




































Australian Finance & Banking Review; Vol. 2, No. 2; 2018 

ISSN 2576-1196   E-ISSN 2576-120X 

Impact Factor: 2.7 

Published by Centre for Research on Islamic Banking & Finance and Business, USA 

 

 

1 

 

Price-Swinging Stock Market Fundamentals: Nexus and 

Contemporary Features 
 

 

Prince Umor C. Agundu
1
, James T. Wula

2
 & Usman Mamuda Musa

2 

 

 

1
Department of Banking & Finance, Federal University Wukari, Taraba State, Nigeria 

2
Department of Accounting, Federal University Wukari, Taraba State, Nigeria 

Correspondence: Prince Umor C. Agundu, Department of Banking & Finance, Federal University Wukari, 

Taraba State, Nigeria. Tel: 08037757642. Email: princeagundu@fuwukari.edu.ng 

 

Received: July 20, 2018                    Accepted: July 26, 2018           Online Published: August 4, 2018   

 

 

 

 

Abstract 

The factors which determine stock prices in capital markets are many and diverse; hence researchers in the 

academic fields of accounting and finance intermittently undertake to track them with contextual emphasis. 

From the philosophical basics to the more rigorous econometric dispositions, analysts in different schools of 

thought had ventured in this regard and came up with divergent outcomes. Some factors did commonly appear 

for most stock markets, while various conditions surrounding the respective scenes accounted for environmental 

dynamics.  This reinforces the truism that each market has acclimatized rules and regulations, country 

peculiarities, and investor typologies; all of which provide basis for uniqueness. In this conceptual analysis, the 

factors that feature as dominant determinants of stock prices are Earnings per Share (EPS), Dividend Per Share 

(DPS), and Price-Earnings Ratio (P/ER); among which the last is the most and not the least. It further attests to 

the prevailing value relevance of financial statement information emanating from corporate accounting reports; 

hence the imperativeness of stock market regulators sustaining the rules that make for adherence to best 

practices. The alternative to informational reliability is institutional fragility; because when investors’ 

confidence erodes, liquidity squeezes, efficient markets crashes, and in turn, investors withhold investments. It, 

therefore, requires market regulatory/administrative mechanisms to be focally directed at enhancing reportorial 

compliance and compelling higher due diligence, accountability and responsibility in line with international 

standards. 

 

Keywords: Financial Statements, Market fundamentals, Stock Prices. 

 

1. Introduction 

Financial performance of firms listed on the stock exchange reflects an assessment of financial 

activity/productivity, particularly of the entities as they participate in capital market activities. The process 

typically involves measuring a firm’s policies and operations in monetary terms. Financial performance analysis 

identifies the financial strengths and weaknesses of the firm by properly establishing relationships between the 

items of the statement of financial position (balance sheet) and the statement of comprehensive income (trading, 

profit and loss account). The first stage is to select the information that anchor the relevant fundamentals to the 

decision under consideration from the entire information contained in the financial statements. The second stage 

is to arrange the information in a manner that highlights the significant relationships. The third stage is to 



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interpret and draw inferences and conclusions, thereby consummating the financial performance analysis cycle 

which characteristically features selection, relation, and evaluation facets. 

The critical perspectives of corporate financial evaluation include profitability analysis, working 

capital/liquidity analysis, financial structure analysis, activity analysis and market value/investment ratio 

analysis. Nonetheless, recent studies expediently focus on market value/investor ratios, especially Earnings per 

Share (EPS), Dividend per Share (DPS), and Price-Earnings Ratio (P/ER), for the purpose of assessing long-

term financial performance and reflecting the income and degree of satisfaction of shareholders connected with 

the firms. The period spanning 2009-2014 marked an era whereby the Nigerian capital market recorded very 

low activity, particularly indicated by sharp drop in share prices following the 2008 global stock crash. Also, it 

was from 2009 that the Nigerian Stock Exchange (NSE) began publishing the NSE 30 Index; analytically 

adopting five-sector indices to provide investable benchmarks to capture the performance of specific sectors. 

The indices comprise the top 15 most capitalized and liquid companies in the Insurance and Consumer Goods 

sectors, top 10 most capitalized and liquid companies in the Banking and Industrial Goods sectors and top seven 

most capitalized and liquid companies in the Oil and Gas sector  (NSE, 2011/2012; 2014). 

