DETERMINANTS OF STOCK RETURNS OF QUOTED CONSUMER GOODS

COMPANIES IN NIGERIA

BY

NYIKYAA, MIRIAM NGUAVESE

NSU/ADM/Ph.D/ACC/0034/16/17

Ph.D ACCOUNTING AND FINANCE

JUNE, 2021
DETERMINANTS OF STOCK RETURNS OF QUOTED CONSUMER
GOODS COMPANIES IN NIGERIA

BY

NYIKYAA, MIRIAM NGUAVESE

NSU/ADM/Ph.D/ACC/0034/16/17

A THESIS SUBMITTED TO THE SCHOOL OF POSTGRADUATE

STUDIES, NASARAWA STATE UNIVERSITY KEFFI, IN PARTIAL
FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF
DEGREE OF Ph.D IN ACCOUNTING AND FINANCE

DEPARTMENT OF ACCOUNTING

FACULTY OF ADMINISTRATION

NASARAWA STATE UNIVERSITY, KEFFI

NIGERIA

i
 DECLARATION

I hereby declare that; this thesis has been written by me and it is a report of my research work. It

has not been presented in any previous application for Ph.D Accounting and Finance. All

quotations are indicated and sources of information specifically acknowledged by means of

references.

________________________

NYIKYAA, MIRIAM NGUAVESE

NSU/ADM/Ph.D/ACC/0034/16/17

ii
 CERTIFICATION

The Thesis “determinants of Stock Returns of Quoted Consumer Goods Companies in

Nigeria” meets the regulations governing the award of Ph.D in Accounting and Finance of the
School of Post Graduate Studies, Nasarawa State University, Keffi and it is approved for its
contribution to knowledge and literary presentation.

__________________________ _______________________
Prof. A.D Zubeiru Date
Chairman, Supervisory Committee

____________________________ ________________________
Prof. M.I Fodio Date
Member, Supervisory Committee

___________________________ ________________________
Dr. I.O. Abdullahi Date
Head of Department

____________________________ ________________________
Internal Examiner Date

____________________________ ________________________
Prof. B.E. Barde Date
Dean of Faculty

___________________________ ________________________
External Examiner Date

____________________________ ________________________
Prof. J.M. Ayuba Date
Dean, School of Postgraduate Studies

iii
 DEDICATION
This research study is dedicated to God Almighty the giver of all grace. He has been my anchor

through all the journey of my life.

iv
 ACKNOWLEDGEMENTS

In a work of this standard which has taken a long time to come to fruition, it is very difficult to
acknowledge adequately all the inspirations, suggestions and encouragement received in the
course of this work. To mention some is not to belittle others.

Firstly, I wish to give glory to God almighty for seeing me through this work especially, his
guidance, protection and wisdom which only him has the power to give.

My sincere thanks and appreciation go to: My supervisors, Prof. A.D. Zubeiru and Prof M.I.
Fodio for providing me with guidance and support on a number of practical difficulties during
this dissertation. Their subtle advice, suggestions, constructive criticisms and most of all
painstaking to have had time in spite of their tight schedule to read through the work at various
stages and making necessary corrections. I would have not been able to complete this
dissertation without their guidance and support. I owe a big thank to my lecturers, for their
motivating efforts in transferring knowledge for the development of this work and their various
contributions in the course of my programme.

My husband and my children, for their embodiment of love, kindness and wisdom for having
faith in me, I am most grateful. I also extend my profound gratitude to my friends, family and
well-wishers for their encouragement and consistent emotional support. Finally, I extend my
profound gratitude to my research assistants, course mates and colleagues, God bless you all.

v
 Abstract

Stock returns from investments in equity are subject to vary because changes in stock prices
which are a product of several factors and the impacts could either be positive or negative. Also,
emerging markets such as Nigeria have different structures and institutional characteristics
from developed stock markets, and in view of the fact that investors in these markets are
interested in getting more insights into the activities of companies, it is imperative to find out
whether stock returns in Nigeria respond differently to effects of corporate firm level factors or
not. Hence, this study examined the determinants of stock returns of quoted consumer goods
companies in Nigeria. Specifically, the study examined the effect of firm attributes, ownership
structure and board attributes on stock returns. Stock returns are measured using market price
per share obtained directly from www.cashcraft.com as at the end of each year. In line with
objectives of the study, ex-post facto research design and positive research paradigm were
adopted. The population of the study comprised all the 23 quoted consumer goods firms on the
Nigeria Stock Exchange as at 31st December 2010 on which filters were employed to arrive at
an adjusted population of 16 firms. Panel data were extracted from the annual financial
statements of the firms for the period 2010 – 2019 to examine the effect of firm size, firm age,
profitability, ownership concentration, managerial ownership, institutional ownership, board
independence, size and board financial expertise on stock returns. The result of the pooled
Ordinary Least Square (OLS) regression revealed that the combined influence of corporate
attributes on stock returns of quoted consumer goods firms in Nigeria is significant. The effect
however gets diluted as the variables are considered on individual basis. Profitability,
ownership concentration, institutional ownership, board independence and board financial
expertise is found to have significant and positive effect on stock returns. Firm size, firm age and
board size have insignificant positive effect on stock returns while managerial ownership have
insignificant inverse relationship with stock returns. The study therefore, recommended that the
Security and Exchange Commission (SEC) should continually subject the reported profits of
consumer sector to stress quality tests to insulate the investors and potential investing public
from possible rip off. Also, Board of Directors of consumer goods firms should increase their
monitoring capacity by increasing the number of independent directors and the number of
experts in accounting and finance on the board.

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vii
 TABLE OF CONTENTS

Page

Cover page……………………………………………………………………….……...…………i

Title page………………………………………………………………………………………….ii

Declaration……………………………………………………………………………..………...iii

Certification ………………………………………………………………………..…….………iv

Dedication ……………………………………………………………………………….….….....v

Acknowledgments…………………………………………………………….…….………..….vi

Abstract ………………………………………………………………………………………....vii

Table of contents……………………………………………………………………………..…viii

CHAPTER ONE: INTRODUCTION:

1.1 Background to the Study………………………………….………….………………………1

1.2 Statement of the Problems……………………………………………………………………4

1.3 Research Questions……………………………………….………………………………......7

1.4 Objectives of the Study………………………………………….…………………………....8

1.5 Statement of the Hypotheses……………………………………………..…………….……..8

1.6 Significance of the Study …………………………………………………………….………9

1.7 Scope of the Study…………………………………………………………..………..………9

viii
CHAPTER TWO: LITERATURE REVIEW
2.1 Conceptual Framework ………………………………………………..……………..……10

2.1.1 Firm Attributes…………………………..……………………………..….…….………10

2.1.2Ownership Structure …………………………………………………...……….………16

2.1.3 Board Attributes….…………………….………….…………………...………..………22

2.1.4 Stock Returns…….……………………….…...…..…………………………….……….30

2.2 Empirical Review…………………………………………………………………….……34

2.2.1 Firm Attributes and Stock Returns…….………………………………………………..34

2.2.2 Ownership Structure and Stock Returns……………....……….……….………..…...….42

2.2.3 Board Attributes and Stock Returns …………………………………….…...…………51

2.3 Theoretical Framework……….………………………………….……..……………..…...60

2.3.1 Arbitrage Pricing Theory………………..………………….………...…………...…….60

2.3.2 Agency Theory …………………………….……………………….………………........63

2.3.3 Stakeholder Theory …….……………………………………………………..…...……..67

2.3.4 Stewardship Theory……………..…………………………….………….…………….. 70

CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Research Design……………………………………………………………….………..….73

3.2 Population, Sample and Sampling Techniques ……………………….……….…………...73

3.3 Methods of Data Collection………………………………………...……….…………..….77

3.4 Technique for Data Analysis and Model Specification………….……….......................….77

3.5 Justification of Methods………………………………………..………………………..….81

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CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS

4.1 Data Presentation…………………………………………………………………………...82

4.2 Data Analysis and Results………….………………………………………………………92

4.2.1 Firm Attributes and Stock Returns……………………….. ………………………….….93

4.2.2 Ownership structure and Stock Returns ………. ……………….……………….………95

4.2.3 Board Attributes and Stock Returns………………………….………….………….…….97

4.3 Discussion of findings ……………………………………………………………………..99

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary ………………………………………………………………………………….107

5.2 Conclusion ………………………………………………………………………..……….108

5.3 Recommendations ………………………………………………………………….……..109

5.4 Limitation of the Study…………………………………………………………………….110

5.5Suggestions for Further Studies …………………………………………...…………..…..111

References ………………………………………………………………………………..112

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LIST OF TABLES

Table 3.1 Population of the Study…………………….………………….………………..73

Table 3.1 Sample Size of the Study…………………..………………….………………..73

Table 3.1 Measurement of Variables ………………..………………….………………..77

Table 4.1 Descriptive Statistics…………………………………………………………..82

Table 4.2 Pearson correlation Statistic…………..……………………….……………...…86

Table 4.3 Tolerance and Variance Inflation Values…… …………………………...……89

Table 4.4 Test for Heteroscedasticity…………………..…………………….…………….90

Table 4.5 Hausman Specification Test…………………….. …...………………….……...91

Table 4.6 Pooled OLS Regression Result (firm attributes) …………….………………….92

Table 4.7 Pooled OLS Regression Result (Ownership structure) …….…………………..96

Table 4.8 Pooled OLS Regression Result (Board attributes) ……….………..…………....88

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 CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

In order to meet the operational needs, companies obtain funds through money markets and

capital markets. Through the capital market the company can obtain funds by selling shares and

bonds. For investors, capital market is a means to invest in the hope of getting a profit. Gitman

(2015) states that investment in the form of shares will provide benefits in the form of dividends

and capital gains. Information that is relevant to the conditions of the capital market is something

that capital market players need to look for in an effort to make investment decisions.

One of the information needed in the capital market is the company policy on distribution of

returns. Announcement of returns due to investors contains information on company profits in

the future. For managers, payment of returns due to investors can be used as a positive signal to

the company's prospects to the market, while for investors; stock returns provide a great way of

seeing how much volatility and what return rates can be expected overtime (Ali, 2017). Stock

Market Returns are the returns or gain that the investors generate out of the stock market. The

most common way of generating stock market return is through trading in the secondary market.

In the secondary market an investor could earn stock market returns by buying a stock at lower

price and selling it at a higher price.

Also, all investors, either institutional or individual, hold one common goal when they invest in

shares and hope to maximize expected return at some preferred level of risk. Researchers have

tried to use different types of information to explain firm value. For example, the changes in

economic and financial factors have been commonly used to explain the behavior of different

1
stock markets around the world. As suggested by signaling theory, the stock price should reflect

the expectation of corporate performance. Consequently, stock returns from investments in

equity are subject to vary because changes in stock prices which are a product of several factors

and the impacts could either be positive or negative. These factors could be internal/firm specific

or external/macro. The internal factors are such as firm attributes, ownership composition, board

composition and a host of others. The external factors are interest rate, world oil prices, foreign

reserve, inflation rate, money supply, gross domestic product and output production. Internal

factors can be controlled, altered, and perfected by the company and therefore, it is probable to

offer benefits for the stakeholders (Kazeem, 2015).

