Financial Crisis, Firm Fundamentals and the Pricing of Bank Stocks in Nigeria – Analysis from a Panel of Banks

Abstract

Nigerian stock market was rated low before the year 2006. The rating changed afterwards to one of the emerging market economies of the world. Trading activities increased significantly until the recent global financial crisis struck hard on the entire economy. This study looks critically into the issue of stock pricing and the various changes that occurred in the characteristics of banks’ stocks prices during the most recent global financial crisis. With a panel of 10 banks, this study adopts a pooled least square regression analysis method. Among other things, this study finds out that both when the banks are pooled together into one and when studied individually, dividend at previous period is a statistically significant determinant of stock pricing. Also the size of traded stock of seven (7) of the 10 banks studied exerts significant negative effect on the prices of the seven banks’ stocks, leaving only three (3) to be insignificant. Against the apriori expectation, increase in the economic growth rate of the Nigerian economy leads to decrease in the stock prices of 9 out of the 10 studied banks. Of these 9 banks’ stock prices, 7 receive significant impact from economic growth rate. Based on the policy implications of the finding above and so many more, this research study offers some policy recommendations that may be employed to avert such disastrous effects of financial crisis on the investors.

Keywords:Financial Crisis, Bank Stock Prices, Bank Fundamentals, Macroeconomic variables.