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Effect of Book Value Per Share on the Market Value of Listed Companies in Nigeria

Abstract

Book value per share is an important accounting-based valuation indicator that represents the net asset value attributable to each ordinary share of a company. It provides investors with information about the underlying accounting value of shareholders' equity and serves as an important measure for assessing the financial strength, asset backing, and valuation of listed companies. Market value represents the value assigned to a company by investors in the capital market and is reflected through indicators such as market capitalization, share price, Tobin's Q, and price-to-book ratio. A higher book value per share may indicate a stronger equity base, greater asset backing, and improved financial capacity, potentially influencing investors' assessment of a company's intrinsic value and future prospects. In Nigeria, listed companies operate in an economic environment characterized by inflation, exchange rate volatility, changing interest rates, rising operating costs, economic uncertainty, and fluctuations in investor sentiment. These conditions can affect the carrying values of corporate assets and liabilities, shareholders' equity, investor expectations, and market valuations. The relationship between accounting-based valuation information and market value is therefore important to investors, analysts, regulators, and corporate managers. Regulatory institutions such as the Financial Reporting Council of Nigeria (FRCN), the Securities and Exchange Commission (SEC), and the Nigerian Exchange Group (NGX) promote transparent and reliable financial reporting practices that enable investors to assess the financial position and value of listed companies. Despite these regulatory efforts, differences exist between the accounting value of companies and their market valuations, raising questions about the extent to which book value per share influences market value. Although previous studies have examined book value, earnings information, and firm valuation, empirical evidence regarding the effect of book value per share on the market value of listed companies in Nigeria remains limited and inconclusive. Against this background, this study investigates the effect of book value per share on the market value of listed companies in Nigeria. The study is anchored on the Ohlson Valuation Model, Signaling Theory, and Efficient Market Hypothesis (EMH). The Ohlson Valuation Model establishes a theoretical relationship between accounting information, particularly book value and earnings, and the market value of equity, providing a strong foundation for examining the relevance of book value per share to corporate valuation. Signaling Theory suggests that a strong book value per share may provide investors with positive information about a company's asset base, financial strength, and ability to withstand financial challenges. The Efficient Market Hypothesis proposes that publicly available accounting information is incorporated into share prices as market participants evaluate available information about companies. Collectively, these theoretical perspectives provide a comprehensive framework for explaining the relationship between book value per share and the market value of listed companies in Nigeria. The study adopts a quantitative research design using a structured questionnaire administered to chief financial officers, finance managers, accountants, financial controllers, investment analysts, portfolio managers, fund managers, stockbrokers, institutional investors, internal auditors, external auditors, and other professionals involved in financial reporting and investment decisions within selected listed companies in Nigeria. A stratified random sampling technique will be employed to ensure adequate representation of companies operating in the financial services, manufacturing, consumer goods, industrial goods, oil and gas, telecommunications, agriculture, healthcare, and other sectors listed on the Nigerian Exchange Group (NGX). Book value per share will be measured using net assets attributable to ordinary shareholders per share, shareholders' equity per ordinary share, growth in book value per share, consistency of book value, and asset backing per share, while market value will be measured using market capitalization, market price per share, Tobin's Q, price-to-book ratio, and overall market valuation. Primary data collected from respondents will be analyzed using descriptive statistics to summarize respondents' demographic characteristics and perceptions regarding book value per share and market value. Structural Equation Modeling (SEM) will be employed to examine the effect of book value per share on market value. The measurement model will be evaluated using Cronbach's Alpha, Composite Reliability (CR), Average Variance Extracted (AVE), and Confirmatory Factor Analysis (CFA) to establish the reliability and validity of the research instrument. Additional diagnostic tests, including multicollinearity assessment, common method bias, and model fit indices such as the Comparative Fit Index (CFI), Tucker-Lewis Index (TLI), Root Mean Square Error of Approximation (RMSEA), and Standardized Root Mean Square Residual (SRMR), will be conducted to ensure the adequacy, consistency, reliability, and robustness of the structural model. The study anticipates that book value per share will have a significant positive effect on the market value of listed companies in Nigeria. A higher book value per share is expected to indicate a stronger equity position and greater asset backing, which may enhance investor confidence and influence perceptions of the company's intrinsic value. Investors may regard companies with strong book values as having greater financial stability and a stronger capacity to withstand adverse economic conditions. Consequently, companies with higher book values per share may attract greater investor demand, resulting in higher share prices and market valuations. Growth in book value per share may also signal effective retained earnings management, profitable reinvestment, and expansion of the company's net asset base. However, accounting book value may not fully capture the economic value of intangible assets, brand reputation, intellectual property, human capital, or future growth opportunities. In addition, inflation and changes in asset valuation may create differences between accounting values and current economic values. Therefore, investors may consider book value per share alongside earnings, cash flows, growth prospects, risk, and other market information when determining corporate value. Overall, relevant, reliable, and consistently growing book value per share is expected to contribute significantly to the market value of listed companies in Nigeria. This study is expected to make significant theoretical and empirical contributions to the literature on financial accounting, accounting information relevance, corporate valuation, and capital market research by providing comprehensive evidence on the relationship between book value per share and the market value of listed companies in Nigeria. Unlike previous studies that broadly examined accounting information or firm value, this research specifically evaluates book value per share as a determinant of market value using primary data and Structural Equation Modeling (SEM). The findings will provide valuable insights for listed companies, accountants, auditors, investment analysts, portfolio managers, investors, stockbrokers, the Financial Reporting Council of Nigeria (FRCN), the Securities and Exchange Commission (SEC), the Nigerian Exchange Group (NGX), professional accounting bodies, policymakers, regulators, and academic researchers regarding the relevance of book value information in corporate valuation. The study will also provide evidence-based recommendations for improving the quality and reliability of equity information, strengthening financial reporting practices, enhancing disclosure of shareholders' equity, improving investor communication, and providing relevant accounting information to support informed investment decisions and efficient market valuation of listed companies in Nigeria.

Keywords: Book value per share, market value, listed companies, shareholders' equity, accounting information, corporate valuation, asset backing, share price, investor confidence, Structural Equation Modeling (SEM), Nigeria.