This study therefore, provides measurement of stock returns variation that is caused by firm

attributes, ownership structure and board composition. For instance, firm attributes such as size,

leverage and profitability can be used to predict the variations in stock returns. Firm size is one

of the first empirically documented firm characteristics associated with realized stock returns

(Banz 1981). This is because the size of the company matters, as in all countries dividends are

paid by the biggest and most profitable firms (Denis &Osobov, 2008). Large firms use their

assets to generate much income and such performance would send a good signal to the market.

However, this factor is related to profitability, as bigger and more profitable firms are more

likely to guarantee higher returns (Consler&Lepak, 2016). Firm age is widely added as a

determinant of stock returns (e.g. Custódio& Metzger, 2014; Lin & Chang, 2011), As firms grow

older, they are characterized by lower rate of failure and low costs to obtain capital (Koh,

Durand, Dai, & Chang, 2015), and they have experience to negotiate favorable debt capital to

increase returns. The reverse is true for young firms in the birth stage (Stepanyan, 2012).

2
Also, the ownership composition of a firm is considered to have a strong ontology with stock

returns. For instance, institutional ownership has an effect on stock returns, because the higher

institutional ownership, the stronger the external control of the company, so that it can encourage

managers to increase dividend payments. Again, in an early study done by Demsetz and Lehn

(1985), they realize with empirical evidence that ownership concentration is normally associated

with high stock price volatility. The closed corporate governance system associated with high

ownership concentration means that the outside investors have little information and there is a

high probability of insider trading. Again, Managerial ownership refers to the percentage of

equity owned by insiders, where insiders are defined as the officers and directors of a firm.

Managerial ownership may affect firm performance positively as it is expected that directors will

make good decisions because they partly own the firm hence their interest in the decisions made.

The stock price should thus increase with more shares being held by directors. Managerial

ownership reduces agency costs for a firm because there is no longer a need for an incentive

system to lure the management into performing well. Thus, such incentives like bonuses pegged

on profit achievement can easily be eliminated because at the end of the day, the directors will

share in the dividends.

On the other hand, the composition of the board is of great importance in determining stock

returns. This is because the board is one the most reliable tools within the organization that can

be used to predict the performance of firm and its reporting capabilities. For example, Fama&

Jensen (1983) stated that non-executive directors are able to act as mediators in disputes that

occur between managers, oversee policies, and provide advice to management. The independent

board is a monitoring function in order to create a company that is good corporate governance.

Jiraporn and Ning (2006) state that the strength of the board of directors is more indicated by the

3
composition of the board of directors who are independent. Also, Agency theory states that the

board size, which is one of the variables that predicts if corporate governance can prevent the

tendency of managers to behave in an opportunistic manner, by distributing free cash flow to

shareholders as cash dividends (Eisenhardt, 1989). Board financial expertise is also, considered a

good predictor of stock returns variation. This entails having a member on the board that is

financially, literate. Kirkpatrick (2009) and Walker (2009) argue that the lack of financial

expertise on corporate boards played a major role during the financial crisis. Therefore, the

presence of more financial expertise on a board ultimately influences the board’s decisions,

including dividend policy. Having financial expertise on the board will keep them from being

accused of failure in their watchdog role and will better serve the shareholders’ interests.

Given that Nigeria as a developing market has diverse structure and institutional features from

developed stock markets, and in view of the fact that investors are interested in getting more

insights into the activities of consumer goods companies in the country because of the

indispensability of their products in the Nigerian market it is imperative to find out whether stock

returns in Nigeria respond differently to effects of firm level attributes. This study, therefore

examines the determinants of stocks returns of quoted consumer goods companies in Nigeria.

1.2 Statement of the Problem

The need to ensure a steady return on stocks for publicly traded companies cannot be

overemphasized. This is based on the fact that returns on stock do not only give investors an

indication of managerial and market performance but also, enable them to predict future earnings

of the company. However, the global corporate scandals at the start of the century and the global

financial crisis that started in 2007/2008 as well as the most recent collapses of carillion,

4
Patisserie Valerie and London Capital and Finance in the UK, failings in South Africa’s state

owned entities Transnet, Eskom, and South African Airways and the 1MDB scandal in Malaysia

to name a few have dwindled the confidence of investors worldwide. Investors no longer have

confidence in reported earnings of public companies and so do not rely on them to make

investment decisions.

Also, the problem of how firms choose and adjust their strategic mix of securities to maximize

stock return has called for a great deal of attention and debate among corporate financial

literature. Identifying the factors that influence stock returns is a major concern for practice and

academic research. This topic has been the focus of numerous studies in empirical finance

(Dimitrov & John 2008; Korteweg, 2009). Research work which is aimed at determining the

factors influencing stock returns of firms will provide a conceptual backdrop necessary to guide

the financial manager in financial structure planning and decision in order to increase the

shareholders’ wealth. The market value of firm may also be affected by the stock return decision.

The issue of stock return has been identified as an important reason for business growth or

failure. It is imperative for firms to be able to finance their operations and growth over time if

they are ever to remain and play an increasing and predominant role in creating value added,

providing employment as well as income in terms of profits, dividends, and wages to

households, expanding the size of the direct productive sector in the economy, generating tax

revenue for the government and facilitating poverty reduction through fiscal transfers and

income from employment and firm ownership.

Over the past few years, there are increasing researches surrounding the issues related to the

determinants of stock returns. Limited empirical studies analyses this issue. Existing empirical

evidence is based mainly on data from developed countries. For example, kim and Sorensen

5
(1986), Bhandari (1988), Friend and Lang (1988), Titman and wassels (1988), Lucas and Mc

Donald (1990), La Porta, Lopez-de-Silanes, Shleifer and Vishny (2000), HovaKimian et al

(2001), Baker and Wurgler (2002), Welch (2004), Dimitrov and John (2008), Korteweg (2009)

focus on united states and Japanese manufacturing corporations without serious empirical review

in developing economies. Thus, there is a conspicuous gap in the empirical research on stock

returns of corporate firms especially in Nigeria.

In Nigeria, the area of firm level attributes and its effect on stock returns has attracted interest by

researchers. Many researchers have attempted to examine the determinants of stock returns of

quoted firms (Amadi&Odubo, 2002; Osamwonyi, 2003; Uwabanmwen&Obayagbona, 2012;

Umar & Musa, 2013; Olowoniyi&Ojenike, 2013; and Kazeem, 2015). The studies focused

predominantly on the financial sector in exclusion of manufacturing sector and specifically,

consumer goods companies in spite of their strategic importance to the Nigerian economy. This

study considered in entirety the consumer goods quoted on the Nigerian stock exchange from

2010 to 2019.

Another difference this study makes with other previous domestic studies is in respect to the

choice of variables used. The combination of factors affecting the level of stock returns has not

been thoroughly addressed by many Nigerian studies. The factors mostly considered are macro-

economic factors and firm level factors such as firm size, leverage, profitability, market to book

value and other performance ratios. No study to the best of researchers’ knowledge and as extent

literature reveals have employed a combination of attributes such as firm characteristics,

ownership attributes and board attributes to investigate their combined individual effects on

stocks returns. Governance and ownership structures have been neglected by most Nigerian

6
studies. Meanwhile, literatures have shown that governance and ownership structures are critical

in determining the level of frequency and stability of stock returns to investors.

Also, periods covered by previous studies in Nigeria creates a gap in scope in this area of study.

For example, the previous works of Adedoyin (2011) covered the period from 2004 to 2009,

Uwubanmwen and Obayagbona (2012) covered the period from 1996 and 2010, Bala and Idris

(2015) covered the period between 2007 and 2013, Kazeem (2015); Akwe, Garba and Dang

covered the period from 2006 to 2013.Akwe, Garba and Dang (2018) covered the period 2007 to

2016. The periods of study as used by the aforementioned researchers can be regarded as not too

recent. This is because a lot of activities in terms of adoption of International Financial Reporting

Standards (IFRSs), and introduction of new corporate governance codes have occurred that

might render previous findings ineffective. Therefore, this study adds to existing literature in this

area by taking into account estimation period from 2010 to 2019.

Consequently, the financial management of firms in developing countries and particularly,

Nigeria is altogether an ignored area of research. Keeping this in view, and the recognition of the

potential contribution of the quoted consumer goods companies to the economy of developing

countries, this study will no-doubt contributes significantly to knowledge in the field of financial

management. It will also, shed light on the determinants of stock return of quoted consumer

goods companies in Nigeria.

1.3 Research Questions

i. What is the effect of firm attributes on stock returns of quoted consumer goods

companies in Nigeria?

7
 ii. To what extent do ownership attributes affect stock returns of quoted consumer goods

companies in Nigeria?

iii. How do board attributes affect stock returns of quoted consumer goods companies in

Nigeria?

1.4 Objective of the Study

The broad objective of this study is to examine the determinants of stock returns of quoted

consumer goods companies in Nigeria?

. The specific objectives are to:

i. Ascertain the effect of firm attributes on stock returns of quoted consumer goods

companies in Nigeria.

ii. Assess the effect of ownership attributes on stock returns of quoted consumer goods

companies in Nigeria.

iii. Ascertain the effect of board attributes on stock returns of quoted consumer goods

companies in Nigeria.

1.5 Statements of the Hypotheses

HO1 Firm attributes have no significant effect on stock returns of quoted consumer goods

companies in Nigeria.

HO2Ownership attributes have no significant effect on stock returns of quoted consumer goods

companies in Nigeria.

8
HO3Board attributes have no significant effect on stock returns of quoted consumer goods

companies in Nigeria.

1.6 Significance of the Study

The significant contributions of this paper will include the following: first, it will expand

literature and add to the existing body of knowledge on the various factors that determine stock

returns of companies quoted on the Nigerian Stock Exchange (NSE) and specifically, consumer

goods firms.

Furthermore, the study will provide additional knowledge on the factor that rank as the most

efficient in predicting and explaining the behavior and variations of stock returns in Nigeria so

this will be of immense significance in adjusting their operations to that effect. In addition,

prospective investors should not only focus on huge returns for investing in smaller capitalized

or high levered firms; rather, further analysis need to be carried out to tradeoff between risk and

returns.

Again, it will provide policy directions for the regulators and/or policy makers, particularly the

Securities and Exchange Commission (SEC) and the Central Bank of Nigeria. This will be in

respect to regulating the composition of these variables to achieve better management,

governance and performance standards. This study will provide insight to the aforementioned

stakeholders in respect to design and implement more stringent rule where firms will be

compelled and monitored on providing high quality financial reporting, so as to be reporting

9
earnings that reflect their actual performance. This would prevent investors from falling on to the

trap of earnings manipulation (as it happened to shareholders of Cadbury Nigeria plc.).

Finally, it will guide capital market operators in their investment advisory services to interested

and prospective investors on the stocks that promise better returns. This study is associated with

the provision of a thorough financial picture of the Nigerian Stock Market and of the listed

consumer goods firms’ behaviour to investors and other market participants, in order to assist

them to evaluate firms’ financial performance more efficiently and better structure their

investment strategies.

