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THE ROLE OF FINANCIAL STATEMENT IN INVESTMENT DECISION:

A STUDY OF SELECTED INVESTORS OF NIGERIAN BANKS

BY

GANYAM, IORCHER AMOS


BSU/MS/ACC/10/3962

A RESEARCH PROJECT SUBMITTED TO THE DEPARTMENT OF


ACCOUNTING, FACULTY OF MANAGEMENT SCIENCES, BENUE
STATE UNIVERSITY, MAKURDI, NIGERIA
IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE AWARD
OF BACHELOR OF SCIENCE (B.SC.) DEGREE IN ACCOUNTING

DECEMBER, 2014

DECLARATION
I hereby declare that this project titled The Role of Financial Statement
in Investment Decision: A Study of Selected Investors of Nigerian Banks
is an original work carried out by me under the supervision of Mr Anthony
Onoja of the Department of Accounting, Benue State University, Makurdi.

Name: Ganyam, Iorcher Amos


Matric No: BSU/MS/ACC/10/3962

Sign......................................
Date.........................................

APPROVAL
This project work has been read, corrected and approved as meeting the
requirements for the award of Bachelor of Science (B.Sc.) Degree in
Accounting, in the Department of Accounting, Faculty of Management
Sciences, Benue State University, Makurdi.

............................................

.............................................

Mr. Anthony Onoja

Date

(Project Supervisor)

............................................

.............................................

Dr. Paul Angahar

Date

(Head of Department)

............................................

.............................................

External Examiner

Date
DEDICATION

This project work is dedicated to God Almighty from whom all source of
wisdom and knowledge flows and to my beloved parents Engr. and Mrs.
Jude Ganyam.

ACKNOWLEDGEMENTS

I am particularly indebted to my project supervisor Mr. Anthony


Onoja, for his relentless efforts in giving me constructive criticisms and
guidance towards successful completion of the study.
I am equally grateful to all lecturers in the faculty of Management
Sciences, especially those in the department of Accounting who taught
and transmitted their invaluable knowledge to me.
With deep sense of gratitude, I acknowledge my beloved parents
Engr. and Mrs. Jude Ganyam for making enormous sacrifices towards my
educational pursuit and all other ramifications of life. The support of my
brother, Martin Ganyam and my sister, Zoe Ganyam is also highly
commendable. I remain grateful to Mr. Thomas Akpera, Mrs. Grace Utim,
Mrs. Francesca Asagba, Mr. Robert Igba and Mr. Christopher Igba. They all
were very helpful and I owe them immense thanks.
I also share my considerable gratitude to my friends and colleagues
especially Teryila Ahura, Teghtegh Maurice, Benedict Ikwuje, Michael
Adorowa, Bemor Unum, Moses Orhungu, Paul Iordye, Eugene Uchin,
Andrew Otene and all those who were of assistance to me during the
course of this study.

TABLE OF CONTENTS
Title

Declaration -

ii

Approval

iii

Dedication -

iv

Acknowledgements

Table of Contents

Abstract

3
4
5
6

vi

CHAPTER ONE: INTRODUCTION


1.1
1.2
1.3
1.4
1.5
1.6
1.7

Background to the Study


Statement of the Problem
Objectives of the Study
Research Questions Research Hypotheses Significance of the Study
Scope of the Study
-

4
5

CHAPTER TWO: REVIEW OF RELATED LITERATURE


2.1

Introduction

2.2

Conceptual Framework

2.2.1 Importance of Financial Statement

2.2.2 Users of Financial Statements

18

2.2.6 Concept of Investment Decision -

20

2.3

2.3.1 Residual Income Valuation Model-

23

2.3.2 Present Value Model -

25

2.3.3 Decision Theories

10
2.2.3 Qualities of an Ideal Financial Statement
13
2.2.4 Components of Financial statements
15
2.2.5 Ratio Analysis

Theoretical Framework

22

28
2.3.4 Market Efficiency
29
2.4 Empirical Review
32
CHAPTER THREE: RESEARCH METHODOLOGY

3.1

Introduction

Population of the Study

36
3.2

Research Design

36
3.3

36
3.4

Sample Size of the Study


37

3.5

Sampling Technique

37

3.6

Sources of Data -

37

3.7

Definition of Variables-

37

39

3.7.1 Dependent variable


37
3.7.2 Independent Variables
38
3.8

Techniques of Data Analysis 38

3.9

Model Specification

3.10 Decision rule

40

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS


4.1

Introduction

41

4.3.1 Data Validity Test

41
4.2

Data Presentation
41

4.3

Data Analysis

42
4.4

Test of Hypotheses

48

4.5

Discussion of Findings-

50

CHAPTER

FIVE:

SUMMARY,

CONCLUSION

AND

RECOMMENDATIONS
5.1

Summary -

53

5.2

Conclusion-

53

5.3

Recommendation

Suggestion for further study

54
5.4

55
REFERENCES

56

APPENDIX -

61

ABSTRACT
This study examines the role of financial statement in shareholders
investment decision. Data relating to the study were obtained from the
published annual reports of six selected banks in Nigeria for a period of
2009 to 2013. The data obtained were analysed using the multiple linear
regression analysis and the results revealed that earnings per share
have no significant role in shareholders investment decision while return
on equity and dividend per share have significant roles in shareholders

investment decision. The study recommends that shareholders should


make proper investigation about the financial state of the company
of their interest and seek the advice of financial analysts so as
to be properly guided in their investment decisions.

CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
In Nigeria today, the need for channelling resources into investment
is rapidly increasing. Individuals, investors and firms want to invest their
current surplus fund most efficiently in the long term assets in
anticipation of an expected flow of benefit over a given period of time.

Since investment performance is one of the most important factors for


the success with banks, insurance, and other financial institutions (Wild
et al. 2007), it then becomes very pertinent that decisions to invest are
done with utmost certainty of benefits. The quality of investment
decision made greatly relies on the value of the essential information
that forms the source of that investment decision.
Of enormous value is the information published in the financial
statements, which generally provides a synopsis of all the other activities
of the organisation. Financial statement is acclaimed to provide reliable
information about the financial position and performance of a company
or business. It is to this regards that listed companies use financial
statements as one of the major medium of communication with their
shareholders and the general public (Osuala et al. 2012).
When financial statements are released, they can have large
impacts on the business and on the investors of the company. This makes
it mandatory for companies to ensure that financial statements published
are accurate and reliable. In this regard, a lot of regulations exist both in
Nigeria and abroad that defines the content and form of financial
statement reports. The International Financial Reporting Standards (IFRS)
defines the recognition and measurement of accounting transaction and
the mandatory disclosures to be made in the financial statements. In

Nigeria, different acts such as the Companies and Allied Matter Act
(CAMA) Cap 1990 and Bank and Other Financial Institution Act (BOFIA)
1990 put an obligation that the information content of the financial
statement be expressed as a guarantee of compliance with the acts
requirements.
Financial statements are the primary information that firms publish
about themselves and investors are the primary users of financial
statements. Firms, companies and business organisations seek capital
funds from investors and prepare financial statements to help investors
decide whether to invest. Investors however expect the firm to add value
to their investment and to return more than was invested and so it
becomes necessary for them to read and understand the financial
statements to evaluate the firms ability to do so.
Therefore, this study examines the role of financial statement in
investment decision making in the Nigerian business environment.
1.2 Statement of the Problem
Examining the role of key accounting information contained in
financial statements in shareholders investment decision in the banking
sector has attracted significant research interest over a period of time.
There are various studies that examine this relationship (Cheng & Yang,

2003; Sloan, 1996; Hribar & Collins, 2007). Most of these studies focus
their investigations on the financial statement of banks in Asia, Europe
and America with Africa specifically Nigerian banking sector receiving
limited research attention.
In Nigeria, it has become a problem ascertaining the extent to
which key accounting information contained in the financial statement of
companies including Earning per Share (EPS), Return on Equity (ROE) and
Dividend per Share (DPS), influence shareholders and prospective
investors in making investment decision. It is observed that investors still
consider non-accounting information such as frequency and regularity of
dividend payout in making investment decisions and as such pay less
attention to the financial statements of companies they intend to invest
in.
It is from this backdrop that this study has been initiated to
examine the role of key accounting information contained in financial
statements in shareholders investment decision in the Nigerian business
environment with specific reference to the Nigerian banking sector.
1.3 Objectives of the Study
The foremost objective of this study is to examine the role of key
accounting information contained in financial statements in shareholders
investment decision. Specifically, the following objectives are set to;

i.