Recent studies had beamed the searchlight on developmental dynamics, particularly relating to market 

fundamentals in Consumer Goods Sector (CGS).  The CGS is contextually notable because it constitutes the 

largest segment of the Nigerian manufacturing industry (the real sector), controlling 22.5% of the activities in 

the industry.  It accounts for more than 4.6% of Gross Domestic Products (GDP) and 66% of total consumer 

expenditure.  It generates over 1.5 million jobs and employs more than 5% of the Nigerian workforce. It 

showcases an oligopolistic market structure: about 15% of the market players control 90% of the sales volume 

while the remaining 85% are small and medium-scale enterprises (SMEs) which account for 10% of total sales 

volume (Nigeria Agro Food, 2016).Against this backdrop, this paper conceptually addresses price-influencing 

corporate financial fundamentals as they relate to the Nigerian stock market and similar scenes overseas.  

2. Factor Dominance Evaluation 

For the purpose of illuminating the extent of factor dominance, the price-swinging (determining) variables 

considered are EPS, DPS, and P/ER, as further highlighted: 

2.1 Share price and EPS Nexus 

For many studies that focused on the extent to which stock price is influenced by EPS, the regression results 

indicate positive and significant relationship. Particularly among firms in the CGS of the NSE, the outcomes 

strongly affirm the influence of EPS on the market value of share prices. This is in tandem with the fundamental 

or intrinsic value analysis theory which holds that at any point in time, an individual security has an intrinsic 

value which depends on the earning potential of stock.  By this, the earning potential of stock depends on such 

fundamentals as quality of management, outlook of the industry and the economy.  Through careful study of 

these fundamentals, an investment analyst is expected to determine if the actual price of stock is above or below 

the intrinsic value.  If actual prices tend to move towards intrinsic values, then attempting to determine the 

intrinsic value of stock is equivalent to making a prediction of its future price; and this is the essence of the 

predictive procedure implicit in fundamental analysis.  This tendency is further corroborated by some 

researchers, including Almumani (2014) and Srinivasan (2012).  Those with reservations about the functional 

association include Umar and Musa (2013) and Dehuan and Jin (2008). 

2.2 Share price and DPS Nexus 

As shown by outcomes of many scholarly investigations, positive and significant relationship prevails between 

stock price and DPS.  Dividend is one of the ways firms share the wealth generated from running the business. 

As stock prices go up, resulting from payment of dividends, shareholder value increases.  When a firm initiates 

the payment of cash dividend or withholds such payment, it makes an extremely visible and qualitative change 

in corporate policy. This decision portends short and long–term implications on the performance of the price 

and volume of the company’s shares. Many researchers have equally established that DPS is positively related 

to stock price. By this, stock price rises with an increase in DPS, hence attach high value to those firms that pay 

dividends. Current income in the form of dividend is preferred by most investors and they demonstrate greater 

willingness to buy the stocks that pay high dividends. Thus, stock price of a company with higher dividend pay-

out tend to go higher, to the end that where the earnings remain the same, stock price would increase as 

dividend pay-out increases. This trend is accounted for by the submissions that:  

 Dividends tend to reduce the risk and uncertainty attached to the stock,  

 Dividends refer to the psychological preference of investors for current rather than future earnings, and 

 Dividend substantiates the information content of dividend pay-out,as investors reckon with them as 

tangible evidence of earnings capacity of a firm. 



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With respect to research findings on the extent to which DPS affects stock prices, there is a significant influence 

on the market value of stock prices of listed firms.  This is in tandem with the fundamental or intrinsic value 

analysis theory which adopts earnings and dividend prospects of the firm in the determination of stock prices. 

Evidence from the studies conducted by Srinivasan (2012) and Khan (2009)lends credence to the position that a 

significant relationship exists between stock price and dividend.  On the other hand, this stance is at variance 

with the disposition of Gharaibeh (2015) and Almumani (2014). 

2.3 Share Price and P/ER Nexus 

Some studies had hypothesized on the relationship between stock price and P/ER, focusing on firms in the CGS.  

Like other independent variables in similar frameworks, the regression results indicate that there is positive 

significant relationship between stock price and P/ER.  This outcome is supported by the price-earnings 

valuation model under the fundamental analysis theory, which holds that the P/ER gives a good signal of the 

selling price of stocks. Thus, it is commonly used in the owners’ appraisal of stock value, such that a low ratio 

would signal a good investment and rationally boost investors’ confidence. Previous studies which affirm this 

association include those conducted by Ӧzlen and Ergun (2012) and Srinivasan (2012). However, Vijitha and 

Nimalathasan (2014) have reservations, rather contending that there is no significant relationship between share 

price and P/ER. 