1.7 Scope of the Study

The crux of this study is to examine the determinants of stock returns of quoted consumer goods

companies in Nigeria. The factors considered in this study are limited to firm attributes,

ownership attributes and board attributes. Stock returns are explained in this study using market

price per share for the sampled firms. The study is restricted to consumer goods companies in

Nigeria. The twenty-three (23) consumer goods companies quoted on the floors of the Nigerian

stock exchange was adopted in totality as population while a sample size of sixteen (16)

companies was used for data collection. Data was elicited strictly from the annual financial

statements of consumer goods within the period covered by the study. The study covered a

period of ten (10) years from 2010-2019.

10
 CHAPTER TWO

LITERATURE REVIEW

2.1 Conceptual Framework

2.1.1 Firm Attributes

Companies can be differentiated from each other based on certain characteristics they possess.

Such characteristics are referred to as firm attribute which exist at the firm’s level and have the

potential to influence the decisions of the managers in the firm. Shehu and Farouk (2014)

defined firm attributes as variables at the firm level that affect the decision of the firm both

internally and externally over time. Such variables include size, leverage, growth, value,

profitability, capital structure, and others. Those attributes of the firm are usually unique to a

specific company and they usually portray certain perception in the mind of the user of

information regarding the performance and future of the firm. Some of the attributes are

discussed hereunder includes firm size, profitability, and firm age.

Firm Size

Firm size is one of the first empirically documented firm characteristics associated with realized

stock returns (Banz 1981; Reinganum 1981; Keim 1983). Fama and French (1992) consider the

size effect the most prominent. Investors can see the level of company’s stock return through the

size of the company, because the larger the size of the company, the greater the rate of stock

return to investors. Large company indicates that the company has a lot of assets that can be used

to provide return to investors. This is consistent with the studies conducted by Ernayani and

Robiyanto (2016) and Sudarsono and Sudiyatno (2016) that firm size has an effect on stock

11
return contradiction to the Capital Asset Pricing Model (CAPM). Furthermore, Small companies

are basically riskier than big companies. For example, some types of risk associated with small

businesses can be thought of difficulty to approach financing sources, lower market share or less

reputable brand names. According to CAPM, small companies will get higher returns.

Investments in these companies can be considered to be at the highest level of risks and are

deserved to earn higher returns. However, there is an assumption which needs to be made in this

study. The risk levels of firms also depend on the risks of the industry as well as the projects that

the companies are undertaking. Hence, big companies can also bear higher risk if they are in a

risky industry. The assumption is that this study will neglect factors which make big companies

to be riskier than smaller companies. With the assumption, CAPM can successfully support the

hypothesis that small firms can bring higher profits where high risks investments should be

compensated with higher returns.

Consequently, investigators such as Banz (1981) and (Fama and French, 1992) have also found a

strong relationship between company size and returns. Smaller firms appear to generate higher

returns than larger firms. Again, the interpretation of these results is controversial. The excess

returns of small firms can be interpreted as inefficiency, but they also may represent

compensation for bearing risk. Smaller companies may be far more sensitive to economic shocks

than are larger firms.

Also, firm size is one of the most influential characteristics in organizational studies. Firm size

has also been shown to be related to industry- sunk costs, concentration, vertical integration and

overall industry profitability. Firm size is one of the most acknowledged determinants of stock

return. It is commonly measured by either natural logarithm of assets, or sales or employees.

Larger firms are associated with having more diversification capabilities, ability to exploit

12
economies of scale and scope and also being highly formalized in terms of procedures. Shaheen

and Malik (2012) described firm size as the quantity and array of production capability and

potential a firm possesses or the quantity and diversity of services a firm can concurrently make

available to its clients. Firm size plays a significant and crucial role in explaining the kind of

relationships the firm has within and outside its operating environment. Babalola (2013) argued

that, the larger a firm is, the more the influence it has on its stakeholders, and so large firms tend

to outperform small firms.

Profitability

Profitability of the firm is another dimension of the firm’s characteristics focused in this study.

EPS (Earning per share) usually have significant positive influence on market return as shown in

many past researches. This indicates that the higher the firm’s EPS, the higher market adjusted

return and abnormal return that can be resulted by firm’s stock, because a higher EPS means

higher profit obtained from every naira price earned by the firm. Investors/shareholders consider

current earnings, future earnings, and earnings stability are important, thus they focus their

analysis on firm’s profitability. They concern about financial condition which will affect firm’s

ability to pay dividend and avoid bankruptcy.

Also, profitability, which is frequently used as measure of financial performance, is one of the

main objectives for the existence of many companies. Profit is an essential prerequisite for any

company operating in today’s increasingly competitive and globalized market. In addition, profit

does not only serve as a means of attraction to investors; it also improves the level of solvency,

and thus, strengthens consumers’ confidence (Ismail, 2013). The concept of profitability is

fundamental to both accounting and economic theories. Since it is an offshoot of income, it also

13
has its foundation form the famous Hicks’ concept of income. Using the Hicksian approach,

profit can be explained as the maximum value which can be consumed at a given period of time

without tempering with “well-offness” (Glautier, Underdown& Morris, 2011). This definition

has been staunchly supported by economists. It provides a sound basis for appreciation of what

actually constitutes income and hence, profit.

Again, profitability refers to the difference between the profit amount obtained from the assets

and expense of the liabilities. In the literature, profitability is stated as a function of both micro

and macro determinants. Micro variables consist of the accounts in the balance sheet and income

statement. Therefore, they are also named as bank-specific variables. On the other hand, macro

variables are not related to the internal process of the banks, but they affect profitability in a

significant way. Size, capital, risk management, expense management, marketable securities etc

are generally considered micro variables (Gungor, 2007). Profit can also be conceived as the

residual arising from netting revenue realized against cost consumed (Igben, 2009). Again, this

definition suffers general acceptance as economists do not subscribe to what they call arbitrary

allocation of cost to realize revenues as accountants do. The implication of this is that

profitability can be explained in various ways.

The concept of profitability depicts the financial success of a venture. It is used to refer to the

ability of an entity to make profit. Profit is what is left of the revenue a business generates after it

pays all expenses directly related to the generation of the revenue, such as producing a product

and other expenses related to the conduct of the business activities. According to the Institute of

Chartered Accountants of Nigeria (ICAN) (2014), profit refers to the total income earned by the

enterprise during the specified period of time, while profitability refers to the operating

efficiency of the enterprise. It is the ability of an enterprise to make profit on sales. This also

14
implies the ability of an enterprise to get sufficient return on capital and employees used in

business operation. To the financial manager, profit is the test of efficiency and measure of

control (Oko, Ugwunta&Agu, 2013). To the owners, it is a measure of the worth of their

investment; to the creditors, it is used as the margin of safety; to the government, it is a measure

of taxable capacity and a basis of legislation; and to the country, profit is an index of economic

progress, national income generated and the rise in the standard of living (Oko, Ugwunta&Agu,

2013).

Firm Age

The length of time of existence of the company is the age of a company. According to Ofuan and

Izien (2016), the time interval during which a being or thing has existed is the age. Shumway

(2001) revealed that some are of the believe that listing age, should define the age of the

company, however, he is of the view that firm's age should be defined as the number of years of

incorporation of the company. Shumway (2001) argues that listing is a defining moment in a

company's life; hence, age listing has become more economical. His argument is set straight

from the viewpoint of the company as a legal personality. This is based on the belief that as a

legal person, a company is born through incorporation (Gitzmann, 2008, Pickering, 2011).

Again, firm age is widely added as a determinant of stock returns (e.g. Custódio& Metzger,

2014; Lin & Chang, 2011). Firm age is an important factor in determining stock returns. This is

because as firms grow older, they are characterized by lower rate of failure and low costs to

obtain capital (Koh, Durand, Dai & Chang, 2015), and they have experience to negotiate

favorable debt capital to increase returns. The reverse is true for young firms in the birth stage

(Stepanyan, 2012). The fact is as listed firms becomes older and closer to maturity stage in their

15
firm life cycle, they acquire more business experience to make effective capital structure

decisions and do utilize debt to increase returns. Firm age plays an important role in the firm’s

decisions to seek debt capital. Specifically, older companies use more debt in their capital

structure to take advantage of the benefits of an interest tax shield to maximize shareholders’

returns.

Also, the life-cycle model of the firm can explain the relationship between firm age and

shareholders’ returns. Firms closer to maturity have substantial experience (Stepanyan, 2012)

and make effective capital structure decisions by maximizing the benefits of a debt interest tax

shield emphasized in Modigliani and Miller (1963) theory. As firms move from the birth to the

growth stage or closer to maturity, they face lower costs of debt (Koh et al., 2015) and can

increase debt to take advantage of an interest tax shield benefits to increase shareholders’ returns.

Returns increase because firms can deduct interest on debt before taxes are paid (Bhandari, 1988;

Modigliani & Miller, 1963); fewer taxes mean more shareholders’ returns. Our assumption is

that as firms grow older, they seek external finance via debt. In line with this reasoning, Custódio

and Metzger (2014) link firm age to stock returns. More specifically, they use firm age as a

proxy for firm life cycle, and their results confirm a direct and positive relationship between firm

age and return measures.

2.1.2 Ownership Attributes

According to Johnson, Daily and Ellstrand (2000) a mechanism to control management is

concentrated ownership. In atomistic markets, individual shareholders do not have strong

incentives to monitor management due to the lack of monitoring expertise, poor shareholder

protection and the free-rider problem generated by costly monitoring. The problem of free riding

16
that occurs due to diffuse shareholders may be less acute in the case of large, concentrated

ownership. Large shareholders are also more likely to be well informed and to make better use of

their voting rights. However, controlling shareholders, conditional on the regulatory and legal

environment, may exploit their private benefits of control by diverting assets and profits out of

the firm. Furthermore, large equity owners may stimulate the firm to undertake higher-risk

activities since shareholders benefit on the upside, while debt holders share the costs of failure in

some countries, notably in continental Europe, ownership of firms is very concentrated (Becht

&Roell, 1999). Compared to European financial firms, US firms tend to have higher institutional

ownership and are less likely to have a large shareholder. However, Adams and Mehran (2003)

reported that, in the US institutional ownership in banks is significantly lower than in non-

financial firms.

Managerial Ownership

Managerial ownership signifies the interest of managers in the equity shareholding of a firm.

The motive behind the rise of this corporate governance variable is rooted in the agency theory,

which assumes that manager’s equity holdings inspires them to act in a way that maximizes the

value of the firm. Warfield (1995) suggest that the interest of both shareholders and management

starts to converge as the management holds a portion of the firm’s equity ownership. This

implies that the need for intense monitoring by the board should decrease (Jensen &Meckling,

1976).Rudiger and Rene (2007) in their study reviewed theories of the determining factor of

managerial ownership and their insinuations for the relation between firm value and managerial

ownership. They deliberate three notions: the agency notion, the contracting notion, and the

managerial discretion notion.