Examine how Earnings per Share (EPS) affect shareholders

ii.

investment decision.
Examine how Return on Equity (ROE) affects shareholders

iii.

investment decision.
Examine how Dividend per Share (DPS) affects shareholders
investment decision.

1.4 Research Questions


i.

To what extent do Earnings per Share (EPS) affect shareholders

ii.

investment decision?
To what extent does Return on Equity (ROE) affects shareholders

iii.

investment decision?
To what extent does

Dividend

per

Share

(DPS)

affect

shareholders investment decision?

1.5 Research Hypotheses


For the purpose of this study, the following hypotheses have been
formulated in their null;
Ho1: Earnings

per

Share

(EPS)

have

shareholders investment decision.

no

significant

role

in

Ho2: Return on Equity (ROE) has no significant role in shareholders


investment decision.
Ho3: Dividend

per

Share

(DPS)

has

no

significant

role

in

shareholder investment decision.


1.6 Significance of the Study
This study will be of significance to shareholders and to the
investing public because proper investigation of the key accounting
information contained in the financial statements will undoubtedly
enhance efficient and effective investment decisions. This study will also
be of benefit to financial analysts, potential investors and shareholders
because it reveals what actually should form the basis of shareholders
investment decision. Finally, this study will serve as a reference to
students of this noble institution and other schools who may be
interested to embark on a further research study of this nature.
1.7 Scope of the Study
The

study

empirically

investigates

the

role

of

accounting

information published in the financial statements on investment decision


making by shareholders in the Nigerian banking sector. The study
however concentrates on the financial activities of six commercial banks
operating in Nigeria for a period of six years (2009-2013). This is to

ensure that the information and data used are timely, adequate and up
to date.

CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
This

chapter

comprises

of

the

conceptual

and

theoretical

frameworks of the study. It also reviews several studies carried out by

various researchers relating to the role of financial statement on


investment decision.
2.2 Conceptual Framework
Financial information is needed to predict, compare and evaluate a
firms earning ability. It is also required to aid in economic decision
making,

investment

and

financial

decision

making.

The

financial

information of an enterprise is contained in the financial statements.


Financial statement according to the Companies and Allied Matters
Act (CAMA) 1990 is a document that consist the basic statements of
accounts used to convey qualitative information of financial nature about
a business to shareholders, creditors and others interested in the
reporting companys financial condition, results of operation, uses and
sources of funds. Duru (2012) defined financial statement as a statement
which conveys to management and to interested outsiders a concise
picture of the profitability and position of a business. Faboyede & Mukoro
(2012) supported that financial statements are the main source of
information for major investment decisions including whether to lend
money to a firm by investing in its bonds, or acquire an ownership stake
in a firm by buying its preferred and common stock, or to buy warrant or
options on a firms stock. Horngren & Harrison (2007) described financial

statement as documents that report on a business in monetary terms,


providing information to help people make informed business decisions.
Financial statements are meant to communicate useful accounting
information about the financial operations of a business to both internal
and external users. The Nigerian Accounting Standard Board (NASB)
describes the financial statement as the method of communicating to
interested

parties,

information

on

the

resource

obligations

and

performance of the reporting entity. Pandy (2007) asserted that financial


statements are important means of communicating the utilization of
scarce economic resources by an enterprise as such need to contain all
relevant information to be reliable and be readily understood by the
users of the information.
Concurring with the above definitions, we can generally define
financial statement as the audited annual report and accounts of an
organisation which gives a synopsis of results of operations and the
financial condition of an organisation for the period represented to the
interested users.

2.2.2

Importance of Financial Statement

Owole (2009) pointed out that the typical set of financial


statements prepared by publicly held companies contains useful
information as regard the success of operation of the firm, the financial
position of the firm, the policies and strategies of management and
insight into its future performance. However, financial statement can
only be useful if they are well understood. Financial statement is the
information source that is most directly related to items of interest to
both existing and potential investors.
According to Ekwe (2013), the satisfaction of the needs of the
various users of accounting information as contained in the financial
statement can be accepted as the objective of financial statement. The
objective of accounting information is emphasized by the various
accounting principles because investors and creditors use them in
making rational investment and credit decisions.
Financial statement fairly represents the business and economic
situation of a company, which if studied carefully can lead to enhance
and better decision making by various users. For instance, the balance
sheet provides the observant with a clears picture of the financial
condition of the company as a whole. It lists in detail the tangible and
intangible assets that the company owns and owes, while the income
statement summarises the income and expenditure of a company in a

given period of time. It shows the result of operation during these


accounting periods. Also, the cash flow statement shows how cash is
predicted to move around at a particular period of time. It is useful for
planning future expense. It shows whether or not there will be enough
cash to carry out the planned activities and whether or not the cash
coming in will be enough to cover the expenses. It is useful in the
determination of a companys liquidity in a given period of time. Finally,
Elis & Thacker (1998) averred that the most important purpose of the
financial statement is to get the shareholders informed about the
financial status of a company, especially as to its income and financial
position.
2.2.2

Users of Financial Statements

The persons who receive accounting reports are termed the users
of financial statements. The type of information a specific user requires
from financial statements depends upon the kind of decision that the
person intends to make. This is why financial statement is said to be user
oriented (Olabisi, 2009; Olowe, 2009). The various users of financial
statement can be grouped into two broad divisions, internal and external
users.
The internal users include;

i.

Management: They require financial statements to manage the


affairs of the company by assessing its financial performance and
position so as to take important business decisions. They are
concerned about the overall financial worth of the enterprise.

ii.

Employees: They use financial statement for assessing the


companys profitability and its consequence on their future
remuneration and job security.

The external users of financial statements include;


i.

Shareholders: They use financial statements to assess the risk


and return of their investment in the company and make
investment decision based on their analysis. They use financial
statements to determine the profitability, growth potential,
stability and dividend policy of a firm.

ii.

Prospective investors: They need financial statements to asses


the viability of investing in a company. Investors may predict
future dividends based on the profits disclosed in the financial
statements. Investors who wish to become shareholders of the
firm are more concerned about the firms long run survival and
earnings. They bestow more confidence in those firms that show
steady growth in earnings. Therefore, financial statements
provide a basis for the investment decision of potential investors.

iii.

Creditors: They are interested in the ability of the business to


pay interest and repay the principal sum on due dates and as
such rely on the financial statements.

iv.

Customers: They use financial statements to assess whether a


supplier has the resources to ensure steady supply of goods in
future. This is especially vital where a customer is dependent on
a supplier for a specific component.

v.

