Faculty: Management Sciences
Department: Banking And Finance
Moses, S. N.
Mbachu, A. U.
The objective of this study is to evaluate the relevance and performance of the financial variables of listed firms in world stock markets. Working with a sample of twelve world stock exchanges (consisting of six developed and six emerging stock exchanges respectively) that were selected using judgment sampling technique based on availability of data; the study tested and compared: (i) the relationship between the financial variables and share prices in the developed stock markets and emerging stock markets, and (ii) the performance of the financial variables in the developed stock markets and the emerging stock markets. The research is based on a theoretical framework that combines two conceptual models: (i) the Ohlson (1995) model; and (ii) the measurement view of value relevance. Data for the study were obtained from secondary sources; the World Stock Exchange Fact Book; 2012 Edition while that for the Nigeria Stock Exchange was computed from the Nigeria Stock Exchange Fact Books 2002-2012. The obtained data were analyzed using tables, simple and appropriate descriptive statistics, correlation matrix as well as OLS regression analysis. Average price-earnings ratio, price-book value ratio and dividend yield are the independent variables while average share price is the dependent variable for the relevance tests. For the performance tests, average price-earnings ratio, price-book value ratio and dividend yield are the independent variables and the levels of stock market development, the dependent variables. The first two hypotheses were tested using the OLS method of multiple regression while the third, fourth and fifth hypotheses were tested with the single factor analysis of variance. Findings show that the financial variables were relevant to share prices in the developed stock markets (with price-earnings ratio and price-book value ratio having positive relationships and dividend yield having negative relationship) but not relevant to share prices (with price-earnings ratio and price-book value ratio having negative relationships and dividend yield having positive relationship) in the emerging stock markets. Results also show that the mean size of price-earnings ratio do not differ significantly while the mean sizes of price-book value ratio and dividend yield were significantly different between the developed stock markets and emerging stock markets. It is therefore concluded that the liberalization of emerging stock markets and integration of world stock markets that were most prominent during the period of the study (1995 – 2011) did not have equal effects on the relevance and performance of the financial variables for listed firms in the developed stock markets and emerging stock markets. The Researcher therefore recommended among others that; macroeconomic policy makers in emerging countries should do more to further improve corporate reporting and governance by listed firms and their respective stock markets. This is expected to increase investors’ confidence in underlying published financial variables and in effect improve their relevance and performance.
Key Words: Comparative Evaluation, Relevance, Performance, Financial Variables