17
Agency idea predicts that low managerial ownership indicates poor alignment interest among

managers and shareholders (Jensen &Meckling, 1976). This insider with low equity ownership

manages earnings for better compensation and avoids debt covenants (Healy, 1985; Houlthausen,

1995). It is suggested that they will be more involved in the firm when they own larger

ownership, thus, the need for outside monitoring will be reduced, as long as the interest of

insider and outsider converge. There are two views concerning managerial ownership. The

convergence assumption states that managerial ownership will be seen as monitoring device

when they acquire some portion of the company equity, they will prevent manager’s

opportunistic behavior, and the magnitude of discretionary accruals is predicted to be negatively

associated with insider ownership (Warfield, 1995).

On the other hand, when there is little separation between managers and owners’ management

face less pressure from capital markets to signal the firm value to the market and they pay less

attention to the short-term financial report (Jensen, 1986; Klassen, 1997). Then highly invested

managers are more likely to influence earnings, since the lack of market discipline, may lead

managers to make accounting choice that is out of self-serving interest.

More so, the contracting agency sight portrays that shareholders face trade off. As the managers

stake in the firm increases, their incentives become better aligned with those of shareholders in

that, if they increase firm value by one naira, their wealth increases by a greater portion of that

naira. However, when managers have a large stake in the firm, they are exposed to the risk of the

firm. It follows that owners benefit from an increase in managerial ownership because of better

alignment of incentives but incur additional costs because they have to pay managers more.

When managers hold shares, they also control votes. As managers control more votes, they

become more embedded and can use their position to further their interests even when doing so

18
does not benefit stockholders. Demsetz (1983), Demsetz and Lehn (1985), and Himmelberg,

Hubbard, and Palia (1999) find support for the guesses of the contracting model of managerial

ownership. The third theory suggested by Rudiger and Rene (2007) is managerial discretion

theory approach. The theory suggests that managers make their decisions subject to limitations

imposed by shareholders. If stockholders solve their collective action problem in such a way that

they behave as a group and choose the optimal compensation contract for managers, there is no

difference between the managerial discretion approach and the contracting approach.

Ownership Concentration

Ownership concentration is an amount of the existence of large block holders in a firm (Thomsen

&Pedersan, 2000). Usually, a stockholder who holds 5% or more of company equity is reflected

a major stockholder. The shareholding of an owner should be significant enough to provide for

monitoring the action of the management. The major shareholder can be an individual, a

domestic foreign corporation, an institutional investor and or the state. Large block holders have

greater incentive to monitor management as the costs involved in monitoring is less than the

benefits to large equity holdings in the firm. Ramsey and Blair (1993) pointed out that increased

ownership concentration provides large block holders with sufficient incentives to monitor

managers. Demsetz and Lehn (1983) and Stiglitz (1985) found that large block holders have the

incentive to bear fixed cost of collecting information and to engage in monitoring mechanisms.

In contrast dispersed ownership leads to weaker management monitoring. That is in a situation

where the shareholders hold lower stock in a firm the incentive to monitor management is low

because the costs involved in monitoring outweigh the benefits to be derived. Therefore,

Pedersen and Thomsen (1999) as cited in Wen (2010) defined ownership concentration as the

share of the largest owner and are influenced by absolute risk and monitoring costs. Composition

19
of Ownership of a firm is one of the main dimensions of corporate governance and is widely

seen to be a determining factor in ascertaining good corporate performance as well as ensuring

qualitative financial reporting. The problem generated by concentrated ownership in the firm

among managers and minority shareholders has been very difficult to mitigate within agency

problem, this was as a result of the tightness of ownership that allowed self-interest behaviour of

manager to go internally unopposed by the board of directors which give room to the managers

to determine how the company may be run and use the opportunistic behaviour to expropriate

minority shareholders’ wealth.

Ownership concentration refers to the spreading of the shares owned by a certain number of

individuals or institutions; the ownership mix on the other hand, is related to certain institutions

or groups such as government, private company or foreign partners among the shareholders

(Claessens&Djankov, 1998). The role of ownership structure in the setting of concentrated

ownership is to assess the cash flow contents with regards to block holder’s role in the

perspective of diffused ownership. The accounting literature contains extensive research on how

the agency problem between owners and managers affects earnings quality as well as the quality

of accounting information of firms.

Institutional ownership

Institutional ownership is shares owned by other organisations or institutions such as insurance

companies, banks, investment companies and other organized owners. Institutional ownership is

important in monitoring management because with institutional ownership it will encourage

more optimal supervision. Jensen and Meckling (1976) claimed that institutional ownership has a

very significant role in minimizing agency conflicts between managers and shareholders. The

20
existence of institutional ownership is considered capable of being an effective monitoring

device in any decision taken by the manager. Agency concept suggests that monitoring by

institutional ownership can be an important governance mechanism. In fact, institutional

investors can provide active monitoring that is difficult for smaller, more passive or less-

informed investors (Almazan, Hartzell & Starks, 2005). Moreover, institutional investors have

the opportunity, resources, and ability to monitor managers. Therefore, the efficient monitoring

suggest that institutional ownership is associated with a better monitoring of management

activities, reducing the ability of managers to opportunistically manipulate earnings. The

efficient monitoring assumption suggests an inverse relationship between a firm’s earnings

management activity and its institutional share ownership. In this vein, numerous studies

documented that institutional ownership prevents managers to opportunistically engage in

earnings management (Bange & De Bondt, 1998; Bushee, 1998; Chung et al., 2002; Cornett et

al., 2008; Ebrahim, 2007; Koh, 2003).

Considering the importance of corporate governance in firm’s management, shareholder’s active

participation in monitoring management functions is important to ensure good corporate

governance practices. To date, institutional investors’ participation has emerged as important

force in corporate monitoring to serve as mechanisms to protect minority shareholder’s interest.

The significant increase in the institutional investors’ shareholdings has led to the formation of a

large and powerful constituency to play a significant role in corporate governance. Earnings

information, as part of accounting information, provides investors with relevant information that

would help them in making correct asset pricing and investment decisions (Yuan &Jaing, 2008).

The active monitoring hypothesis views institutional investors as long-term investors with raving

incentives and motivations to closely monitor management action (Jung &Kown, 2002).

21
However, some argue that institutional investors do not play an active role in monitoring

management activities (Claessens& Fan, 2002; Porter, 1992). According to Duggal and Millar

(1999), institutional investors are passive investors who are more likely to sell their holdings in

poorly performing firms than to expend their resources in monitoring and improving their

performance. Institutional investors may be incapable of exerting their monitoring role and vote

against managers because it may affect their business relationships with the firm. Accordingly,

institutional investors may collude with management (Pound, 1988; Sundaramurthy, Rhoades

&Rechner, 2005). It is also argued that institutional owners are overly focused on short-term

financial results, and as such, they are unable to monitor management (Bushee, 1998; Potter,

1992). So, there will be a pressure on management to meet short-term earnings expectations.

These arguments indicate that institutional investors may not limit managers’ earnings

management discretion and may increase managerial incentives to engage in earnings

management.

2.1.3 Board Attributes

The concept of the board is derived from the attributes or incentives and variables that play a

significant role in monitoring and controlling managers and can be described as a bridge

between company management and shareholders (McIntyre, 2007; Bonn, 2004; Kiel &

Nicholson, 2003). To understand the role of the board, it should be recognized that boards

consists of a team of individuals, who combine their competencies and capabilities that

collectively represent the pool of social capital for their firm that is contributed towards

executing the governance function (Westphal, 2001).

22
Board composition can reflect various degrees of heterogeneity (Bhagat & Black, 2002).

Common measures of board composition include the ratio of independent non-executive

directors and board size (Rashid, 2011), which is the measure used in this research. Other

measures of board composition in the literature include gender and age diversity. However, to

date there have been inconclusive findings as regards the relationship between board

composition and firm performance (Finegold et al., 2007; Bermig& Frick, 2010; Rashid, De

Zoysa, Lodh&Rudkin, 2010). Other differences in board composition are considered here to

represent 'board diversity'. More independent board composition can result in enhanced decision

making through increased information flows, although this may entail a cost (Sanda et al., 2011).

In light of this, Eklund, Palmberg and Wiberg (2009:8) stress board heterogeneity entails a trade-

off between "information efficiency" in the case of heterogeneous boards, which typically are

better informed on 'outside' issues, versus "decision efficiency" of homogenous boards deriving

from higher trust, shared experience and values.

The board is the supreme decision-making unit in the company, as the board of directors has

responsibility to safeguard and maximize shareholder’s wealth, oversee firm performance, and

assess managerial efficiency. Daltoni, Catherine, Alan and Jonathan (1998) pointed out four

actions of initiation, ratification, implementation, and monitory, undertaken by the board in the

decision-making processes. Therefore, the main role of the board is seen as the ratification and

monitoring of decisions, overseeing the actions of managers/ executives. From the above

concept, the role of the board is quite daunting as it seeks to discharge diverse and challenging

responsibilities. The board should not only prevent negative management practices that may

lead to corporate failures or scandals but ensure that firms act on opportunities that enhance the

value of all stakeholders. Given this, it is important to identify the board characteristics that

23
make one board more effective from the other. Therefore, this study is set to identify and

examine the board characteristics that make it effective and contribute towards enhancing stock

returns of consumer goods companies in Nigeria.

Board Size

Dozie (2003) defined board size as the number of members that form the board. There is no

agreed number of members that make up an ideal board size. There have been diverging

opinions by various researchers on the number of persons that should make up an ideal board.

Some school of thought are of the opinion that a small board is more effective because it

enhances fast decision making and cannot be manipulated by management. Dozie (2003) also

argued that a smaller board may be less encumbered with bureaucratic problems, more

functional and is able to provide better financial reporting oversight. Some of the disadvantages

associated with a large board are high cost of coordination and delay in passing information. It

is also associated with weak monitoring. Dalton et al. (1999) argue that a large board is

overcrowded and hence does not give room for each member’s input; it is also less organized

and unable to reach a decisive conclusion on time. The study measured the board size by the

number of directors serving on such boards and expected this to have a negative relationship

with stock returns.

John and Senbet (1998) argue that large boards are less effective and are easily controlled by the

CEO. When a board gets too big, it becomes difficult to coordinate and for it to process and

tackle strategic problems of the organization. Role of Board size has been a matter of continued

debate from different perspectives (Jensen 1993; Yermack, 1996; Dalton et al., 1999;

Hemalin&Weisbach, 2003). While some have suggested smaller boards enhance financial

24
reporting quality (Lipton & Lorsch, 1992); Jensen 1993); Yermack, 1996) others have

suggested larger boards are better for improving financial reporting quality (Pfeffer, 1972;

Klein, 1998; Adam & Mehran, 2003; Anderson., 2004; Coles 2008). Scholars have argued for

smaller boards on grounds of easy co-ordination, (cohesiveness and communication Jensen,

1993) and to avoid social loafing and freeriding (Lipton & Lorsch, 1992). As the size of the

board increases, interpersonal communication becomes less effective. As the board size

increases, problems of communication and coordination manifest and are likely to develop

factions and conflict (Charles, Reilly & Jennifer,1989).

Klein (1998) argues that the need for advice for CEO will increase with organizational

complexity. Klein (1998) further suggests that the advisory needs of CEO increases with the

extent of firm’s dependence on environmental resources. So, increasing board size helps

businesses to manage the environment (Pfeffer, 1972; Pearce & Zahra, 1992). From an agency

theory perspective, larger boards allow for effective monitoring by reducing the domination of

the CEO within the board and protect shareholder’s interests (Singh &Harianto, 1989).