Banks

and

other

Financial

Institutions:

Use

Financial

statements to assess the credit worthiness of a business and


ascertain whether to grant a loan or credit to a business. Any
decision to lend must be supported by a sufficient asset base and
liquidity.
vi.

Competitors:

They

compare

their

performance

with

rival

companies to earn and develop strategies to improve their


competitiveness.
vii.

The general public: They may be interested in the effects of a


company on the economy, environment and local community.
They are interested in the social responsibility and environment
protection policies of an enterprise.

viii.

Government: They require financial statements to determine


correctness of tax declared in the tax returns. Government also

keeps track of economic progress through analysis of financial


statements of business from different sectors of the economy.

2.2.3

Qualities of an Ideal Financial Statement

Qualitative characteristics of financial statements are attributes


that enhance their meaningfulness to various users. According to Okpe
(2005), published financial statements must possess the following
qualities;
i.

Relevance: For information that is disclosed in the financial


statement to be useful at all, it is legally relevant. That is, it must
be associated with the decisions it is designed to aid and
facilitate. What is relevant for one group of financial statements
users may not be relevant for another group of financial
statement users, thus, there is no such thing as all-purpose
financial statement in the context.

ii.

Consistency: Financial statements should be able to ensure a


consistent evaluation of companies working in a particular

industry. It should be consistent in the presentation and


disclosure of accounting policies including their method of
depreciation.
iii.

Reliability: The financial statement should be free from error or


bias. Users must have confidence in the financial statement
without it being misleading or deliberately constructed in a
manner that presents the entity in a favourable position.

iv.

Comparability: Users of financial statement will want to


compare the account with the previous account of their company
and possibly with the account of other companies. Comparability
adds a degree of transparency to financial statement by allowing
comparison over time among entities.

v.

Understandable:

Financial

statement

can

be

somehow

complicated for the uninformed to understand, but users must be


able to understand the information within them. This applies to
the format or layout of the statement, the terms used in the
statement and the policies, methods and assumptions utilized in
preparing the statement.
vi.

Timeliness: Users of financial statement make use of current or


up to-date information more than out dated information. The data
of the publication of any financial statement or report should be

soon after the end of the period to which the report relates, as
corporation is geared towards the provision of information for
decision making. Unnecessary delay in the preparation of
financial statement may lose their relevance.
vii.

Objectivity: Information that is free from bias will increase the


reliance people have on financial statements. Therefore, it is
essential that the information is prepared as objectively as
possible.

viii.

Accuracy: The financial statement should disclose correct and


accurate information about the profitability and financial position
of a business. They should only factual information. No false
information is to be included. False information could lead to
wrong decision making.

ix.

Uniformity: Accounting practices should be uniform both within


the

corporations

and

other

organizations.

Ideal

financial

statement of one enterprise should be readily comparable with


those of another in the same industry. Nevertheless, adoption of
different accounting policies like in the method of depreciation
and stock pricing has made this difficult.
x.

Verifiability: Financial statement should disclose information


which can be verified from the records of the company. Qualified

individuals working independently of one another should be able,


upon examination of the same data or to derive similar
conclusion.
2.2.5

Components of Financial statements

According to Faboyede & Mukoro (2012) the components of


financial statement in Nigeria are specified by two bodies including the
Company and Allied Matters Act (CAMA) and Statement of Accounting
Standards SAS N0.2 issued by the Nigerian Accounting Standard Board
(NASB). The bodies state that all accounting information of an entity
should be disclosed and presented in a logical, clear and understandable
manner. Therefore, the components of financial statement include; as
highlighted by the Statement of Accounting Standard SAS N0. 2, the
components of a financial statement include;
i.

Balance sheet

ii.

Income Statement

iii.

Cash flow statement

iv.

Value added statement

v.

Five year financial summary

vi.

Notes on the accounts

vii.

Statement of accounting polices

According to Popoola, et al (2014), the most essential components


of financial statements to look when investigating the quality of entire
business or making decision for the future are; balance sheet, income
statement, cash flow statement, value added statement and five year
financial summary.
i.

Balance Sheet: This is the fundamental financial statement that


represents companys financial position and the basis for
estimating the security of a business (Zager & Zager, 2006). This
is a financial statement showing the assets, liabilities and net
equity of a company at a given point in time usually at the end of
the year. It shows the financial position of a business hence the
reason why most authors refer to it as statement of financial
position.

ii.

Income

Statement:

Aborde

(2005)

stated

that,

income

statement can cover any period of time, but is usually prepared


monthly, quarterly or annually for the planning and controlling
purposes. It is a financial statement that gives a companys
operating results for a specific period of time. It is also referred to
as earnings reports operating statement. Statements normally
cover

year

of

operations.

Its

objectives

include

the

measurement of capital maintenance and income distribution. In

this statement, operations are divided into two categories of


transactions, sales and revenue.
iii.

Cash Flow Statement: Olabisi (2009) asserted that cash flow


statements can be prepared from the information contained in
the balance sheet at the start and period in conjunction with the
profit and loss account, bank and cash account, supplemented by
additional information and data. Simply stated, cash flow
statement means a statement showing changes or movement of
cash or cash equivalent during a given period. Briefly it may be
stated as showing various sources of cash inflows and various
heads of cash outflows. It is prepared from income statement and
changes in the working capital (current assets less current
liabilities). Some of the objectives of cash flow statement is to
reveal inflow of cash from various activities, to reveal actual cash
position of a firm, to help in short term planning, to Reveal the
liquidity of the firm and to Forecast weakness Comparison with
budget.

iv.

Value Added Statement: This is a statement highlighting on


the performance of a firm in wealth creation. The importance of
value added statement relies extensively upon its value to a

potential user. It provides a sound base for more realistic decision


making (Akinsoyime, 1990).
v.

Five Year Financial Summary: According to Akinadewo (2012),


five year financial summary is an extraction of financial
information in the balance sheet and profit and loss account.
Financial summary gives the benefit of understanding the
movements of the financial analysis of a firm, which will aid the
investor to decide on either to invest on short term or long term
basis. Five year financial summary enables users to have some
ideas of trends in a company over a period of time. It is also used
to asses and forecast future performance of a company (John,
1986).

2.2.5

Ratio Analysis

Financial ratio is the relationship between two or more financial or


statistical data in a financial statement or management account (Aborde,
2005). It may be expressed as another figure percentage of or in relation
to another figure or group of figures in the same financial statement.
Ratio analysis involves comparison of useful interrelated figures over a
number of years to establish a trend. In assessing the financial statement
of any particular firm, investors try to know how the firm had been
operating over the years. From the answer they get by using ratio

analysis, they would then be able to know whether things are going well
with the firm or not. In line with this argument, the kind of ratio used will
reflect the nature of the business that is being treated. Weston and
Brigham (1984) divided the ratios into five fundamental types, which are;
i.

Liquidity Ratio: This ratio measures the firms ability to meet its
maturing short-term (current) obligations.

ii.

Leverage Ratio: This ratio measures the proportion of debt and


equity in financing the firms assets. It relates to the study of
proportions of various types of capital in the structure of the firm.

iii.

Activity

Ratio:

This

ratio

measures

how

efficiently

and

effectively the firm is utilizing its resources management overall


effectiveness as shown by the returns generated on sales and
investment.
iv.

Growth Ratio: measures the firms ability to maintain its


economic position in the growth of the economy and industry.

v.

Valuation Ratio: which are the most complete measures of


performance because they reflect risk ratios and return ratios.
Valuation ratios are of great importance since they related
directly to the goal of maximizing the value of the firm and
shareholders wealth.