3. Market-Specific Reflections 

Thus far, investigations have been carried in many parts of the world to project the factors that affect stock 

prices, Nigeria being on good account as well (Agundu & Wula, 2017).  Inyiama (2015) examined the effect, 

magnitude, strength, causalities and co-integration of the relationship between banks’ financial fundamentals 

and stock price in the Nigerian banking sector.  Secondary data obtained from the annual reports and accounts 

of First Bank Plc, Access Bank Plc, Zenith Bank Plc and United Bank for Africa Plc from 2004-2013 were 

utilized.  The nature and magnitude of association between the dependent variable (average stock price) and the 

independent variables (bank age, EPS, and return on assets) were determined using multiple regression analysis. 

Granger causality procedure was applied to determine causality while Johansen co-integration test was 

conducted to verify sustainability of the short-run relationship. The study reveals that EPS has positive and 

significant relationship with stock price.  There is unidirectional granger causality running from stock price to 

EPS and bidirectional granger causality running from return on assets (ROA) to EPS and from EPS to ROA.  

Since EPS has the strongest explanatory power, the recommendations underscore:  

 Efficient application of critical cost reduction strategies,  

 Aggressive marketing, and  

 Diversification strategies to improve on their earnings 

By extension, diversification may lead to enhanced dividend pay-out which further jell the corporate image. 

Stephen and Okoro (2014) examined the factors that determine stock price movements in Nigeria from 2001-

2011.  They focused on 99 firms listed on the NSE, which cut across all sectors of the Nigerian economy.  

Using the ordinary least squares (OLS) technique, the impact of EPS, Book Value per Share (BVPS) and 

Dividend Cover (DC) on stock price was analyzed, anchoring on Ohlson’s (1995) model. The model expresses 

stock price as a function of EPS and BVPS, but the researchers added a third parameter (DC), to form an 

integrated Ohlson’s model. The results reveal that the explanatory power of EPS, BVPS and DC are statistically 

significant in explaining the movement in stock prices. Umar and Musa (2013) examined the relationship 

between stock prices and EPS, using a sample of 140 Nigerian firms quoted on the NSE from 2005 to 2009.  

The sampled firms cut across 31 sectors of the economy and are divided into four equal strata, with each 

stratum consisting 35 firms, such as: 

 Firms with the highest EPS, 

 Firms with the lowest EPS, 

 Firms with the most performing stocks, and  

 Firms with the least performing stock. 

Adopting random effect regression to estimate the parameters of the dependent and independent variables, the 

results reveal an insignificant relationship between stock prices and EPS.  By the insignificance experienced in 

the period of the study, EPS could not serve as a basis for predicting stock price movements. Abiodun (2012) 

examined the significance of accounting information on firm value for 40 companies sampled randomly from 

various sectors of the Nigerian economy.  The sectors include:  

 Food and beverages,  

 Financial services,  

 Automobile,  

 Construction,  



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 Insurance, and  

 Services.  

Simple descriptive statistics coupled with price regression model, returns regression model and logarithmic 

regression model were utilized in evaluating the effect of earnings and book value on stock price from 1999 to 

2009.The study reveals earnings as more value relevant than book value. This implies that information 

contained in the income statements of the sampled firms (earnings in context), dictates the corporate value of 

the firms more than information contained in the balance sheet (book values in context). Information is relevant 

if it influences the investment decisions of users by helping them evaluate past, present and future events. To 

undermine information reliability in this regard is a sure way to investment futility (Agundu, 2012). 

Oyerinde (2011) examined the value relevance of accounting data in the Nigerian stock market with a view to 

determining whether they provide information that affects stock prices of firms listed on the NSE. It explored 

the difference in perception of institutional and individual investors about the value relevance of various items 

of financial statements in equity valuation, using secondary and primary data. The accounting numbers which 

constitute the secondary data were obtained from the NSE Fact-book, annual financial reports of companies 

quoted on the Exchange, and the Nigerian Stock Market Annual Reports from 2002-2008. Using OLS, Random 

Effects Model (REM), and Fixed Effects Model (FEM) to gauge information content of earnings, book value 

and dividend, the study reveals that there is a significant relationship between earnings, book value and 

dividends and stock prices of companies listed on the NSE. It also established that dividends are the most 

widely used accounting information for investment decisions in the market, followed by earnings and net book 

value. 

Outside the shores of Nigeria, Dehuan and Jin (2008) examined to what extent stock prices in the Chinese stock 

market are driven by firms’ operating performance. Their interest was informed by the widely held view that the 

Chinese stock market is very speculative and policy-driven.  The performance measures used were Return on 

Equity (ROE), EPS, Profit Margin (PM), ROA, changes in sales, and Total Assets Turnover (TAT). They 

examined the variables on a sample of top 10% performers listed in the Shanghai Stock Exchange (SSE) from 

1996-2000 by employing simple and multiple regressions to determine, at the firm level, whether and to what 

extent these variables are related to stock price changes and what portion of the stock price movements can be 

explained by the financial fundamentals.  The results indicate that while firm performance measures have some 

explanatory power on stock price changes in the first two years of analysis, the operating performance 

measures’ explanatory power of the stock price movements generally declined as the stock prices went up.  The 

revelations suggest that the significant stock price increases from 1998 to 2000 were not critically driven by the 

firms’ operating performance. 