According to Hermalin and Weishbach (1998), board effectiveness is a function of its

independence. The independence of a board depends on the negotiations between the board and

the CEO. A larger board improved the bargaining position of the board vis-à-vis the CEO and

thus, make the board more effective in monitoring the management. Further, a larger board will

also make it easy to create committees to delegate specialised responsibilities.

Meanwhile, resource dependency theory suggests that boards are chosen to maximise the

provision of important resources to the firm. Pfeffer (1972); Pfeffer and Salancik (1978); Klein

(1998), for instance, suggests that advisory needs of the CEO also increase with the firm’s

dependence on the environment for resources. So, increasing board size links the organization to

25
its external environment and secures critical resources. In response to resource dependencies and

regulatory pressures, organizations create large boards to encompass directors from different

backgrounds (Pfeffer, 1972; Pearce & Zahra, 1992). In short, while the smaller boards allow

domination of board by CEO resulting in agency costs, larger boards benefit firms by providing

effective oversight of management, making available necessary resources and allowing for

representation of different stakeholders in the firm.

As the firm increases in complexity, the board size also increased (Boone et al., 2007). The more

the representation, the larger will be the size of the board. It implies that the diversity of board is

made possible by increasing the board size. When the board size is increased by increasing

representation to outsiders, it is likely that there will be more qualified board members in

general, and those with PhDs in particular, to acquire the talent and skills required for both

monitoring and boundary spanning. Such highly qualified members are considered a strategic

resource and provide a link to different external resources (Ingley& Walt, 2001). A larger board

will provide a more conducive environment for more educated members to contribute than a

smaller board.

Board Independence

In terms of this tension, however, agency theory is in favour of a majority of independent non-

executive directors (Huse, 2007; Rashid, 2011). King III stresses that the board should include a

balance of executive and non-executive directors, with a majority of independent non-executive

directors, as this reduces the possibility of conflicts of interest (IOD, 2009). The corporate

governance literature tends to advocate expanding the independent/outsider elements on

corporate boards (Sanda et al., 2011). Sahin, Basfirinci and Ozsalih (2011), however, observe

26
that previous literature does not offer consistent evidence on the impact of the proportion of non-

executive to executive directors on financial performance.

On the one hand, certain studies (Weisbach, 1988; Pearce & Zahra, 1992; Daily & Dalton, 1993;

Rosenstein & Wyatt, 1994; MacAvoy& Millstein, 1999; Krivogorsky, 2006) suggest a positive

relationship between board composition and firm performance. Others, on the other hand, have

found no relationship between firm performance and board composition (Daily & Johnson, 1997;

Bhagat & Black, 1999; Dulewicz& Herbert, 2004).In support of the latter camp, Finegold et al.

(2007:867) note that no consistent empirical evidence has been found to suggest increasing

percentages of outsiders on boards will enhance performance, but "pushing too far to remove

insider and affiliated directors may harm firm performance by depriving boards of the valuable

firm and industry specific knowledge they provide."

An argument challenging the role of independent non-executive directors’ rests on the

information asymmetry between executive directors and independent non-executive directors

(Rashid, 2011). Executive directors are nested within the company they govern and may

therefore have a better understanding of the business than independent non-executive directors

and may, in addition, be better able to make useful decisions (Sanda et al., 2011). By contrast,

independent non-executive directors may lack day-to-day inside knowledge of the company and

therefore may play a reduced control role in the firm (Nicholson & Kiel, 2007; Rashid et al,

2010). Nevertheless, this debate is set to continue, as there are no empirical findings to tilt the

argument in any particular direction (Rashid, 2011).

There are several explanations for the inconclusive results on the relationship between executive

versus independent non-executive directors and firm performance. One such explanation is that

27
the simultaneity between key variables of interest confounds the interpretation of the results in

studies that focus on direct relationships (Finegold et al., 2007). Yet another explanation is that

performance and board characteristics are jointly endogenous, and thus firm performance is not

only a function of past board independence, but also influences board structure (Panasian,

Prevost &Bhabra, 2008).

Board Financial Expertise

Unlike the size criteria that was specified by CAMA (2004), the expertise criteria were specified

in Nigeria by the 2011 and 2018 SEC Codes, 2006 Post consolidation CBN code amongst other

codes. These codes specify that at least, a member of the audit committee must possess financial

management and accounting knowledge. The US SEC also has a similar condition as it expects

that firms must have at least one person with financial expertise. Juhmani (2017) asserted that the

availability of an accounting and financial knowledge in the audit committee would enhance its

efficiency and its ability in detecting and preventing earnings management. Kibiyaa, Ahmada

and Amran (2016) also buttressed in their study that the presence of a member with financial

literacy or knowledgeable in accounting, finance or financial management will enhance the

quality of the financial report. However, Dhaliwal et al. (2006) noted that the expertise criterion

given is broad in terms of definition. They claim that persons with financial expertise can mean

any of the following (1) certified public accountant, auditor, financial officers, or controllers (2)

anyone that has worked in a supervisory role that involves financial statement preparation. Thus,

expertise can be technical or supervisory in nature but the contention is that which of this nature

of expertise is fundamental to financial reporting quality? Is it technical/accounting or

supervisory/financial management? Livingston (2003) provides evidence that supervisory

28
expertise does not translate to effective understanding of accounting issues and may not ensure

reporting quality.

Generally, companies prefer to have more financial experts on the corporate board, but this

demand for financial experts on the board increased after the Sarbanes-Oxley Act (SOX) of

2002. Expertise can be defined as “skillfulness by virtue of processing special knowledge.” It is

evaluated based on standards discussing the aptitude to perform a task. The corporate governance

reports of CalPERS in 1997, Blue Ribbon Commission report in 1998, SOX in 2002 and NYSE

in 2004 also suggest some guidelines regarding the expertise of board members. These reports

were issued in response to various accounting scandals that have occurred since the 1990s, such

as Enron, HealthSouth, Tyco, WorldCom and different financial crises. Reports further include

the significance of financial expertise of directors in performing their central function of

monitoring the firm’s financial performance. According to the SOX (Section 407), a financial

expert is a person who has experience in accounting or finance or has supervisory expertise.

DeFond. (2005) and Krishnan and Visvanathan (2008) use SOX of 2002 to explain financial

expertise.

The confidence of shareholders has been shaken by various accounting scandals and financial

crises since the 1990s, such as Enron, HealthSouth, Tyco, WorldCom and the financial crisis of

2007-2008, which has stressed the regulators and market makers to the need for board members

to have financial expertise. Kirkpatrick (2009) and Walker (2009) argue that the lack of financial

expertise on corporate boards played a major role during the financial crisis. Therefore, the

presence of more financial expertise on a board ultimately influences the board’s decisions,

including dividend policy. Having financial expertise on the board will keep them from being

accused of failure in their watchdog role and will better serve the shareholders’ interests. Second,

29
there is a growing body of literature on how financial expertise on boards improves the board’s

efficiency (Karamanou&Vafeas, 2005; Agrawal & Chadha, 2005; Krishnan, 2005; Beasley,

1996; Dechow et al., 1996; Anderson, 2004), leads to better corporate practices (Krishnan, 2005;

Robinson, 2012) and improves firm performance (Dionne &Triki, 2005; Francis, 2012;

Fernandes &Fich, 2013). Li and zhan. (2012) argued that audit committees having members with

requisite financial expertise are in a better position to have knowledge of capital market

implications of decisions and disclosures in financial statement. Such disclosures are expected to

improve reporting quality and reduce information asymmetry on firm’s value.

2.1.4 Concept of Stock Returns

In simple terms a stock refers to a share in the ownership of a company. Stock represents a

claim on the company’s assets and earnings. The percentages take that an investor holds is

reflected in the number of stocks the investor acquires from the company’s stocks. Thus, the

more shares that one acquires, the greater his/her ownership rights in the company. When one

holds a company’s stock, it means that person is one of the many owners (shareholders) of the

company and as such has a claim (albeit usually very small) to everything the company owns.

An investor’s share ownership is represented by a stock certificate. That is a piece of paper

which serves as a proof to one’s ownership. According to Beni and Alexander (1999), ordinary

stock simply represents an ownership interest in a corporation. In this modern age of business

however, such certificates are rarely given the shareholder because the brokerage firms keep

these records electronically otherwise known as holding shares’ in street name. This is done in

an attempt to make the stock easily tradable. Unlike in the past where one has to physically take

a share certificate to the broker age in order to sell, now with just a click on the mouse or even

a phone call; stocks can easily be traded.

30
Return refers to the financial rewards gained as are suit of making an investment. The nature of

the return depends on the form of the investment. For instance, accompany that invests in fixed

assets and business operations expects returns in the form of profit, which may be measured on

before–interest, before tax or after-tax basis, and in the form of increased cash flows. An investor

who buys ordinary shares expects returns in the form of dividend payment and capital gains

(share price increases). Again, an investor who buys corporate bonds expects regular returns in

the form of interest payments (Frimpong, 2010).

Stock Market Returns are the returns that the investors generate out of the stock market. This

return could be in the form of profit through trading or in the form of dividends given by the

company to its shareholders from time-to-time. Stock Market Returns can be made through

dividends announced by the companies. Generally, at the end of every quarter, a company

making profit offers a part of the kitty to the shareholders. This is one of the sources of stock

market return one investor could expect. The most common form of generating stock market

return is through trading in the secondary market. In the secondary market an investor could earn

stock market return by buying a stock at lower price and selling at a higher price. Stock Market

Returns are not fixed ensured returns and are subject to market risks. They may be positive or

negative. Stock Market Returns are not homogeneous and may change from investor-to-investor

depending on the amount of risk one is prepared to take and the quality of his Stock Market

Analysis. In opposition to the fixed returns generated by the bonds, the stock market returns are

variable in nature. The idea behind stock return is to buy cheap and sell dear. But risk is part and

parcel of this market and an investor can also see negative returns in case of wrong speculations.

31
Stock return is very important as it is the main objective of investment in ordinary shares.

Investors, both existing and potential ones’ regard return as the fundamental reason for investing

in a particular firm. Stock return can be in form of capital appreciation/depreciation (as obtained

in the Nigerian stock exchange) plus dividend received if any. Stock prices are important metrics

of measuring stock market returns. Therefore, the value attached to them matters a lot to both

existing and prospective investors in the stock market. There are several factors in stock prices

determination in the stock market. These factors range from accounting and non-accounting

information. Stock Market Returns are the returns or gain that the investors generate out of the

stock market (Lin & Zhan, 2011).

The most common way of generating stock market return is through trading in the secondary

market. In the secondary market an investor could earn stock market return by buying a stock at

lower price and selling it at a higher price. Book value of equity constitutes the accounting-based

value for owners and be useful in judging on the true value of equity (Hallefors, 2013). Capital

market serves as a place or arrangement where investors and investees interact. The share at

which is being sold is determine by the corporate firm characteristics which usually affect the

amount of capital a company can raise from the stock market. Stock market provides a link

between firms need to raise fund for business continuity or expansion and those investors wish to

invest their excess resources. Therefore, it is a point for buying and selling of shares, and share

prices are determined by demand and supply, which usually influence by firm specific factors

and/or macroeconomic variables (Adedoyin, 2011).