The list of ratios is not exhaustive rather it is tailored to the nature


of the problem, which it is intended to help in solving. According to
Olabisi (2009), the needs of financial statement users are not normally
the same. This depends largely on the type of user and the purpose for
which the information is required. However, the various needs for which
ratio analysis and financial statement analyses are required include;
i.

Performance measurement: This includes appraising the


performance of an organisation, a division, product or services.

ii.

Investment and divestment decision: This allows a potential


investor to analyse the financial statements to guide in either
investing in a particular business or not. However, an existing
investor does that to either invest or divert shares in a particular
company.

iii.

Liquidation and reorganisation decision: This helps to


determine either to liquidate a business or to reorganise the
business in form of business combination, merger, acquisition or
internal reconstruction.

iv.

To measure the strengths, weaknesses, opportunities and threats


of an economic unit or business entity.

2.2.7

Concept of Investment Decision

As postulated by Pandey (2007), investment decisions or analysis


has to do with an efficient allocation of capital. It involves a decision to
commit the funds to the long-term assets. Such decisions are of
considerable importance to the firms and investors since they tend to
determine its value size by influencing its growths, profitability and risk.
The investment decisions of a firm are generally known as the
capital budgeting decision which may be defined as the firms decision to
invest its current funds most efficiently in the long-term assets in
anticipated of an expected flow of benefits over a series of years. Any
situation where capital expenditure decisions are made or taken, they are
based primary with measurement of capital productivity which provides
an objective means of measuring the economic worth of individual
investment proposals in order to have a realistic basis for choosing
among the firms long run property (Pandey 2007). The long-term asset is
those which affect the firms operation beyond one year period. The firms
investment decision would generally include expansion acquisition,
modernization and replacements of the long-term assets.
Future benefits of investment are difficult to measure and cannot be
predicted with certainty. Risk in investment arises because of the
uncertain returns. Investment proposals should therefore, be evaluated in
terms of expected return and risk. Beside the decision to commit funds in

new investment proposals, capital budgeting also involves replacement


decisions that are decision of recommitting funds when an asset
becomes less productive or non-profitable. The correct cut-off rate in
investments is the opportunity cost of capital which is the expected rate
of return that an investor could earn by investing in financial assets of
equivalent risk.
It is significant to emphasize that expenditures and benefits or an
investment should be measured in cash. In an investment analysis, it is
cash flow which is important, not the accounting profit. It may also be
pointed out that investment decisions affect the firms value. The firms
value will increase if investments are profitable and add to the
shareholders wealth. These increases are reflected in the financial
statement of the firm, which invariably are used as tool for investment
decisions owing to certain analysis inherent in them.
2.3 Theoretical Framework
In the 1960s, the emphasis of value relevance of accounting
information was on the usefulness of accounting to individual userswhich is also synonymous with information perspective. This perspective
was pioneered by Ball and Brow in1968. Ball & Brown (1968) who are the
first to attempt a value relevance test do not make any reference to
theory (Klimczak, 2009). Despite the difficulties of designing experiments

to test the implications usefulness, they established that security market


prices do respond to accounting information (Scott, 2003). However, their
study was based on capital market theories prevalent at the time. Ball
and Brown assume that the Efficient Market Hypothesis is maintained.
Studies which followed continued to use diverse econometric methods,
but there was still no comprehensive theory behind the tests.
However, in mid1990 the emphasis was shifted from information
perspective to measurement perspective - that is, stock market reaction
to the aggregate stock market (Bernard, 1995; Feltham & Ohlson, 1995;
Bao & Chow, 1999 and Beisland, 2009. The Ohlson clean surplus theory
also refers to as Residual Income Valuation Model (RIVM) provides a
framework consistent with this measurement perspective known as
balance sheet approach (Ohlson, 1995). The theory shows that the
market value of the firm can be expressed in terms of fundamental
balance sheet and profit and loss components (Scott, 2003). This study
adopts a simplified version of Ohlsons clean surplus theory following
Beisland (2009). This section discusses the theory, prior studies that
have used the Ohlsons clean surplus theory and the relevance of RIVM
to this present study.
2.3.1 Residual Income Valuation Model

Ohlson (1995), who bases his theory of valuation on the residual


income valuation model (RIVM), claims that under certain conditions
share price can be expressed as a weighted average of book value and
earnings. Ohlsons clean surplus theory shows that the market value of
the firm can be expressed in terms of income statement and balance
sheet items (Scott, 2003). Residual Income Valuation Model defines total
common equity value in terms of the book value of stockholders equity
and net income determined in accordance with GAAP (Halsey, 2001). The
model

has

generated

much

empirical

research

examining

the

comparative valuation relevance of the balance sheet and the income


statement components.
Residual Income Valuation Model (RIVM) has become prominent in
the accounting literature (Spilioti & Karathanassis, 2010). This is because
it has had some success in explaining and predicting actual market firm
value (Scott, 2003). Prior empirical studies that find book value and
discounted future abnormal earnings have vital role to play in the
determination of equity prices include Bernard, (1995); Burgstahler &
Dichev, (1997); Penman & Sougiannis, (1998); Dechow, et al. (1999).
Bernard (1995) is one of the first to gauge the value relevance of
accounting data. He compares the explanatory power of a model in
which share price is explained by book value and earnings versus a

model of share price based on dividends alone. He finds that the


accounting variables dominate dividends, which is interpreted as
confirming the benefits of the linkage between accounting data and firm
value.
Burgstahler and Dichev (1997) develop and test an option style
valuation model and find that the relevance of earnings versus book
value varies by return-on-equity. Dechow, et al. (1999) evaluate the
empirical implications of Ohlsons model. These studies claim that the
Ohlsons model breaks new ground on two fronts namely:
a. The model provides a more complete valuation approach and
b. The model explains stock prices better than the models based on
than the discounted cash flow model.
Ohlsons model has important implication for this study as it
specifies the relation between equity values and accounting variables
such as earnings, dividends and book value. This is unlike the other
models that make no appeal to book value or residual income.
Spilioti

&

Karathanassis

(2010),

claim

that

RIVM

has

three

advantages. Firstly, special emphasis is given to book value, thus


avoiding any economic hypotheses about future cash flows. Secondly,
the treatment of investments is such that they are treated as a balance
sheet factor and not one that reduces cash flows (Penman & Sougiannis,

1998). Thirdly, as Bernard (1995) has shown, for shorter horizons the
Ohlson formulation is more suitable than the dividends valuation model,
as the latter underestimates share value. Other related capital market
theories that assist in explaining relevance of information are herein
reviewed.
2.3.2 Present Value Model
The present value model is very crucial in relevance of information
to financial statement users. The model is extensively used in finance
and economics and has had significant impact on accounting over the
years (Scott, 2003). For the purpose of this model, relevant information is
defined as information about the companys future economic prospectsits dividends, cash flows and profitability. The present value model is
discussed under two conditions.
Present Value under Certainty: Present value under certainty
connotes an ideal condition where future cash flows of the firm and the
interest rate in the economy are publicly known with certainty. The
present-value relation says that, under certainty, the value of a capital
good or financial asset equals the summed discounted value of the
stream of revenues which that asset generates(LeRoy, 2005). According

to Scott (2003), the following additional assumptions are presumed of


present value under certainty.
i.

Relevant financial statements about the firms steam of future


dividends are given to investors. The emphasis is on dividend
irrelevancy because the investors can invest any dividends they
receive at the same rate of return as the firm earns on cash flows

ii.

not paid in dividends.


