Effect of Firm Characteristics on Shareholders’ Funds
Chapter One
Researchย Objectiveย
To determine how firm characteristics affect share returns of corporations quoted at the NSE.
CHAPTERย TWO:ย
LITERATUREย 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 studyโs conceptual model and finally a summary of the reviewed studies.
Theoreticalย Review
The efficient market hypothesis, the market power hypothesis and the resource-based model were adopted as the main theories for this study.
Efficientย Marketย Hypothesis
Fama (1970) developed the EMH which suggests that in an efficient market, any informationย releasedย byย theย companyย badย orย goodย willย reflectย inย itsย shareย priceย quickly,ย bad information will immediately result to decline in the price and good price immediate appreciationย ofย theย priceย (Pech,ย Nogueraย &ย White,ย 2015).ย Theย theoryย postulatesย thatย equity values will entirely reflect all the obtainable information, and make even unaware stockholdersย who buyย aย diversified investmentsย basedย onย market pricesย asย generousย asย the expert achieves (Degutis & Novickytฤ, 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 & Novickytฤ, 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 theoryย suggests that the stochasticย behaviourย ofย sharesย pricesย providesย informationย regardingย marketย prospectsย and investors attitudes towards risks (Pech, Nogueraย & White, 2015). In this study, the EMH explainsย thatย anย investorย willย makeย theirย investmentย plansย basedย onย aย fundamentalย 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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CHAPTERย THREE:ย
RESEARCHย METHODOLOGY
ย 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.
Researchย Design
Aย studyย designย refer toย the tactic byย whichย theย investigatorย answersย theย studyย problemย and entails the tools ofย collecting data andย theย techniques ofย dataย analysis a researcher intends to use (Upagade & Shende, 2012). To realize the research aims, a descriptive research designย wasย employed. Aย descriptiveย tacticย helpsย toย identifyย who,ย what,ย where,ย andย inย what way an event is the core aim of a study. A descriptive design is generally organized and preciselyย intendedย to studyย theย characteristicsย termed inย theย researchย questionsย (Sekaranย & Bougie, 2011).
Populationย ofย theย 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 studyโ population consisted of the 64 NSE quoted enterprises. The study undertook a census of the 64 since the population was small and well defined.
CHAPTERย FOUR:ย
DATAย ANALYSIS,ย RESULTSย AND INTERPRETATIONS
Introduction
Thisย chapterย presentsย theย outcomesย ofย theย evaluatedย studyย dataย whichย entailsย theย descriptive and inferentialย statistics. Theย chapter also present anย interpretationย ofย the researchย results.
CHAPTERย FIVE:ย
SUMMARY,ย CONCLUSIONย 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.
Summaryย ofย 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 modelย were adopted asย theย mainย theories forย thisย study. To realize the study goals, a descriptive research design was employed and population consisted of theย 64ย corporationsย atย NSE.ย Dataย forย theย researchย wasย secondaryย inย natureย andย wasย gathered via a data collection sheet for a 5 years period ranging from 2014 to 2018. Descriptive statisticalย tools were adoptedย 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, theย averageย valueย forย market capitalizationย wasย 18.2077 whileย theย averageย valueย forย 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.ย Theย resultsย alsoย revealedย that firmย age,ย ROAย andย DPRย hadย weakย andย positive correlations with share prices respectively. Finally, the correlations between market capitalization, board size were found to be weak and positive respectively.
Theย regressionย findingsย revealedย that firmย sizeย positivelyย andย significantlyย impactedย 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 equityย returnsย respectively.ย Theย studyย alsoย documentedย aย positiveย andย insignificantย relation between DPR and equity returns whereas the relation between market capitalization and shareย returnsย wasย positiveย andย significantย whileย boardย sizeย hadย aย negativeย andย insignificant linkage with equity yields respectively.
ย Conclusions
Theย studyย outcomesย documentedย aย positiveย andย significantย linkย betweenย firmย sizeย andย 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 positiveย andย significantย relationย withย shareย returns.ย Theย researcherย thereforeย concludesย that revenue growth significantly affects share returns of NSE quoted corporations.
The study findings further documented that firm age had insignificant and a positive relationย with equity yields. The authorย thus concludes that firmย age does not significantly impact equity returns of NSE listed companies.ย The results also documented that profitabilityย hadย aย significantย andย positiveย relationย withย shareย returns. Theย studyย 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 stockย returns.ย Theย authorย thusย concludesย thatย dividendย payoutย insignificantlyย impactsย 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 documentedย aย negativeย and insignificant relationย ofย boardย sizeย onย shareย returns. Theย study thus concludes that the size of the board insignificantly affects NSE quoted corporations equity yields.
Recommendations
Theย studyย concludedย thatย firmย sizeย positivelyย andย significantlyย affectsย shareย returnsย ofย NSE listedย companies.ย Theย studyย basedย onย thisย conclusionย recommendsย thatย theย managementย 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 firmsโ 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 wellย asย theย youngย businessesย quotedย atย NSEย shouldย adoptย policyย andย strategicย measuresย on research and diversification to improve their firmsโ 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 thatย theyย increase the profitabilityย ofย their firmย 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 theย NSEย quotedย entities.ย Theย authorย thusย recommendsย thatย theย NSEย andย theย Nigerianย 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 appropriateย boardย size,ย whichย isย diverseย inย termsย ofย independence,ย gender,ย experience, and education since the board is key in making effective and strategic decisions for any firm.
Limitationsย ofย theย 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 studyโs 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 statementsย ofย accounts.ย However,ย secondaryย dataย isย historicalย inย natureย andย doesย notย reflect the firm current and future prospects. In addition, secondary data does not capture qualitative factors and other managerial decisions by the firmsโ management. Further, different firmsย useย different accountingย standardsย whichย mayย leadย toย different interpretation of the calculated financial ratios.
The study further focused only on firm size, age, revenue growth and DPR as the fundamentalย indicatorsย ofย firmย characteristicsย thusย theย findingsย areย basedย onย theย 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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- Akwe,ย J.ย A.,ย &ย Garba,ย S.ย B.ย (2019).ย Effectsย ofย internalย andย externalย factorsย onย stockย returns of large size firms in Nigeria. Global Journal of Accounting, 5(1), 44-56.
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