32
Accounting fundamentals (firm specific ratios) serve as a predictor of stock market returns since

it gives highlight to the likely future returns. Examples of accounting fundamentals are leverage

ratio, profitability, market capitalization. According to Aldin, Dehnari, and Hajighasemi (2012),

investors aim at maximizing their yield and they are very eager to predict the firm stock returns

in which they invest. They expect to receive dividend and/or capital gain from investing in the

equity market. Al-Tamimi (2007) avers that Stock Market Returns are subject to market risks. He

further posits that they are not homogeneous and may change from investor-to-investor

depending on the amount of risk one is prepared to take and the quality of his Stock market

analysis. This implies that the more investment one has, the higher the amount of risk one

assumed and hence the higher the expected stock market returns. Because of the importance

attached to the ‘tradeoff between risk and returns’, investors are interested in making judgment

about expected returns from investing in stock, and several researches were conducted that

identified models and firm specific ratio that can influence market stock returns (Wajid, Arab,

Madiha, Waseem & Ahmad, 2013).

The traditional model for predicting market return- CAPM (Capital Asset Pricing Model)

developed by Sharpe (1964) and Linter (1965) and Black (1972) assumes that in an efficient

market, securities are correctly priced and returns are ascertained mainly by the amount of risk

one assumes. This model cannot be sufficient in predicting stock market returns alone and has its

own defect (Uwubanmwen&Obayagbona, 2012). Recent studies show that there are other

variables that outperform CAPM (represented by company’s systematic risk or beta) in

determining or predicting stock market returns with great precision. Basu (1997) demonstrated

that the differences in Beta cannot justify and explain the difference in stock returns. Another

criticism of CAPM was found in the work of Fama and French (1992) who sees that the positive

33
relationship between beta established by CAPM and average stock returns was a product of the

negative association between firm size and beta. This shows that firm size has inverse

relationship with the beta. More clearly the larger the firm the lower the risk of investors. They

further argued that when this association was taken into cognizance, the relationship between

beta and stock returns will definitely disappeared. Drew (2003) also stated that beta alone is not

sufficient in explaining stock return and that firm size and market to book value ratio are

significant and effective in explaining average stock returns.

2.2. Empirical Review

2..2.1 Firm Size and Stock Returns

Chabachib, Hersugondo, Ardiana and Pamungkas (2020) analyzed the factors that influence

company value (PBV) in consumer goods companies listed on the Indonesia Stock Exchange in

2014-2018. The independent variables used in the study are capital structure (DER), company

size (SIZE), liquidity (CR) with profitability (ROE) as an intervening variable. The population

used in this study is all companies engaged in the consumer goods sector listed on the Indonesia

Stock Exchange in 2014-2018. Sampling in this study used purposive sampling which resulted in

34
a sample of 128 consumer goods sector companies. The method used is path analysis which is

the development of multiple regression and bivariate analysis. The results of this study indicated

that company size and liquidity have a positive and significant effect on profitability, the capital

structure has a negative and not significant effect on profitability. Profitability and company size

have a positive and significant effect on firm value. Capital structure and liquidity have a

positive and not significant effect on firm value. Then profitability is able to mediate the

influence of company size and liquidity on firm value, but profitability is not able to mediate the

influence of capital structure on firm value. This study was done in Indonesia, the current study

in Nigeria is needed due to problem of external validity as outcome of the formal study will

ineffectual for the purpose of decision making in Nigeria.

Ahmed (2019) examined the impact of changing firm characteristics on dividend payout ratios of

listed publicly traded North American companies. This study builds upon these and extends the

research to publicly traded, North American firms in the past 30-year time period (1989-2019).

The key question that this research paper aims to answer is which, if any, firm characteristics

have any causal relationship with the dividend payout ratio of the firm. This study also looks at

the appearing and disappearing phenomenon of cash dividends in the past 30 years and aims to

reconcile the changing characteristics of the firms to this phenomenon. This is done by creating

sub-periods within the dataset and observing the changing characteristics of the firms and the

possible impact on the dividend payout ratios of the firms. It was found that size and liquidity

produce statistically significant results in terms of having some relationship the dividend payout

ratios of the firms. After performing the Granger-Causality test, it was determined that only

liquidity of the firm has some causal relationship with the dividend payout ratio of a firm. This

35
study was done in North America why this current study was carried out in Nigeria to solve the

problem of external validity.

Akwe, Garba and Dang (2018) examined the effects of firm level attributes on stock returns of

top twenty-five most capitalized quoted equity firms in Nigeria. Specifically, the study

investigated the effects of firm size, ratio of market to book value per share, and price to earnings

ratio on stock returns of selected quoted firms in Nigeria from 2007 – 2016. The population

comprised top twenty-five most capitalized quoted equity firms, out of which twenty-one

companies represent the sample of the study. The study adopted ex-post facto research design.

The study used secondary data obtained from the audited accounts of the sampled firms, Central

Bank of Nigeria Statistical Bulletin and the Nigerian Stock Exchange database and website.

Analysis of data was carried out using panel data regression. The panel regression results

indicate insignificant negative effect between firm size and stock returns in Nigeria. The study

used selected equity firms in Nigeria while the current study used consumer goods companies

which make for the much differences.

Ltaifa and Khoufi (2016) investigated empirically the determinants of stock market returns of

Banks in the MENA countries between 2004 and 2014. The study uses the three-factor model of

Fama and French (1993) and the capital asset pricing model (CAPM) to analyze the relationship.

The findings reveal that firm size, book to market value, and stock returns have positive

relationship. That is, companies with high book to market value ratio earn superior returns. The

study of Ltaifa and Khoufi (2016) suffers from some limitations. One, the study did not clearly

state the technique for data analysis. Two, the study should have included more internal variables

with a view to determining their behavior on stock returns. Investors would want to know this as

it will help in their investment.

36
Sani (2016) examined the effect of firm specific characteristics on dividend payout ratio of

quoted conglomerates in Nigeria for a period of eight (8) years ranging from 2004-2011. The

population of this study comprised the eight (8) conglomerate firms quoted on the Nigerian

Stock Exchange as at 31 December, 2011. Correlation research design and ex-post factor

research design was adopted. Multiple regression technique was employed as a tool for analysis

in examining the impact of firm specific characteristics on dividend payout ratio of Nigerian

quoted conglomerates and the study relied on the OLS regression result. The findings revealed a

positive and significant impact of firm size, profitability, and institutional ownership on dividend

payout ratio, liquidity had no effect on dividend payout ratio while leverage had a negative and

significant effect on dividend payout ratio. The study concluded that four of the explanatory

variables of this study (that is; firm size, profitability, leverage and institutional ownership)

impact on the quantum of dividend paid by Nigerian quoted conglomerates firms. The study

collected data to 2014 while this current study used data to 2019 which captured recent issues

such as the new code of corporate governance.

Nguyen and Nguyen (2016) examined the relationship between firm sizes and stock returns of

service sector in Ho Chi Minh City stock exchange. The paper aims at investigating the existence

of size effect in Vietnamese financial market. Particularly, the relationship between firm size and

stock returns was explored. Stock return was calculated by dividing the sum of stock price and

dividend payment by previous stock price to achieve stock return in percentage while firm size

was measure using log of total assets Having 160 observations of the companies in service sector

from 2009 to 2014, the correlational research design was adopted and the multiple regression

model was employed to test that effect. The result revealed a significantly negative relationship

37
between firm size and stock returns. This study focused on firm size as an explanatory variable

while this current study employed both firm characteristics and corporate governance variables.

Handoko (2016) determined the effect of variables dominant characteristics of the company,

namely the size of the company, growth opportunities, profitability, liquidity, and tangibility to

capital structure and to determine the effect on the capital structure of a company's value as well

as to determine the trade-off theory or pecking order theory can be more precise in predicting

changes in the different leverage between public insurance companies listed on the Indonesia

Stock Exchange. This research used a sample of 10 insurance companies (non-life insurance)

during the years 2008-2013. The analytical method used is panel data analysis method that uses a

combination of data time series and cross section with technical applications panel random effect

model and fixed effect models and data used are secondary data. This research indicated that the

dominant variable characteristics that affect the company's capital structure is firm size and

growth, while positive effect on the liquidity variable negative effect. Further positive effect on

the capital structure of the company and the value of the trade-off theory can explain and more

appropriate for the case of a public insurance company listed on the Indonesian stock exchange.

This study was done in Indonesia and in insurance companies while this current study is in

Nigeria and on consumer goods firms.

Hasan, Alam and Rahaman (2015) analyzed the effects of size and value on cross-section of

expected returns in Dhaka Stock Exchange (DSE). The study deploys the Fama and French

(1993) three-factor methodology in conjunction with Ordinary Lease Square (OLS) model. The

study period is divided into three periods; the pre-boom (2004 – 2008), boom period (2009 –

2010) and post-crash period (2011 –2013). The result of the study reveals that book to market

equity ratio and stock returns have positive effect in Bangladesh. The use of Ordinary Least

38
Square Regression (OLS) does not seem to explain the individual or cross-sectional effect of the

sampled firms given their respective peculiarities. Panel data stand to tackle a more set of

problems and address more sophisticated issues than either pure time series or pure cross-

sectional data alone would address. Thus, the use of panel regression is capable of given more

robust result that can be acceptable than OLS.

Bala and Idris (2015) examined firms’ specific characteristics of firm size, debt-equity, and

earnings per share and stock market returns in Nigeria. The study samples nine (9) out of the

twenty-one (21) quoted food and beverages firms in Nigeria from 2007 to 2013 by means of

multiple regression models. The findings show that firm size has a significant and negative effect

in stock returns of quoted food and beverages firms in Nigeria. The effect of earnings per share

and debt-to-equity is found to be statistically significant and positive. The study did not factor in

dividend in the measurement of the dependent variable (stock market returns). Stock return is the

combination of dividend yield and capital appreciation. Also, the results of nine (9) out of over

170 sampled quoted firms cannot be the representative of the entire market. More firms would

have explained the effect better. The study should have also included other internal non-financial

variables that have been examined and found to explain stock returns in other jurisdictions.

2.2.2 Firm Age and Stock Returns

Oduma and Odum (2017) investigated the influence of leverage on dividend payout of selected

manufacturing companies in Nigeria. The study used a sample of 50 quoted companies that have

dividend history and consistently published their audited annual financial report from 2011 to

2015. A pooled regression analysis was adopted in the study. The result revealed that long term

39
leverage has a significant positive effect on firm’s dividend policy. The study went further to

reveal that interaction of age and profitability was significant in influencing dividend payout

within the period under study. The study used only leverage as a firm characteristic why this

current study used two others (firm size and firm age) to investigate their effects on stock

returns.

Matemilola, Bany-Ariffin, Nassir and Azman-Saini (2017) investigated the moderating effects of

firm age on the relationship between debt and stock returns. The system generalized method of

moment’s results indicates that firm age has a positive moderating effect on the relationship

between book debt and stock returns. The results are robust, as firm age positively moderates the

relationship between market debt and stock returns. Moreover, firm age has a direct positive

effect on stock returns. Results suggest that as firms grow older, they use their experience to

make effective capital structure decisions (i.e., optimal debt-equity mix) to maximize debt

interest-tax-shield and increase shareholders’ returns. This current study used multiple regression

technique to analyse the data for the study which is different methodological approach.