Companys net income plays no role in firms valuation. The
Balance sheet items contain all relevant information. In other
words, market valuation of assets and liabilities can serve as
indirect measures of value of the company. This is because the cash
flows are known and can be discounted to provide balance sheet
valuations. The implication is that, though the net income is true
and correct, it conveys no information that helps investors predict
future economic prospects of the firm. The investors can easily

iii.

calculate it for themselves.


The financial statements are perfectly reliable. Put differently, the

iv.

financial statements are precise and free from bias and


The market value of an asset equals the present value of its future
cash flows because of the principle of arbitrage.
Present Value under Uncertainty: The main difference between
the uncertainty and certainty cases is that expected net income

and realized net income need not be the same under uncertainty.
However, financial statements based on expected present values
continue to be both relevant and reliable. According to Scott,
(2003), Ideal conditions under uncertainty are characterized by a
given, fixed interest rate at which the firms future cash flows are
discounted, a complete and publicly known set of states of nature,
state

probabilities

objective

and

publicly

known

and

state

realization publicly observable.


The following additional assumptions are presumed of present
value under uncertainty:
i.
ii.

Financial statements are both completely relevant and reliable


Balance sheet fair values can be determined directly through

iii.

expected present values or market values.


Income statement still has no information content when
abnormal earnings do not persist.

In practice, present value model faces some severe problems. This


is because a theoretically well defined concept of net income does not
exist in real world (Scott, 2003). In order to tackle this problem, there is a
need to study an important concept in accounting the concept of
decision usefulness.
2.3.3 Decision Theories

Accountants have decided that investors are the major of users and
as a result have turn to various theories in economics and finance
particularly, to theories of decision and investment, to understand the
type of accounting information investors need (Scott, 2003). The real
world is not characterized by ideal conditions. Scott, (2003), states that
theoretically it is impossible to prepare financial statement that is both
reliable and relevant. This is because present value model that is reliable
is less relevant. While historical cost based accounting is reliable but not
relevant. Relevant financial statement is defined as ones that showed the
discounted present values of the cash flows from the firms assets and
liabilities (Scott, 2003). The decision usefulness concept first appeared in
the American Accounting Association (AAA) monograph in 1966. The
decision usefulness approach to accounting theory takes the view that if
it is not theoretically possible to prepare correct financial statement, at
least, it is essential to make historical cost-based statement more useful
(Monograph, 1966). This was reinforced by the 1973 True blood
Commission. Accountants must now pay much closer attention to
financial statements users and their decision needs, since under non
ideal situations it is not possible to read the value of the company
directly from the financial statements (Scott, 2003).

According to Beisland (2009), an objective of financial reporting is


to assist investors in valuing equity. For financial information to be value
relevant, it is a condition that accounting numbers should be related to
current company value. He further claims that if there is no association
between

accounting

numbers

and

company

value,

accounting

information cannot be termed value relevant and, hence, financial


reports are unable to fulfill one of their primary objectives.
2.3.4 Market Efficiency
Efficient-market hypothesis (EMH) asserts that financial markets are
"informationally efficient". There are three major forms of the hypothesis:
"weak", "semi-strong", and "strong". Weak EMH claims that prices on
traded assets (for example, stocks, bonds, or property) already reflect all
past publicly available information. Semi-strong EMH states that prices
reflect all publicly available information and that prices instantly change
to reflect new public information. Strong EMH additionally claims that
prices instantly reflect even hidden or "insider" information. Efficient
market theory implies that market will react quickly to new information.
Thus, it is important to know when the accounting report first became
publicly known. The accounting report is informative only if it provides
data not previously known by the market.

Stock market thrives on information. This is because information


plays an essential role in reducing the investors' challenges in the capital
market. Information is important to investors in helping them evaluate
investment opportunities to decide how to allocate their savings. In
addition, it is also important because it enables investors to monitor
whether their resources have been used wisely by managers. Markets
where information is irregular give opportunities for investors who are
more informed to take advantage of those who are less informed, and
make it more expensive for investors to buy or sell a security without
affecting its price.
As a result of the important role of information to the market, stock
exchanges word-wide, set listing and post-listing requirements for
companies seeking quotation. For instance in Nigeria, the post-listing
requirements of the NSE laid emphasis on the timely release of
information. Quoted companies are required to provide the market with
information about their operations to the public. This information
includes quarterly, half-yearly and yearly financial accounts. However,
the investors in Nigeria have suffered untold hardship due to lack of
regular and reliable information from the listed companies on NSE
(Goddy, 2010).

In Nigeria, Nigerian stock market is efficient in the weak form and


follows a random walk process (Olowe, 1999 and Okpara, 2010). The
implication is that all information conveyed in past patterns of a stocks
price is reflected in the current price of the stock. Therefore, it is
ineffectual to select stocks based on information about recent trends in
stock prices. Olowe (1999) uses data of an end of the month quoted
stock prices of 59 randomly selected from January 1981 to December
1992

on

the

Nigeria

stock

exchange

and

employs

sample

autocorrelation test. The study concluded that the Nigeria stock market
appeared to be efficient in the weak form. Kukah et al. (2006) focus their
study on market indices in local currencies rather than prices of
individual stocks. They use the capitalization weighted index of all listed
stocks. They use both parametric and non-parametric test in determining
the efficiency of the Nigerian stock market, according to them, the
results of the parametric tests show that the Nigerian capital market is
weak form efficient while the parametric tests showed that the market is
not weak - form efficient. Their results are somewhat mixed.
The role of an efficient market cannot be overemphasized.
According to Olawale (2004), it creates an enabling environment for a
faster, sustainable and socially equitable economic growth. Elakama
(2004), states that an efficient stock market mobilizes and allocates

greater proportion to those companies with the highest prospective rates


of returns after giving due allowance for risk. The allocating function is
critical in determining the overall growth of the economy. It is also a
conduit for channelling long term funds to productive sectors. Efficient
stock market promotes the control of the economy by constituting itself
into a stabilization agent of the government. It also performs the role of a
protector to the investors.
2.5 Empirical Review
Oabisi (2009) examined the quantum of influence the financial
information has on decisions to invest in a particular stock. The study
focused on selected public quoted banks in Lagos metropolis. The study
population comprised of all the middle management and management
staff in the registrars departments of the six selected banks. A wellstructured Likert Scale questionnaire (a3 point rating scale) was designed
to collect data for the study. Hypotheses were tasted using Chi-square
statistical method. I was discovered that adequate, authentic and
accurate financial information is a major ingredient for decision to invest
or not in stocks of quoted companies.
Perera & Thrikawala (2009) researched on relevance of accounting
information on investors stock market decisions in commercial banks
registered under the Colombo Stock Exchange (CSE) in Sri Lanka. The

relevance of accounting information was measured by correlation


coefficient

between

Market

Price

per

Share

(MPS)

and

selected

accounting information such as Earnings per Share (EPS), Return on


Equity (ROE) and Earnings Yield (EY). The data analysis was based on the
accounting

information

in

the

published

financial

statements

of

commercial banks registered under Colombo Stock Exchange (CSE). It


covered between five years.
According

to

the

findings,

there

is

relationship

between

accounting information and Market Price per Share. It further revealed


that investors still consider accounting information which is contained in
the published financial statements of commercial banks registered under
Colombo Stock Exchange (CSE) for the stock market decisions in Sri
Lanka.
Osuala et al. (2012) worked on the effect of information content of
financial statement on shareholders investment decision in some
selected

firms.

