Firms’ Specific Characteristics and Stock Market Returns (Evidence from Listed Food and beverages Firms in Nigeria)

Abstract

Because of the mix of opinion in the literature, the mix of empirical findings, and the limited empirical works on the relationship between firms’ specific characteristics and Stock Market Returns particularly with reference to listed food and beverages firms in Nigeria, it is not out of place to conduct further research on this area to ascertain position. Hence, the study investigated the impact of certain firms’ attributes namely: Market Capitalization, Debt-to-Equity Financing and Earnings per Share on Stock Market Returns of listed food and beverages firms in Nigeria for the period 2007-2013. The population comprises all the twenty-one (21) food and beverages firms listed on the Nigerian Stock Exchange (NSE) December, 2013. Out of which nine (9) firms constitute the sample of the study. The study adopted both correlation and ex-post facto research design. The data for the study was purely from secondary sources obtained from the annual reports of the sampled firms as well as NSE fact book. Data was analyzed using several options of multiple panel data regression. But the most robust of all is OLS regression as suggested by ‘Breusch and Pagan Lagrangian Multiplier Test for Random Effect’. The findings revealed that Market Capitalization has a significant negative impact on Stock Market Returns of listed food and beverages firms in Nigeria; while the impact of Debt-to-Equity Financing and Earnings per Share on Stock Market Returns are found to be positive and statistically significant. Based on these findings the study recommend as follows: that government and policy maker (Security and Exchange Commission) should design and implement more stringent rule where firms will be compelled and monitored on providing high quality financial reporting, so as to be reporting earnings that reflect their actual performance. This would prevent investors from falling on to the trap of earnings manipulation (as it happened to shareholders of Cadbury Nigeria plc.). In addition, prospective investors should not only focus on huge returns for investing in smaller capitalized or high levered firms; rather, further analysis need to be carried out to tradeoff between risk and returns.

Keywords: market capitalization, debt-to-equity financing, earnings per share, stock market returns and stock market