Accounting Income and Stock Returns of Selected Manufacturing Companies in Nigeria
Keywords:
Accounting income, stock returns, Return on Investment, Operating Cash Flow, Return on Equity, Return on AssetsAbstract
This study examines the effect of accounting income on stock returns of selected manufacturing companies in Nigeria over eleven (11) years (2013–2023). The research is motivated by the ongoing debate regarding the relevance of financial performance indicators in influencing investors’ decisions, particularly in emerging markets. The main objective of the study is to examine the effect of accounting income on stock returns of selected Manufacturing Companies in Nigeria. Using an ex-post facto research design and secondary data sourced from published financial statements, the study employs Ordinary Least Squares (OLS) regression with the aid of E-Views 13 to analyze the effect of various accounting measures including; Earnings Per Share (EPS) Return on Investment (ROI), Operating Cash Flow (OCF), Return on Equity (ROE), Return on Assets (ROA) and Operating Profit Margin (OPM). The result of hypothesis one revealed a positive coefficient and statistically significant results at a 5% level of significance. The negative coefficient indicates that an increase in EPS results in a corresponding decrease in the stock returns of manufacturing companies. The result of hypothesis two shows a random effects model which examined ROI and stock returns shows a negative coefficient denoting that an increase in investment reduces the stock returns of manufacturing companies and is not statistically significant at 5%. The implication is that investors may not heavily rely on reported financial metrics when evaluating stocks, possibly due to factors such as market inefficiencies, limited investor confidence in financial disclosures, and the influence of macroeconomic and non-financial variables. The study concludes that while accounting income is important for financial reporting and corporate accountability, it may not be the primary determinant of stock performance in Nigeria.
References
Adelegan, T (2023). An empirical investigation of the connection between cash flow and monetary reforms in Nigeria. Knowledge and Research on Accounting, 13(4), 30-37.
Adetula, M. Alsksi, K. and Ryaka, Y. (2022). Accounting income numbers and Stock Prices in the Nigerian Stock Market. Contemporary Accounting Research 11: 661–688.
Angguliyah, K., and Roy, K.. (2022). The effect of Return on Assets (ROA) and Earning Per Share (EPS) On Stock Returns with Exchange Rates as moderating variables. International Journal of Business Marketing and Management (IJBMM) 7(3); 53-63
Anne, B., Daniel, A. C., Thomas, Z. L. and Beverly, R. W. (2020). The financial reporting environment: Review of the recent literature. Journal of Accounting and Economics, 50(2-3): 296-343.
Anwaar, I., (2016). Impact of firm performance on stock returns. International Journal of Economics, Commerce and Management, 2(9), 1-3.
Benjamin, O. O, Akinola, G., W and Adeoba, A. A., (2023). Fossil energy consumption carbon dioxide emission and adult mortality rate in Nigeria. Managing Global Transitions 21(4) 353 – 384
Dastgir, M., and Sharifi, R. (2011). Investigation the relationship between cash flows and stock return of companies. Auditor Journal, 52, 1-5
Dewa, A. and Anak, A. (2021). The Effect of Profitability on Stock Return. American Journal of Humanities and Social Sciences Research (AJHSSR), 5 (1), 695-703
Dumitru, U (2022). The impact of the influence factors for operating profit in Romanian agriculture companies. Journal of Educational Policy and Entrepreneurial Research, 2(5), 84-90.
Duru, A., Okpe, I., and Chitor, A. (2023). Cash flow on performance of companies in Food and Beverages sub-sector of Nigeria. World Applied Sciences Journal 33 (12), 1852-1857
Easton, P., and Harris, T. (1991), Earnings as an explanatory variable for returns. Journal of Accounting Research, 29 (1991), 19–36.
Etukudo, W., Obizuo, J. & Etim, O., (2022). Accounting Estimates and Profitability of Listed Industrial Goods Firms in Nigeria. Emerald International Journal of Scientific and Contemporary Studies 4(4), 20 – 23.
Fitri, M., (2023). Effect of return on assets and return on equity to the stock price on PT. Indocement Tunggal Prakarsa Tbk. Journal of Financial Economics, 121(1), 28-45.
Gharaibeh, A. Saleh, M. Jawabreh, O., and Ali, B., (2022). An Empirical Study of the Relationship between Earnings per Share, Net Income and Stock Price. Applied Mathematics & Information Sciences An International Journal 3(1), 33 – 51.
Gilbert, O. and Ugochukwu, J. N., (2023). Drivers of Operating Profit: A Focus on Selected Firms’ Costs. CECCAR Business Review, 1(8), 44 – 59.
Gordon, U., Kurniati, Y., and Pratama, U., (2017). Analysis of earnings per share (EPS), price earnings ratio price to book value (PBV), and debt to equity ratio (DER) on Stock Returns of Health Issuers on the Sharia Securities List (DES) for the 2016-2020 period. OIKONOMIKA: Journal of Islamic Economics and Finance Studies, 3(1): 32–45.
Gurung, R. and Subedi, P. (2024). Assessing the Effect of Earnings per Share on Equity Prices at Commercial Banks in Nepal. Interdisciplinary Journal of Management and Social Sciences (IJMSS) 5(2), 177-187
Gunanta, I., Sherlita, F.and Lestari, S. (2020). The effect of the cash flow statement and Earning per Share (EPS) on stock prices. International Conference on Accounting Studies (ICAS); 17-20
Habib, A. (2021). Growth Opportunities, Earnings Permanence and the Valuation of Free Cash Flow. Australasian Accounting Business and Finance Journal, 5(4), 101-122.