Uwubanmwen and Obayagbona (2012) investigated the influence of firm attributes and equity

returns in the stock market of Nigeria. The study uses eight sample firms with 11 years’

observation. The proxies employ firm’s unique attributes to include: leverage, book/market value

of equity, ratio of price/earnings and firm size. The study establishes that the size of firm and

returns of common stocks have no statistically significant relationship or effect. The study uses

total asset natural log which is the traditional measure of firm size. This is as against previous

studies use of firm size or market capitalization as the best and appropriate representative for

examining the effect of size of firm on returns of common stocks.

40
Ramachandran and Packkirisamy (2010) examined the association between the Corporate

Leverage (CL), firm age and the Dividend Policy (DP) of firms across industries in India in

respect of Size of Corporate Firms. The investigation is conducted on a panel sample of 73 firms

across industries [Cement, Chemical and Fertilizer, IT, Oil and Gas, Pharmaceutical, Shipping,

and Textiles], which listed their shares in National Stock Exchange (NSE) in India for the period

1996–2007. The impacts of Capital Structure (CS) variables (leverage) on DP measures –

dividend payout (Net dividend paid/net income) in the presence of some basic fundamental

variables are considered to be the determinants of DP, using the Multiple Regression Technique

(OLS method). The results of the cross-sectional OLS Model for the selected sample firms under

various sectors show that there is a significant effect of selected independent variables. This

study focused on only leverage while the current study employed several other firm attributes

making it wider in scope and more suitable for decision-making.

2.2.3 Profitability and Stock Returns

Chabachib, Hersugondo, Ardiana and Pamungkas (2020) analyzed the factors that influence

company value (PBV) in consumer goods companies listed on the Indonesia Stock Exchange in

2014-2018. The independent variables used in the study are capital structure (DER), company

size (SIZE), liquidity (CR) with profitability (ROE) as an intervening variable. The population

used in this study is all companies engaged in the consumer goods sector listed on the Indonesia

Stock Exchange in 2014-2018. Sampling in this study used purposive sampling which resulted in

a sample of 128 consumer goods sector companies. The method used is path analysis which is

the development of multiple regression and bivariate analysis. The results of this study indicated

that company size and liquidity have a positive and significant effect on profitability, the capital

structure has a negative and not significant effect on profitability. Profitability and company size

41
have a positive and significant effect on firm value. Capital structure and liquidity have a

positive and not significant effect on firm value. Then profitability is able to mediate the

influence of company size and liquidity on firm value, but profitability is not able to mediate the

influence of capital structure on firm value. This study was done in Indonesia, the current study

in Nigeria is needed due to problem of external validity as outcome of the formal study will

ineffectual for the purpose of decision making in Nigeria.

Oduma and Odum (2017) investigated the influence of leverage on dividend payout of selected

manufacturing companies in Nigeria. The study used a sample of 50 quoted companies that have

dividend history and consistently published their audited annual financial report from 2011 to

2015. A pooled regression analysis was adopted in the study. The result revealed that long term

leverage has a significant positive effect on firm’s dividend policy. The study went further to

reveal that interaction of age and profitability was significant in influencing dividend payout

within the period under study. The study used only leverage as a firm characteristic why this

current study used two others (firm size and firm age) to investigate their effects on stock

returns.

Sani (2016) examined the effect of firm specific characteristics on dividend payout ratio of

quoted conglomerates in Nigeria for a period of eight (8) years ranging from 2004-2011. The

population of this study comprised the eight (8) conglomerate firms quoted on the Nigerian

Stock Exchange as at 31 December, 2011. Correlation research design and ex-post factor

research design was adopted. Multiple regression technique was employed as a tool for analysis

in examining the impact of firm specific characteristics on dividend payout ratio of Nigerian

quoted conglomerates and the study relied on the OLS regression result. The findings revealed a

positive and significant impact of firm size, profitability, and institutional ownership on dividend

42
payout ratio, liquidity had no effect on dividend payout ratio while leverage had a negative and

significant effect on dividend payout ratio. The study concluded that four of the explanatory

variables of this study (that is; firm size, profitability, leverage and institutional ownership)

impact on the quantum of dividend paid by Nigerian quoted conglomerates firms. The study

collected data to 2014 while this current study used data to 2019 which captured recent issues

such as the new code of corporate governance.

Handoko (2016) determined the effect of variables dominant characteristics of the company,

namely the size of the company, growth opportunities, profitability, liquidity, and tangibility to

capital structure and to determine the effect on the capital structure of a company's value as well

as to determine the trade-off theory or pecking order theory can be more precise in predicting

changes in the different leverage between public insurance companies listed on the Indonesia

Stock Exchange. This research used a sample of 10 insurance companies (non-life insurance)

during the years 2008-2013. The analytical method used is panel data analysis method that uses a

combination of data time series and cross section with technical applications panel random effect

model and fixed effect models and data used are secondary data. This research indicated that the

dominant variable characteristics that affect the company's capital structure is firm size and

growth, while positive effect on the liquidity variable negative effect. Further positive effect on

the capital structure of the company and the value of the trade-off theory can explain and more

appropriate for the case of a public insurance company listed on the Indonesian stock exchange.

This study was done in Indonesia and in insurance companies while this current study is in

Nigeria and on consumer goods firms.

Olowoniyi and Ojenike (2012) aimed at identifying the factors that influence stock returns as a

major concern for practice and academic research. This paper investigates the determinants of

43
stock returns of listed firms in Nigeria. Panel econometric approach was used to analyse panel

data obtained from 70 listed for the period 2000-2009. The fixed effect (FE), random effect (RE)

and Hausman-test based on the difference between fixed and random effects estimators were

conducted. Their findings suggest that expected growth and size positively influenced stock

return while tangibility negatively impacted on stock return of listed firms. This study was done

in 2012 and given the changes in governance, economic fluctuations and other regulatory

requirements; this study cannot be used to take informed business decisions.

Mutiso (2011) analyzed the relationship between the dividend payout ratio, firm size and the

shareholders’ dispersion using sample of firms which are listed at the Nairobi Stock exchange

(NSE) for the period 2005 to 2010. The study uses a sample of 31 firms out of the total 55 firms

listed at the NSE by December 2010. The sampled firms consistently paid dividends to the

shareholders over the period of the study. The study also tested whether the DPOR of the firms

listed at the NSE support various existing dividend payout policy theories. Secondary data was

obtained from the NSE secretariat, internet and company financial statements. The data was

analyzed appropriately and the shareholders’ dispersion was calculated by dividing the number

of shareholders by the total shares for each company. The average DPOR was calculated, as well

as the natural log of the average market capitalization for each firm. Parametric analysis was

done and regression was performed on the various variables and the findings analyzed using

descriptive statistics and regression. The result of the study showed that firm size and the

shareholders dispersion do not have a significant influence to the DPOR. The study was done in

Nairobi but this study is done in Nigeria.

2.2.4 Ownership Concentration and Stock Returns

44
Amal and Ahmed (2017) investigated the impact of institutional ownership and ownership

concentration on firm stock return performance using panel data model. Our main ownership

measures include; percentage of institutional ownership held by different institutions in a firm

and percentage of a firm’s outstanding stocks held by the largest three block holders. We find

that there is no significant relationship between either institutional ownership or ownership

concentration and both ex post and ex ante return. Also, it was found that there is negative and

significant relationship between institutional ownership represented by some institutions and ex

post risk, while the relationship is negative and significant only between institutional ownership

by employee associations and ex ante risk. Ownership concentration has no effect on ex post risk

but it has a positive and significant effect on ex ante risk. This current study used other corporate

governance and firm attributes aside ownership attributes making it more robust for decision

purposes.

Faten, Adel and Mohammad (2015) investigated the relationship between firm’s ownership

structure and its stock liquidity for firms listed on Amman Stock Exchange. The study found that

most of the firms have highly concentrated ownership structure. The largest shareholder of most

of the publicly traded corporation is either a family or a private firm. The results show that stock

liquidity of firms whose “largest shareholder” is a family which is very low compared to those of

widely held firms. Regression results show that the percentage of ownership and the existence of

one or more “large shareholders” significantly explain the cross-sectional variation in illiquidity

ratio and turnover ratio. The coefficients of the percentage of ownership and the existence of

largest shareholder are positively (negatively) related to illiquidity ratio (turnover ratio).

Vintilă and Gherghina (2014) aimed at providing the first empirical evidence for the companies

listed in Romania regarding the influence of ownership concentration on firm value. The

45
empirical research was employed for a sample of companies listed on the Bucharest Stock

Exchange (BSE), over the period 2007-2011, being estimated multivariate regression models for

panel data, unbalanced, with fixed effects. The value of the companies was measured out by the

instrumentality of Tobin's Q ratio, however adjusted with the purpose of taking into account the

industry membership diversity of the selected sample. We considered distinctly the ownership of

the first, the second, and the third largest shareholder, as well the sum of holdings of the two

largest shareholders and the sum of holdings of the three largest shareholders. Therefore, the

results sustain a lack of influence on firm value exhibited by the first largest shareholder, while

the second largest shareholder positively influences firm value. By considering the ownership of

the third largest shareholder we identified a positive influence, but down to a level of holdings of

13.08 percent, thereupon the influence becomes negative. Only ownership concentration was

used in the previous study while this current study employed other ownership attributes.

Oyerogba, Olaleye and Zaccheaus (2014) explored the link between ownership concentration

and the market value of listed companies using data from the selected 21 banks listed on the

Nigeria Stock Exchange during the period of 2008 -2012. The hypothesis formulated and tested

for the study was that there is no significant relationship between ownership concentration and

market value of listed companies. Ownership concentration was considered as independent

variable while market value was considered as dependent variable. Ownership concentration was

measured by the amount of stock owned by individual investors and large –block shareholders

divided by total stock. Market value was determined using the stock prices. The firm specific

control variables were loan performance, profitability and firm size of the selected companies.

Descriptive statistics was used to analyze the data while least square regression method was used

to draw inference on the relationship between ownership concentration and firm value. The result

46
indicates that a positive significant relationship exists between a firm value and ownership

concentration.

Amal (2014) studied the effect of institutional ownership and ownership concentration on firm

stock returns and financial performance of the listed companies in the Egyptian Stock Exchange.

For this purpose, panel data model is employed. The results from the analysis show that

institutional ownership has no effect on ex post stock returns as well as ex ante stock returns. On

the contrary, institutional ownership represented by top management and individuals have a

negative and significant effect on stock volatility, while employee associations have a positive

and significant effect. No significant effect is detected on ex ante risk except for employee

associations that have negative and significant effect on ex ante risk. In addition, the results show

that institutional ownership has no effect on stock liquidity except employee associations and

individuals that have a negative and significant effect on stock liquidity. Finally, the results show

that institutional ownership represented by companies, holdings and individuals have negative

effect on financial performance represented by ROA and ROE. Also, institutional ownership has

no effect on debt to equity ratio except banks that have negative and significant effect and

employee associations that have positive and significant effect. This study considered only

ownership structure while this current study looks at other corporate attributes making it wider in

scope.