4. Conclusion 

Many price-swinging financial fundamentals have been featured in stock market – based research in recent 

times, with the critical factors being EPS, DPS, and P/ER. Among these three fundamentals, which constitute 

internal factors/determinants of stock price, P/ER prevails as the most influential variable. Against this 

backdrop, analysts contend that firms should uphold the P/ER as dominant factor in the determination of stock 

prices. It equally obtains among the firms, including those in the CGS, that the P/ER is a preferred financial 

fundamental when investors desire to know which stock price is cheap or expensive. Those who refer to current 

trading prices of stock may get confused by the wide range of price data inputs. Moreover, stock prices may 

change rapidly with firms’ capital decisions, but the stocks neither become cheaper nor more expensive.  

Functionally, therefore, dividing stock price by EPS makes the comparative analysis of low price stock and high 

price stock better insightful and more meaningful. Contextually, however, the nexus illuminated in this 

conceptual analysis underscores the functionality of:  

 EPS, which associates positively and significantly with stock price, 

 DPS, which associates positively and significantly with stock price, and 

 P/ER, which associates positively and significantly with stock price; and features as the most dominant 

fundamental among them all, even in the CGS.  

In the Nigerian stock market context, many analysts have explored firms cutting across sectors, but there is yet 

no clear-cut method of selecting the firms across the sectors. Furthermore, the outcomes of investigations did 

not focus on specific industry characteristics. Some international studies which involved cross-sector evaluation 

reasonably availed results on the specific sector explored, but this has not been the case with most studies on the 

domestic scene.  In this vein, it is underscored that the relationship between financial performance indicators 

should not be construed as generic, as it varies either by company or industry. Aggregating the outcomes for the 

various sectors makes it impossible to trace the revelations to a specific industry (Belesis & Sorros, 2012).  



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Notably also, many of the local investigations focusing on value relevance of accounting information did not 

include P/ER in the analytical framework. The P/ER indicates the extent to which earnings of stock are covered 

by the price.  It reflects how many times earnings investors are ready to pay for each stock; hence it prevails as 

a major factor that determines whether stock is under-priced or overpriced.  This ratio should, therefore, be 

harnessed in identifying which stocks in a given sector are expensive or cheap relative to one another. After all, 

many investors are prepared to pay a premium for high growth expectations in the form of high P/ER.  In line 

with the fore-going, Gottwald (2012) asserts that P/ER is still a widely used valuation tool in most stock 

markets. Analysts adopt it when pricing new shares in an initial public offering (IPO); as well as a measure of 

relative value when comparing listed companies.  

Accordingly, a company which has higher P/ER than a competing (rival) firm in the same line of business 

would project or portend bad value for investors. Well projected P/ER, thus, fosters average expectations about 

future growth prospects, as high P/ER would logically suggest an aggregate market expectant of significant 

future earnings growth. Given that all the focal analytical factors (EPS, DPS, and P/ER) positively and 

significantly influence stock price, they have proven to be of utmost relevance to investors, particularly in their 

decisional settings. By the explanatory power they possess, they remain useful in making more meaningful 

forecast of stock prices, and to that extent, stability and sustainability of the capital markets in context. It is, 

therefore, expected that:  

 Analysts would appropriate more time in evaluating EPS, DPS, feature in their evaluations/predictions, 

 Except for growth programmes intended to be financed from earnings or any other compelling reason 

to pay stock dividend, managers would be consistent in the payment of cash dividend; as it makes for 

more marketability/popularity and conveys a perception of corporate financial stability; 

 Firms would develop and publish periodically their earnings growth rates, including the ones for the 

last five years, and the current year, as well as expected growth rates for the next five years (which are 

to be compared with the industry average or sector index). 

Furthermore, the P/ER should feature critically among the fundamentals that significantly influence stock 

prices, in their investment evaluations/projections, since the average investor seeks to earn good returns. The 

Securities and Exchange Commission (SEC) and NSE, in particular, should adopt a benchmark P/ER on sector-

specific basis, to facilitate inter-firm (cross-sectional) analysis/comparison. The status quo where only the P/ER 

for the entire market is availed definitely elicits expeditious rethink in the interest of systemic innovativeness 

and competitiveness. 

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