Hanafi, M., and Halim, O., (2016). On the usefulness of earnings and earnings research: Lessons and directions from two decades of empirical research. Journal of Accounting Research 5(2) 153–192.
Handito, J. and Wiwiek, M., (2019). The influence of Earning Per Share (Eps), Price Book Value (Pbv), Return On Asset (Roa), Return On Equity (Roe). American Economic Review, 76(2), 323-329.
Jensen, M, (1986). Comparative Analysis of Stock Price Behaviour on the Bombay, London, New York Stock Exchanges. Journal of Financial and Quantitative Analysis 1(7): 391-413.
Kata, M (2022). The influence of firms’ profitability and stock returns. Journal of Financial Accounting Researches, 3(2), 101-116
Kasmir, A. (2012). Financial Leverage, Firm Size and Profitability of Quoted Insurance Companies in Nigeria. World Economics & Finance Bulletin, 3(1), 67 – 79.
Khalayleh, J. (2023). The relationship between the cash flows and stock returns in the long term. African Journal of Business Management, 6(8), 2945-2950.
Kim, J. H (2019). Multicollinearity and misleading statistical results. Korean journal of anesthesiology. 72(6); 558.
Leo, H., and Harlyn, S. (2022). The Effect of Gross Profit, Operating Profit and Net Profit on Future Cash Flow Prediction at the Company of Telecommunications Sub Sector on IDX in 2014-2019. Journal of Economics and Business, 6(1), 348-358
Luo, T. (2018). Operating cash flows unusual and stock returns. Indonesian Journal of Business Administration, 1(3), 136-149.
Maham, I., Ball, R., and Brown, P. (2008). An empirical evaluation of accounting income numbers. Journal of Accounting Research (2)3: 159–178.
Marcoulides, K. M., and Raykov, T., (2019). Evaluation of variance inflation factor in regression model using latent variable modeling methods. Educational and Psychological Measurement 79(5) 874 – 882.
Meyer U. and Majluf, O. (1984). Commerce – Its Theory and Practice: Great Britain, Chaucer Press Ltd
Miar, U. (2020). The information content of cash flows financial ratios on the Tehran stock market. Journal of Technology Management, 18(3), 205-217.
Nworie, G.O., and Mba, C.J. (2022), Modelling Financial Performance of Food and Beverages Companies Listed on Nigerian Exchange Group: The Firm Characteristics Effect, Journal of Global Accounting, 8(3), 37-52
Ogundajo, U., Collins, D. W., Hribar, P., and Tian, X. S. (2019) the influence of shareholders’ return on the value of manufacturing firms listed on Nigerian Stock Exchange. Journal of Accounting and Economics, 58(2-3), 173-200.
Okoye, R. (2020). The effect of operating cash flow on earnings management of Nigerian Banks. Journal of Finance Research 1(8), 223-237.
Olaniyan, N., Alonge, O., and Solanke, T. (2022). The Influence of Operating Cash Flow in Sustaining Firm Performance: Experience from Nigeria quoted foods and beverages firms
Ojimba, F.,Okegbe, T. O., Ifurueze, M. S. (2021). Cash Flow Activities and Stock Returns: Evidence from Nigerian Consumer Goods Firms. International Journal of Trend in Scientific Research and Development (IJTSRD), 5(6), 1259- 1266,
Ross, U., (1977). Macroeconomic Variables, Firm Characteristic and Stock Returns: Evidence from Turkey. International Research Journal of Finance and Economic. 1(6); 78 – 91.
Samoei, B., and Tenai, J. (2021). Effect of Operating Cash Flow on Stock Return of Firms Listed in Nairobi Security Exchange. Eastern Journal of Economics and Finance 6(1), 26-35
Saeedi, A. and Ebrahimi, M. (2020). The role of accruals and cash flows in explaining stock returns: Evidence from Iranian companies, International Review Business Resources Journal, 6(2), 164–179.
Sulastri M., Sneeney A. and Warga, R. (2024) Stock Returns, Interest Rate and the Direction of Causality. Journal of Finance, 3(5): 1073-1103.
Supriyadi, T. (2021), analyzed the influence of Return on Assets (ROA), Return on Equity (ROE), and Net Profit Margin (NPM) on the Value of Companies in Manufacturing Companies Listed on the Indonesia Stock Exchange In 2016-2019. International Journal of Economics, Business and Management Research. 5(4), 33 -49.
Tantri, S., D., Strar, M., and Wquqi, O. (2022). Fundamental Analysis in Terms of Stock Return and Future Profitability performance. International Research Journal of Finance and Business 7(3); 66 – 78.
Tandelilin, E. (2020). Factors Affecting the Return Stock Company in Indonesia Stock Exchange (IDX) LQ45 in Years 2012-2015..Economic, Business, Management, and Information System Journal, 17(1), 37- 45.
Tyag, C. K D. M., and Tyagi L. (2022). Fundamental analysis and stock returns: An Indian. Global Advanced Research Journal of Economics, Accounting and Finance, 1(2), 033-039.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2026 International Journal of Accounting Intelligence (IJAI)
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
