equity yields of the corporations quoted at NSE.
Additionally, the study documented a positive and insignificant link between DPR and stock returns. The author thus concludes that dividend payout insignificantly impacts share yields of the companies quoted at NSE. The study revealed market capitalization significantly and positively affects share returns, thus the study concludes that stock liquidity significantly affects share returns of NSE listed enterprises. Lastly, the study documented a negative and insignificant relation of board size on share returns. The study thus concludes that the size of the board insignificantly affects NSE quoted corporations equity yields.
Recommendations
The study concluded that firm size positively and significantly affects share returns of NSE listed companies. The study based on this conclusion recommends that the management of corporations quoted at NSE ought to invest more in fixed assets to growth their firms in terms of size as growth in assets positively affect share returns. In addition, entity size remains a key aspect in for assessing an enterprises profitability, given the economies of scale concept and determines the realization of stability and profitability.
The study results led to the conclusion that revenue growth significantly affects share returns of the companies quoted at NSE. Hence, the study recommends NSE quoted firms management should adopt effective strategies to enhance sales and revenue growth to enhance the value of the firms’ shares hence shares returns. In addition, firms with high growth potential effectively diversify their growth opportunities leading to superior performance that lead to greater equity returns.
The third conclusion of the study was that firm age insignificantly impacts NSE quoted corporations equity yields. The study however recommends that the boards of mature as well as the young businesses quoted at NSE should adopt policy and strategic measures on research and diversification to improve their firms’ performance.
The fourth conclusion was that profitability significantly affects share returns of the companies quoted at NSE. Hence, the author recommends that the quoted firms management should ensure that they increase the profitability of their firm to enhance the value of their shares as well as share returns.
The study finding also led to the conclusion that dividend payout does not significantly affect share returns of the companies quoted at the NSE. The study thus recommend that the management of the listed firms should focus on investing decisions which would enhance the value of the firms as well as share returns as per the Modigliani And Miller (1958) theory which states that dividend decisions are irrelevant.
In addition, the researcher concluded stock liquidity significantly affects share returns of the NSE quoted entities. The author thus recommends that the NSE and the Nigerian capital markets should develop strategic policies to ensure the market is liquid as illiquidity imposes various costs on the investor and adversely affect share returns.
Lastly, the study made the conclusion that board size insignificantly impacts equity yields of NSE quoted entities. The study however recommends that listed firm should have the appropriate board size, which is diverse in terms of independence, gender, experience, and education since the board is key in making effective and strategic decisions for any firm.
Limitations of the Study
This study concentrated on the listed corporations at NSE only hence the study did not focus on various segments at the NSE. Thus, the findings may not be generalized to the other various segments at the Nigerian securities bourse. Further, the study’s context was Nigeria thus the outcomes may not be generalized to other countries other than Nigeria.
The study data was secondary in nature and was wholly obtained from the listed firm statements of accounts. However, secondary data is historical in nature and does not reflect the firm current and future prospects. In addition, secondary data does not capture qualitative factors and other managerial decisions by the firms’ management. Further, different firms use different accounting standards which may lead to different interpretation of the calculated financial ratios.
The study further focused only on firm size, age, revenue growth and DPR as the fundamental indicators of firm characteristics thus the findings are based on the considered study variables. The paper also used the regression model and the descriptive research methods hence the findings are based on the considered methodology. The study further covered only 5 years between 2014 and 2018 thus the findings may not be generalized to the previously used periods.
REFERENCES
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- IOSR Journal of Business and Management, 16(2), 66-69.
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- Akwe, J. A., & Garba, S. B. (2019). Effects of internal and external factors on stock returns of large size firms in Nigeria. Global Journal of Accounting, 5(1), 44-56.
- Alawattegama, K. K. (2017). The impact of the adoption of enterprise risk management on the industrial financial performance. International Journal of Research in Business and Social Science, 6(6), 9-20.
- Ali, S., Hashmi, S. H., & Mehmood, T. (2016). Corporate diversification and firm performance: An inverted U-shaped hypothesis. International Journal of Organizational Leadership, 5(4), 381-398
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