In

order

to

determine

the

relationship

between

information contents of financial statement and shareholders investment


decisions, the researchers used some of the key contents of financial
statement including profitability, Dividend Per Share (DPS), Earnings Per
Share (EPS), leverage and liquidity as proxy variables while shareholders
investment decision was represented by change in number of shares.

Data for the study was obtained from the published annual reports of
selected firms. Regression model was employed to establish the
relationship between the variables.
The findings indicated that shareholders in the Nigerian Capital
Market do not rely much on financial statements as a major determining
factor for their investment decision. It was observed that other factors or
variables outside firms annual reports such as regularity of dividend
payment and market price of shares are vital to shareholders in their
investment decision
Ekwe (2013) carried an investigation on the degree of reliance of
published financial statements by corporate investors. The study
employed survey research design by which data was generated by
means of questionnaire administered on one hundred and fifty corporate
investors and senior management officials of selected banks. The
descriptive statistics and percentage analysis were used for the data
analysis and the hypotheses were tasted using t-test statistic. The result
revealed that one of the primary responsibilities of management to the
investors is to give a standardized financial statement evaluated and
authenticated by a qualified auditor or financial experts. It also showed
that investors do understand the financial statement well before making
investment decisions. The result analysis indicated that investors depend

heavily on the credibility of auditors/financial expert approval of financial


statement in making investment decisions and as such published
financial statement is very important in the investors decision making.
Popoola et al. (2014), investigated on published financial statement
as

correlate

of

investment

decision

among

commercial

bank

stakeholders in Nigeria. A correlation design was used in the study. 180


users of published financial statement were purposively sampled from
Lagos

to

Ibadan.

Data

generated

were

analysed

using

Pearson

Correlation and Regression. The findings of the study revealed that


balance sheet is negatively related with investment decision, while
income statement, notes on the accounts, cash flow statement, value
added statement and five year financial summary are positively related
with investment decision. The findings also revealed that components of
published financial statement significantly predict good investment
decision so it was suggested that Nigerian banks and professional bodies
should instigate programmes that will increase the knowledge of
stakeholders on published financial statements.
This study therefore fills the gap in literature by investigating the
extent to which key information in the financial statement affects the
investment decision of shareholders in the banking sector.

CHAPTER THREE

RESEARCH METHODOLOGY
3.1 Introduction
The main objective of this study is to examine the role of financial
statement in shareholders investment decision. To ensure that the set
objectives of the study are achieved, this chapter examine the
methodology employed in the investigation. In this regard, this chapter
focuses on research design, the population of the study and the study

sample. The chapter also covers sources of data collection, data analysis
techniques, definition of variables and the model of the study.
3.2 Research Design
An ex-post facto research design is adopted for the study. Ex-post
facto research design involves ascertaining the impact of past factor(s)
on the present happening or event. The choice of the ex-post facto
research design for this study is borne out of its strengths as one of the
most appropriate design for studies that use secondary data involving
dependent and independent variables.
3.3 Population of the Study
The population of the study covers the 15 deposit money banks
currently listed on the Nigerian Stock Exchange.
3.4 Sample Size of the Study.
The Study only concentrates on six selected quoted banks and their
activities for a period of 5 years (2009-2013). These banks include;
Zenith Bank Plc, Fidelity Bank Plc, First Bank Plc, United Bank for Africa
Plc, Access Bank Plc and First City Monument Bank Plc.
3.5 Sampling Technique
The study adopts a purposive sampling technique. The six selected
banks were selected due to the availability of data required for the study.

3.6 Sources of Data


Data used in this study were obtained from the yearly published
annual reports and accounts of the selected banks.
3.7 Definition of Variables
This study incorporates the following variables which are briefly
explained below.
3.7.1 Dependent variable
Number of Shareholders (NOS): This includes the number of
individuals, groups, or corporate organisations that legally owns one or
more shares in a company at a particular period of time. This shall be
obtained from the directors report column in the annual reports and
accounts of the selected banks.

3.7.2 Independent Variables


Earnings Per Share (EPS):

It shows the earnings available to the

owners of each share of common stock. Earnings per share is determined


as follows;
EPS=

( Profits after taxesPreferred stock dividends)


Number of shares of common Stock outstanding

Return on Equity (ROE): Return on equity is the bottom line measure


for the shareholders, measuring the profits earned for each amount
invested in the firm's stock. Return on equity is measured as follows;
ROE=

Net Income
Shareholder Equity

Dividend Per Share (DPS): This represents the fraction of money paid
to the stockholders out of the income after taxed. Dividend per share is
determined as follows;
DPS=

Total cash dividends


Net income

3.8 Techniques of Data Analysis


This study is set to examine the causal influence of financial
statement on investment decision. In order to achieve this objective,
several data analytical techniques descriptive statistics, regression and
correlation analysis were deployed in the investigation. The study uses
descriptive statistics to summarize the collected data in a clear and
understandable way using numerical approach.
The study further adopts the use of correlation analysis to ascertain
the relationship between the dependent and explanatory variables, and
to investigate the direction of such relationship.Furthermore, linear
regression was used to define the dependent variables using the

explanatory variables with the t-test statistics used to test the studys
hypotheses.
3.9 Model Specification
The following multiple regression model has been formulated to
guide the researcher in the investigation.
Number of Shareholders = (Financial statement)
NOS = (EPS, ROE, DPS)
NOS =

+ 1EPS + 2 ROE+ 3DPS + u

Where,
NOS =

Number of Shareholder

EPS =

Earnings Per Share

ROE =

Return of Equity

DPS =

Dividend Per Share


1 3

=
=

alpha, represent the model constant


Beta, representing the coefficients of variables

used in the model.

is the stochastic variable representing the error term in


the model. It is usually estimated at 5% (0.05) level of
significance.

3.10 Decision rule


This study shall accept and reject the null and alternative
hypotheses using the following set criteria.
Accept the null hypothesis if the critical value of t under 0.05 for
a two tail test in the t-table is greater than the calculated value.
Reject the null hypothesis if the critical value of t under 0.05 for a
two tail test in the t- table is less than the calculated value.

CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
4.1 Introduction

This chapter presents analysis and interpretation of the data


generated for the study, test of hypotheses and discussion of findings.
4.2 Data Presentation
In an attempt to provide answers to the research questions raised,
achieve set objectives and test hypotheses for this study, data was
collected on the number of shareholders (NOS), earnings per share (EPS),
return on equity (ROE) and dividend per share (DPS) from the annual
reports of six deposit money banks including Zenith Bank Plc, Fidelity
Bank Plc, First Bank Nigeria Plc, United Bank for Africa Plc, Access Bank
Plc and First City Monument Bank Plc for the period of 5 years (20092013) which gave rise to 30 data points used for the study (see
Appendix).
4.3 Data Analysis
For the purpose of testing the hypotheses formulated for the study,
the data were analyzed using the Statistical Package for Social Science
(SPSS) version 20. The results are presented below.

4.3.1

Data Validity Test

In order to ensure that the results obtained are robust, diagnostic


tests are performed. In an attempt to detect multicollinearity, the
Variance Inflation Factor (VIF) statistics was computed. A VIF greater than

10 is usually considered problematic (Gujarati & Sangeetha, 2007).


