Book value and share prices: The mediating effect of inflation in Nigeria

https://doi.org/10.35912/ijfam.v6i1.1747
Published: Jun 24, 2024

Abstract:

Purpose: This study examines the nexus between book value and the share price of listed firms in the Nigerian exchange group, considering inflation as a mediating variable.

Research methodology: The study used book value per share, share prices, and inflation rate as the independent, dependent, and mediating variables, respectively. The study uses regression analysis and a structural equation model for the effect and mediating effect, respectively, to analyze data collected from a company’s financial statements and the capital market for 2011-2020.

Findings: The regression and structural equation model results show that book value per share has a negative and insignificant effect on share price, and inflation has a mediating effect on the relationship between book value per share and share prices.

Limitations: This study was limited to book value per share, share price, and inflation rate. The scope of this study was limited to listed firms in Nigeria from 2011 to 2020.

Contribution: This study contributes to the understanding of how inflation rates influence the relationship between book value per share and share prices in financial markets. By exploring the mediating effect of the inflation rate, this study sheds light on how changes in purchasing power affect the valuation metrics of companies, providing valuable insights for investors, policymakers, and financial analysts in making informed decisions amidst varying economic conditions. Moreover, this study contributes to the body of knowledge because there are limited studies in this area.

Keywords:
1. Book Value
2. Share price
3. Inflation
Authors:
1 . Benedict Soje
Federal University Wukari, Nigeria
2 . Udisifan Michael Tanko
Federal University Wukari, Nigeria
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Soje, B., & Tanko, U. M. (2024). Book value and share prices: The mediating effect of inflation in Nigeria. International Journal of Financial, Accounting, and Management, 6(1), 61–74. https://doi.org/10.35912/ijfam.v6i1.1747
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Issue & Section
Vol. 6 No. 1 (2024): June
Articles
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This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

References

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    Afolabi, M. B., & Dada, O. D. (2014). Trends of share pricing in the Nigerian stock market. Research Journal of finance and accounting, 5(14), 186-195.

    Ahmadi, A. (2017). The stock price valuation of earnings per share and book value: Evidence from Tunisian firms. The Journal of Internet Banking and Commerce, 22(1), 1-11.

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    Basuki, B., Pulungan, N. A. F., & Udin, U. (2020). The Effect of Innovation on Price to Book Value: The Role of Managerial Ownership in Indonesian Companies. The Journal of Asian Finance, Economics and Business (JAFEB), 7(5), 249-258.

