Influence of Market Value-To- Book Value (MV/BV) and Return on Equity (ROE) Ratios on Investment Decisions of Common Stockholders in Quoted Manufacturing Companies in North-West Nigeria

Abstract

This research work aimed at determining the influence of Market Value-to-Book-Value (MV/BV) and Return on Equity (ROE) ratios on investment decisions of common stockholders in quoted manufacturing companies in North-West Nigeria. Two research questions and two null hypotheses were raised for the study. Descriptive survey design was adopted for the study.  The population for the study consisted of 230,898 respondents, made up of 230,638 common stockholders registered with 33 accredited stockbrokerage firms in North-West Nigeria and 260 accountants from 84 quoted manufacturing companies as at 31^st December 2017. The proportionate stratified and purposive sampling techniques were employed to select a sample size of 465 respondents made up of 95 accountants in manufacturing companies and 370 common stockholders registered with accredited stockbrokerage firms in manufacturing companies in North-West Nigeria.  The data collected were analyzed using mean to answer the two research questions while t-test analysis was employed in testing the two null hypotheses at 0.05 level of significance.  The findings obtained include: market-to-book value ratio is used as a measure of deviations between book and market values of shares and stockholders do not extensively analyse this ratio and Return on Equity ratio is used by stockholders to compare dividend at the end of the financial year for consistency and with returns from other companies in the same industry to a moderate extent.  It was, therefore, recommended that Common stockholders should always analyse the firms’ Market Value-to-Book-Value (MV/BV) and Return on Equity ratios at the end of every financial year to understand it to a great extent as MV/BV enables them to know the market value of their shares, determine their stock’s performance, while ROE ratio reveals the earning power of a company on stockholders’ book value investment and how much returns the stockholders have been receiving for better investment decisions.

Keywords: Market value to book value, return on equity, ratios, common stockholders, investment decisions

DOI: 10.7176/RJFA/10-6-05

Publication date:March 31^st 2019