Therefore, since the VIF of all the independent variables as shown in
table 4.4 were consistently less than 10, it indicates the complete
absence of multicollinearity among the variables.
Table 4.1: Descriptive Statistics
N
NOS
EPS
ROE
DPS
Valid N (list
wise)

30
30
30
30

Minimum

Maximum

5.18
-.707
-.980
.050

6.12
3.051
.219
1.750

Mean
5.6886
.84937
.04830
.58297

Std. Deviation
.26635
.896922
.206198
.438880

30

Source: SPSS output, Version 20


The Descriptive statistics displays a univariate summary statistics
for the variables used in the study. It shows the number of observation,
maximum, minimum, mean and standard deviation of the data used for
the study as shown in table 4.1.
Table 4.1 presents the descriptive statistics for both the dependent
and explanatory variables of the study. N which denotes the number of
observations for the study reflects a value of 30 indicating that the
number of observation for the study is made up of 6 Banks for a period of
5years (2009-2013).
The number of shareholders (NOS) shows a minimum value of 5.18
and a maximum value of 6.12. This means that minimum number of

shareholders from the 5 banks under investigation stood at 151,356


(antilog of 5.18) while the maximum stood at 1,318,257 (antilog of 6.12).
The table also shows a mean of 5.6886 with a standard deviation of
0.26635, indicating that on average, the number of shareholders stood at
488,203 (antilog of 5.6886) with a fluctuation of 0.26635 during the
period under investigation.
The earnings per share (EPS) reflect a minimum value of -0.707 and
a maximum of 3.051. It also reveals a mean value of 0.84937 and a
standard deviation of 0.896922, indicating that on average EPS stood at
0.84937 with fluctuations at the tune of 0.896922.
The return on equity (ROE) reflects a minimum value of -0.980 and
a maximum of 0.219. It further reveals a mean of 0.04830 and a
standard deviation of 0.206198, indicating that with fluctuations to the
tune of 0.206198, the average ROE stood at 0.04830
The dividend per share (DPS) reflects a minimum value of 0.05 with
a minimum of 1.75. It further reveals a mean of 0.58297 with a standard
deviation of 0.43888, indicating that on average, DPS stood at 0.58297
with a fluctuation of 0.43880
Table 4.2: Correlation Analysis
NOS

EPS

ROE

DPS

Pearson
NOS

EPS

ROE

Correlation
Sig. (2-tailed)
N
Pearson
Correlation
Sig. (2-tailed)
N
Pearson
Correlation
Sig. (2-tailed)
N
Pearson

.590**

.453*

.417*

30

.001
30

.012
30

.022
30

.590**

.596**

.768**

.001
30

30

.001
30

.000
30

.453*

.596**

.297

.012
30

.001
30

30

.111
30

.297

.111
30

30

.417*
.768**
Correlation
DPS
Sig. (2-tailed)
.022
.000
N
30
30
**. Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).

Source: SPSS output, Version 20


Table 4.2 above, measures the relationship between the dependant
variable (NOS) and the explanatory variables (EPS, ROE and DPS).
EPS shows a correlation coefficient of 0.590, indicating that there is
positive relationship between NOS and EPS. The relationship is significant
at 1% and not significant at 5% level of significance as revealed in table
4.2 above.
ROE shows a correlation coefficient of 0.453, indicating that there is
a positive relationship between NOS and ROE. However, unlike EPS, the
relationship between NOS and ROE is statistically significant at 5% level
of significance.

DPS shows a correlation coefficient of 0.417, indicating a positive


and significant relationship between NOS and DPS at 5% level of
significance.
Table 4.2 above also shows the absence of multicollinearity among
the explanatory variables because all the correlation values in respect to
the study variables are less than 0.8 which is considered harmful for the
purpose of analysis (Gujarati & Sangeeta, 2007).
Regression Results
Regression analysis is the main tool used for data analysis in this
study. Regression analysis shows how one variable relates with another.
The result of the regression is hereby presented in this subsection of the
study.

Table 4.3: Model Summary


Model

Adjuste

Std.

Squar

dR

Error of

Square

the

Change Statistics

DurbinWatson

R Square

df df

Sig. F

Estimate Change Change 1 2 Change


1
.736a
.542
.526
.22411
.542
4.988 3 26
.007
a. Predictors: (Constant), DPS , ROE, EPS
b. Dependent Variable: NOS

Source: SPSS output, Version 20.

1.104

Table 4.3 above displays the model summary of the explanatory


variables: earnings per share (EPS), return on equity (ROE) and dividend
per share (DPS) regressed with a common dependent variable number of
shareholders (NOS).
From Table 4.3, the R value stood at 0.736. The R value measures
the relationship between the dependent and independent variables. Thus
an R value of 0.736 (73.6%) indicates that, there exist a strong
relationship between the dependent and the independent variables.
The table also reflects a R2 value of 0.542. R2 which the coefficient
of determination, measures the percentage of the total change in the
dependent variable; number of shareholders (NOS) that can be explained
by the independent or explanatory variables; earnings per share (EPS),
return on equity (ROE) and dividend per share (DPS). Thus the R 2 value of
0.542 indicates that earnings per share (EPS), return on equity (ROE) and
dividend per share (DPS) account for 54.2% of the total variation in the
number of shareholders (NOS) while the remaining 45.8% (100-54.2) of
the variation could be explained by other variables not considered in this
model. Such variables may include earnings yield (EY), leverage, liquidity
and return on assets (ROA).

The adjusted R as shown in table 4.3 reflects a value of 5.26,


indicating that if the entire population is considered in this model, the
result will deviate by 1.6% (54.2-5.26). The significant F change as
revealed in table 4.3 reflects a value of 0.007 which is less than 0.05,
indicating that the whole model is statistically significant at 5% level of
significance.
Table 4.4: Coefficients
Model

Unstandardiz

Standardize

ed

Coefficients
B
Std.

Coefficients
Beta

Sig.

(Constant)
EPS

Collinearity
Statistics

Zero- Partial Part Toleranc

Error
5.68

Correlations

order
139.02

.041

.066

.042

.249

ROE

.089

.042

.335

DPS

.117

.042

.438

VIF

9 000
.
1.591
124
.
2.142
042
.
2.800
009

.249

.298

.335

.387

.438

.481

.
249
.
335
.
438

1.000
1.000
1.000

1.00
0
1.00
0
1.00

a. Dependent Variable: NOS

Source: SPSS output, Version 20


Table 4.4 above presents the model coefficients in respect to the
independent variables: earnings per share (EPS) return on equity (ROE)
and dividends per share (DPS). The regression results as presented in
table 5 above to determine the influence of earnings per share (EPS)
return on equity (ROE) and dividends per share (DPS) on the number of

shareholders (NOS) revealed that when all the predictor variables are
held stationary, the NOS is estimated at 5.689. Table 4.4 further predicts
the dependent variable NOS, using the independent variables EPS, ROE
and DPS, such that a unit change in earnings per share (EPS), return on
equity (ROE) and dividend per share (DPS) will bring about an increase in
the

number

of

shareholders

(NOS)

by

0.066,

0.089

and

0.117

respectively.
Earnings per share reflect a significance value of 0.124, greater
than 0.05. This indicates that the relationship between earnings per
share and number of shareholders is not statistically significant at 5%
level of significance. However, return on equity and dividend per share
reflects a value of 0.042 and 0.009 respectively. This implies that both
return on equity and dividend per share have a statistically significant
relationship with the number of shareholders at 5% level of significance.
4.4 Test of Research Hypotheses
The three hypotheses formulated in this study shall be tested using
the student t statistics. The researcher selected the level of significance
for this study at 5% for a two tailed test. The critical value of t under at
29 degree of freedom under 0.05 for a two tailed test is given at 2.045.