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  1. Adeyemi, O. J., & Ajibola, A. (2019). Naira devaluation and trade balance in Nigeria. World Scientific News(125), 181-192.
  2. Afolabi, M. B., & Dada, O. D. (2014). Trends of share pricing in the Nigerian stock market. Research Journal of finance and accounting, 5(14), 186-195.
  3. Ahmadi, A. (2017). The stock price valuation of earnings per share and book value: Evidence from Tunisian firms. The Journal of Internet Banking and Commerce, 22(1), 1-11.
  4. Alade, M. E. (2018). Effect of international financial reporting standards adoption on value relevance of accounting information of Nigerian listed firms.
  5. Alade, S. O., & Tule, M. K. (2017). The Nigerian Financial System at a Glance. Retrieved from Monetary Policy Central Bank of Nigeria:
  6. Amadeo, K. (2022). Reasons Why Inflation Is Good: Two Surprising Ways Inflation Helps You. Retrieved from https://www.thebalancemoney.com/why-is-inflation-good-4065995
  7. Aziz, N. (2012). Does a real devaluation improve the balance of trade? Empirics from Bangladesh economy. The Journal of Developing Areas, 19-41.
  8. Basuki, B., Pulungan, N. A. F., & Udin, U. (2020). The Effect of Innovation on Price to Book Value: The Role of Managerial Ownership in Indonesian Companies. The Journal of Asian Finance, Economics and Business (JAFEB), 7(5), 249-258.
  9. Bekaert, G., & Engstrom, E. (2010). Inflation and the stock market: Understanding the “Fed Model”. Journal of Monetary Economics, 57(3), 278-294.
  10. Binz, O., Graham, J. R., & Kubic, M. (2023). Does Inflation Affect Value Relevance? A Century-Long Analysis. A Century-Long Analysis (June 3, 2023).
  11. Chen, N. (2019). International dimensions of inflation. Paper presented at the European Central Bank Conference.
  12. Coomer, J., & Gstraunthaler, T. (2011). The Hyperinflation in Zimbabwe. Quarterly journal of Austrian economics, 14(3).
  13. Djalil, M. A., & Tabrani, M. (2016). The Effect Of Earnings Per Share, Book Value And Systematic Risk On Equity Valuation In Manufacturing Company Listed On Indonesian Stock Exchange For The Year 2011-2014. Paper presented at the Proceedings of International Academic Conferences.
  14. Egbunike, C. F., & Oranefo, P. C. (2023). Macroeconomic factor, firm characteristics and inventory holding in Nigeria: A quantile regression approach. International Journal of Financial, Accounting, and Management, 5(1), 1-17.
  15. Fatukasi, B. (2003). Determinants of inflation in Nigeria: An empirical analysis. International Journal of Humanities and Social Science, 1 (18).
  16. Forson, J. A., & Janrattanagul, J. (2014). Selected macroeconomic variables and stock market movements: Empirical evidence from Thailand. Contemporary economics, 8(2), 154-174.
  17. Geetha, C., Mohidin, R., Chandran, V. V., & Chong, V. (2011). The relationship between inflation and stock market: Evidence from Malaysia, United States and China. International journal of economics and management sciences, 1(2), 1-16.
  18. Gregoriou, A., & Kontonikas, A. (2006). Inflation targeting and the stationarity of inflation: New results from an ESTAR unit root test. Bulletin of Economic Research, 58(4), 309-322.
  19. Gujarati, D. N., & Porter, D. (2009). Basic Econometrics: Mc Graw-Hill International Edition.
  20. Herlina, D., & Romadhona, A. (2021). Price analysis between commodity groups of inflation in Banten province from 2008 to 2018. International Journal of Financial, Accounting, and Management, 2(4), 321-341.
  21. Ilter, C. (2019). Inflation and devaluation effects on financial statements: The case of Turkey in 2018. Acta Oeconomica Pragensia, 2019(2), 49-61.
  22. Kaplan, R. S. (2018). The neutral rate of interest. Federal Reserve Bank of Dallas.
  23. Konchitchki, Y. (2011). Inflation and nominal financial reporting: Implications for performance and stock prices. The accounting review, 86(3), 1045-1085.
  24. Kwofie, C., & Ansah, R. K. (2018). A study of the effect of inflation and exchange rate on stock market returns in Ghana. International Journal of Mathematics and Mathematical Sciences, 2018, 1-8.
  25. Makrani, K., & Abdi, M. (2014). The effects of book value, net earnings and cash flow on stock price. Management Science Letters, 4(9), 2129-2132.
  26. Mondal, M. S. A., Akter, N., Moni, S. J., & Polas, M. R. H. (2023). Financial and non-financial disclosures on sustainable development: The mediating role of environmental accounting disclosure practices. International Journal of Financial, Accounting, and Management, 5(3), 387-406.
  27. Ohlson, J. A. (1995). Earnings, book values, and dividends in equity valuation. Contemporary Accounting Research, 11(2), 661-687.
  28. Osundina, J. A., Jayeoba, O. O., & Olayinka, I. M. (2016). Impact of accounting information on stock price volatility (a study of selected quoted manufacturing companies in Nigeria). International Journal of Business and Management Invention, 5(11), 41-54.
  29. Rahmawati, Y., & Hadian, H. N. (2022). The influence of debt equity ratio (DER), earning per share (EPS), and price earning ratio (PER) on stock price. International Journal of Financial, Accounting, and Management, 3(4), 289-300.
  30. Setiawan, A. H., Fitri, R., Muthohharoh, M., & Irfany, M. I. (2023). Investment strategy on indonesia islamic stocks using Greenblatt Magic Formula. International Journal of Financial, Accounting, and Management, 5(3), 281-296.
  31. Subramaniam, A., & Tharshiga, P. (2013). Impact of Earning Per Share (EPS) On Share Price (Listed Manufacturing Companies in Sri Lanka). International Journal of Innovative Research and Studies, 2(12), 250-258.
  32. Sucuahi, W. T., Alvarez, J. A. E., Gudes, M. A. M., & Parsacala, R. B. B. (2016). Influence of Inflation Rate to Stock Price Growth among Diversified Companies in the Philippines. International Journal of Accounting Research, 2(12), 42-49.
  33. Varul, M. (2011). Value: Exchange and use value. Encyclopedia of Consumer Culture; Southerton, D., Ed.; SAGE Publications: Thousand Oaks, CA, USA, 1, 1501-1503.
  34. Zhao, X., Lynch Jr, J. G., & Chen, Q. (2010). Reconsidering Baron and Kenny: Myths and truths about mediation analysis. Journal of Consumer Research, 37(2), 197-206.