Decision Rule
Accept the null hypothesis if the calculated t value is less than the
critical t value (tcal<tcritical).
Reject the null hypothesis if the calculated t value is greater than
the critical t value (tcal>tcritical).
Test for Hypothesis one
Ho1: Earnings per Share (EPS) have no significant role in shareholders
investment decision.
Given that the calculated t-value is 1.591 and the critical value of t
is 2.045, the study therefore accepts the null hypothesis and concludes
that earnings per share have no significant role in shareholders
investment decision.
Test for Hypothesis two
Ho2: Return on Equity (ROE) has no significant role in shareholders
investment decision.
Given that the calculated t-value is 2.142 and the critical value of t
is 2.045, the study therefore rejects the null hypothesis and concludes
that return on equity (ROE) has a significant role in shareholders
investment decision.

Test for Hypothesis three


Ha3:

Dividend per Share (DPS) has no significant role in shareholder


investment decision.
Given that the calculated t-value is 2.800 and the critical value of t

is 2.045, the study therefore rejects the null hypothesis and concludes
that dividend per share (DPS) has a significant role in shareholders
investment decision.
4.5 Discussion of Findings
This studys first objective was concerned with examining how
earnings per share (EPS) affect shareholders investment decision. The
study formulated a null hypothesis in line with this objective and this was
tested using the t-test statistics at 5% level of significance for a two tail
test. The result of the test revealed that earnings per share (EPS) have
no significant role in shareholders investment decision. This result is
tandem to the findings of Osuala, et al. (2012), who found out that
shareholders show less interest in the earnings per share of companies
while making investment decision in the Nigerian Banking Sector. This is
supported with the works of Pandey (2007), where it was revealed that
maximization of earnings per share implies that firms should make no

dividend payment so long as funds can be invested internally at any


positive rate of return, however small. He stressed that such a dividend
policy may not always be to the shareholders advantage.
Considering the second objective of this study which was interested
in examining the extent to which return on equity (ROE) affect
shareholders investment decision, a null hypothesis was also formulated
and tested using t-test statistics at 5% level of significance for a two
tailed test. The study however revealed that return on equity (ROE) has a
significant role in shareholders investment decision. This however
corroborates the findings of Osuala et al. (2012), who found that
shareholders are more attracted to companies with higher profitability.
This means that higher the profitability of a company, the higher the rate
at which shareholders are attracted to such companies. This is also
supported by Attaullar & Tahir (2004) in their work, the determinant of
capital structure of stock exchange listed non-financial firms in Pakistan.
It was observed that firms that are more profitable attract more investors
than less profitable ones.
Finally, the third objective was set to examine the extent to which
dividend per share (DPS) affect shareholders investment decision. A null
hypothesis was formulated and tested using t-test statistics at 5% level
of significance for a two tailed test. The study found out that dividend per

share has a significant role in shareholders investment decision. This is


in agreement with the findings of Azhagaih and Sabari, (2008) who found
out that shareholders prefer companies that maximize shareholders
wealth by way of paying dividend. A high dividend per share indicates
that the company has good earning capacity and shareholders are
attracted to such companies.

CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary
Financial statement is an integral part of any investment decision
making. Shareholders are after wealth maximization and are therefore
more interested on information from the financial statement of
companies that guarantees that their wealth is maximized. The study
thus concentrated on key information from the financial statement
including earnings per share (EPS), return on equity (ROE) and dividend
per share (DPS) to see how they affect shareholders investment
decision. The results indicated that;
i.

Earnings per share have no significant role in shareholders

ii.

investment decision.
Return on equity has a significant role in shareholders investment

iii.

decision
Dividend per share has a significant role in shareholders
investment decision.

5.2 Conclusion

The study empirically investigates the role of financial statement in


investment decision. This study is vital as it portrays the extent to which
shareholders of commercial banks quoted on the Nigerian Stock
Exchange (NSE) are influenced by the contents of published financial
statements in their investment decisions.
The study found out that shareholders show less interest to the
earnings per share (EPS) of commercial banks while making investment
decisions in the Nigerian Stock Market. It also found out that banks with
higher profitability i.e. return on equity (ROE) attract more shareholders.
Finally, it found out that shareholders seek wealth maximization which
can be actualized by dividend per share and thus are significantly
influenced by dividend per share while making their investment
decisions.
5.3 Recommendations
In view of the findings of this study, it is recommended that
potential shareholders should make proper investigation about the
financial state of the company of their interest before making investment
decisions. Also, companies should avoid misstating their financial
statements as such actions could negatively affect the confidence of
shareholders on the financial statements.

Furthermore, companies should maintain the shareholders wealth


maximization objective through dividend payment as proposed in the
financial statement as at when due so as to boost the confidence of
reported information in the financial statements.
Finally,

there

should

be proper

awareness

creation

by

the

appropriate agencies to enhance shareholders understanding of the


relevance of published accounts to enable them know the financial states
of companies of their interest before making investment decision.
Shareholders and prospective investors on the other hand should seek
the advice of financial analysts so as to be properly guided in their
investment decision.
5.4 Suggestion for further study
The following areas have been suggested for further research;
i.
ii.

The impact of financial reports on managerial decisions.


The level of reliance on published financial statements in making

iii.

investment decision by investors in Nigeria.


The Impact of ratio analysis in assessing the performance of firms
for investment decision.

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APPENDIX
YEAR

NUMBER OF
SHAREHOLDER
S (NOS)

NOS(LOG)

EPS

ROE

DPS

ZENITH

2009

718453.00

5.86

0.873

0.065

0.450

BANK PLC

2010

707623.00

5.85

1.029

0.091

0.850

2011

681983.00

5.83

1.315

0.111

0.950

2012

667407.00

5.82

3.051

0.219

1.600

2013

658185.00

5.82

2.657

0.176

1.750

FIDELITY

2009

451640.00

5.65

0.049

0.011

0.050

BANK PLC

2010

466000.00

5.67

0.201

0.043

0.270

2011

427862.00

5.63

0.206

0.044

0.140

2012

421647.00

5.62

0.619

0.111

0.210

2013

414336.00

5.62

0.267

0.047

0.140

2009

1305754.00

6.12

1.411

0.100

1.350

2010

1304575.00

6.12

0.825

0.079

0.100

2011

1286067.00

6.11

1.454

0.127

0.600

2012

1238305.00

6.09

2.319

0.172

0.800

2013

1222849.00

6.09

2.175

0.150

1.000

FIRST
BANK PLC

UNITED
BANK OF
AFRICA
PLC

2009

285995.00

5.46

0.391

0.069

0.750

2010

281037.00

5.45

-0.191

-0.034

0.100

2011

281987.00

5.45

-0.242

-0.044

0.050

2012

282432.00

5.45

1.436

0.215

0.500

2013

280156.00

5.45

1.409

0.179

0.500

ACCESS

2009

442981.00

5.65

-0.128

-0.012

0.698

BANK PLC

2010

433519.00

5.64

0.432

0.042

0.200

2011

425581.00

5.63

0.293

0.028

0.500

2012

418765.00

5.62

1.565

0.151

0.550

2013

827901.00

5.92

1.145

0.107

1.031

2009

170735.00

5.23

0.213

0.027

0.500

2010

155986.00

5.19

0.450

0.054

0.500

2011

151845.00

5.18

-0.707

-0.980

0.350

2012

531816.00

5.73

0.660

0.096

0.500

2013

528348.00

5.72

0.304

0.005

0.500

FIRST CITY
MONUMEN
T BANK
PLC