2.2.5 Managerial Ownership and Stock Returns

Afriyani (2018) analyzed the effect of managerial ownership structure, institutional ownership

and investment opportunities on the performance of stocks in the manufacturing companies listed

47
on the Indonesia Stock Exchange. For this purpose, it is used to apply the analysis of managerial

ownership, institutional ownership analysis, analysis of investment opportunities and stock

performance analysis, multiple linear regression analysis, the classical assumption test (normality

test, multicolinearity, autocorrelation test and test heterokesdastisitas) and hypothesis testing.

The results showed that the effect of managerial stock ownership structure and a significant

positive effect on the performance of stocks, but institutional ownership have a positive effect

but not significant increase in stock performance. While investment opportunities have

significant positiveeffect on the performance of the stock on the Indonesia stock exchange. Test

results obtained by the finding that in unison between managerial ownership, institutional and

investment opportunities jointly affect the performance of the company's shares are listed on the

Manufacturing Indonesia Stock Exchange. This study was done in Indonesia and given the

differences in legal and governance stipulations between these countries, the findings of the

previous studies cannot be used to informed decisions.

Shindu, Hashmi, Haq and Ntim (2016) analyzed the impact of ownership structure on dividend

payout (DIV) ratio of 100 companies related to non-financial sector listed in Karachi stock

exchange. The study sample period was from 2011–2015. The study adopted the use of multiple

regression analysis technique to analyse the data. The result of the fixed effects model as a panel

data analysis technique indicates that managerial ownership (MO) has shown significant and

negative impact on DIV which indicates that as MO rise, they will prefer to retain instead of

distribution. Institutional ownership is showing significant and positive behavior with DIV ratio

which also showing favorable arguments for dividend distribution. The stock was done in a

different economy which presents the problem of external validity and also, the variables used

are limited to make a wide range of decisions.

48
Otieno (2016) determined the effect of managerial ownership on stock performance for the

companies listed at the NSE. Sixty-five firms listed at the NSE for the year ending December

2015 formed the population for this research and it was a census. The use of secondary data was

employed and data was obtained largely from the NSE Handbook 2015-2016 together company

websites and the CMA website. The evaluation of managerial ownership’s effect on stock

performance was done using regression analysis. The coefficient of managerial ownership was

found to be positive which showed that there existed a relationship that is positive of managerial

ownership on the performance of stock. However, the relationship was found to be insignificant

since the results revealed a p value that was low. This means that a low percentage change in

stock performance was explained by variation in managerial ownership. The study used only

managerial ownership while this current study used other forms of ownership structures which

are also, considered important in predicting returns.

Bako (2015) examined the impact of ownership structure on dividend policy of firms listed in the

Nigerian Consumer Goods Industry. The study employs the ex-post-facto research design. Data

were collected from annual reports and accounts of sampled companies and was analysed using

descriptive statistics, correlation and multiple regression methods. The study found that insider

ownership has negative and insignificant impact on dividend per share (DPS) of consumer goods

industry and suggested that little attention should be given to ownership structure. This study

was done in consumer goods firms however, only ownership structure was considered important

in predicting dividend policy while the current study considered firm and board structures as

predictors of dividend policy.

49
Chandren, Ahmad and Ali (2015) examined the relationship between managerial ownership on

earnings per share in Pakistan. The study used a sample of 220 listed manufacturing firms,

financial and service institutions. Data were collected from the annual report for a period of eight

years from 2001 to 2008. Multiple regression technique was employed to analyze the effect of

managerial ownership on earnings per share. The result provided insignificant and positive

support on the effect of managerial ownership and earnings per share. This study looked at

manufacturing, financial and service institutions while this current study considered consumer

goods companies since finding from the other sectors cannot be used to take informed decisions

in the consumer goods sector.

Dandago, Faruk and Muhibudeen (2015) examined the relation between corporate shareholding

Structure and dividend pay-out ratio of listed chemical and paint companies in Nigerian stock

exchange. The study covered the period of 2008-2013. Meanwhile, an ex- post factor research

design was adopted for the study. The entire listed chemical and paints companies were used as

sample size of the study. Multiple regression analysis technique was employed as the statistical

tool. The result revealed that managerial shareholding has a negative and significant impact on

the dividend pay-out ratio of chemical and paint companies in Nigeria. This study used data from

2008 to 2013 and was done in the chemical and paints industry while this current study was done

from 2010 to 2019 making it more recent to rely on for decision purposes. Also, findings from

chemical and paints industry cannot be used for informed decisions in consumer goods sector

due sectorial peculiarities.

Meyer and Wet (2014) assessed the relationship between board ownership and earnings per share

in South Africa. The study used a sample of 126 selected listed South African companies. Data

were collected from the annual report for a period of three years from 2010 to 2012. Multiple

50
regression technique was employed to analyze the effect of board ownership on earnings per

share. The result provided significant and positive support on the effect of board ownership on

earnings per share. This study concentrated on board ownership while this current study focused

on both ownership and board structures making it more robust in respect to variables

combination.

2.2.6 Institutional Ownership and Stock Returns

Afriyani (2018) analyzed the effect of managerial ownership structure, institutional ownership

and investment opportunities on the performance of stocks in the manufacturing companies listed

on the Indonesia Stock Exchange. For this purpose, it is used to apply the analysis of managerial

ownership, institutional ownership analysis, analysis of investment opportunities and stock

performance analysis, multiple linear regression analysis, the classical assumption test (normality

test, multicolinearity, autocorrelation test and test heterokesdastisitas) and hypothesis testing.

The results showed that the effect of managerial stock ownership structure and a significant

positive effect on the performance of stocks, but institutional ownership have a positive effect

but not significant increase in stock performance. While investment opportunities have

significant positive effect on the performance of the stock on the Indonesia stock exchange. Test

results obtained by the finding that in unison between managerial ownership, institutional and

investment opportunities jointly affect the performance of the company's shares are listed on the

Manufacturing Indonesia Stock Exchange. This study was done in Indonesia and given the

differences in legal and governance stipulations between these countries, the findings of the

previous studies cannot be used to informed decisions.

51
Afhraf, Iqbal & Tariq (2017) examined the relationship between board ownership on earnings

per share in Nigeria. The study used a sample of 23 microfinance banks in Nigeria. Data were

collected from the annual report for a period of three years from 2011 to 2013. Multiple

regression technique was employed to analyze the effect of board composition on earnings per

share. The result provided insignificant and negative support on the effect of board independence

and earnings per share. This study used micro finance banks in Nigeria while this current study

used consumer goods companies presenting a limitation of sectorial peculiarities.

Amal and Ahmed (2017) investigated the impact of institutional ownership and ownership

concentration on firm stock return performance using panel data model. Our main ownership

measures include; percentage of institutional ownership held by different institutions in a firm

and percentage of a firm’s outstanding stocks held by the largest three block holders. We find

that there is no significant relationship between either institutional ownership or ownership

concentration and both ex post and ex ante return. Also, it was found that there is negative and

significant relationship between institutional ownership represented by some institutions and ex

post risk, while the relationship is negative and significant only between institutional ownership

by employee associations and ex ante risk. Ownership concentration has no effect on ex post risk

but it has a positive and significant effect on ex ante risk. This current study used other corporate

governance and firm attributes aside ownership attributes making it more robust for decision

purposes.

Sayumwe and Amroune (2017) examined the relationship between board ownership on market

price per share in Canada. The study used a sample of 50 Canadian companies that are listed on

the Toronto Stock Exchange. Data were collected from the annual report for a period of five

years from 2009 to 2013. Regression analysis technique was employed to analyze the effect of

52
board ownership on market price per share. The result provided significant and positive support

on the effect of board ownership directors on market price per share. This study was done in

Canada which has a different investment climate than Nigeria hence, the need for a domestic

study.

Shindu, Hashmi, Haq and Ntim (2016) analyzed the impact of ownership structure on dividend

payout (DIV) ratio of 100 companies related to non-financial sector listed in Karachi stock

exchange. The study sample period was from 2011–2015. The study adopted the use of multiple

regression analysis technique to analyse the data. The result of the fixed effects model as a panel

data analysis technique indicates that managerial ownership (MO) has shown significant and

negative impact on DIV which indicates that as MO rise, they will prefer to retain instead of

distribution. Institutional ownership is showing significant and positive behavior with DIV ratio

which also showing favorable arguments for dividend distribution. The stock was done in a

different economy which presents the problem of external validity and also, the variables used

are limited to make a wide range of decisions.

Moghaddam (2014) studied the effect of institutional investors ownership on stock returns for

companies listed in Tehran Stock Exchange for the period from 2008-2012. The study calculated

the percentage of ownership institutional investors using the total number of shares in hand of

banks and insurance, holding and investment companies, pension funds, finance companies and

investment funds, institutions and public companies divided by the company's outstanding total

shares and stock returns was measured through dividends and share price total return. The study

used control variables such as firm size, firm growth, financial leverage, type of industry and

year. The result using multiple regression analysis found a significant relationship between

53
institutional investors and stock return at 95% confidence level. The study findings cannot be

applied to the Nigerian situation due differences in legal, economic and governance settings.

Alzeaideen and AL-Rawash (2014) investigated the effect of different ownership structure (The

largest, Five Greatest, Institutional and Individual Shareholder Structure) on a share price

volatility of listed companies in Amman Stock Exchange. The research has four hypotheses. To

test each hypothesis; a model was defined based on dependent variables employed to measure

share price volatility. A panel data procedure is applied to the dataset that includes 51 Jordanians

companies from 2005 to 2009. Two empirical models are used OLS (Ordinary Least Square) and

SUR (Seemingly Unrelated Regression), and we found that SUR shows better and accurate result

than OLS. The results provide evidence of positive statistically significant relationship between

the largest shareholder and share price volatility. Also; the results reveal a positive and

significant relationship between the five greatest shareholder and share price volatility. This

finding cannot be used for effective decision making in Nigeria due to the problem of external

validity.

Amal (2014) studied the effect of institutional ownership and ownership concentration on firm

stock returns and financial performance of the listed companies in the Egyptian Stock Exchange.

For this purpose, panel data model is employed. The results from the analysis show that

institutional ownership has no effect on ex post stock returns as well as ex ante stock returns. On

the contrary, institutional ownership represented by top management and individuals have a

negative and significant effect on stock volatility, while employee associations have a positive

54
and significant effect. No significant effect is detected on ex ante risk except for employee

associations that have negative and significant effect on ex ante risk. In addition, the results show

that institutional ownership has no effect on stock liquidity except employee associations and

individuals that have a negative and significant effect on stock liquidity. Finally, the results show

that institutional ownership represented by companies, holdings and individuals have negative

effect on financial performance represented by ROA and ROE. Also, institutional ownership has

no effect on debt to equity ratio except banks that have negative and significant effect and

employee associations that have positive and significant effect. This study considered only

ownership structure while this current study looks at other corporate attributes making it wider in

scope.

2.2.7 Board Independence and Stock Returns

Sumail (2018) explored the impact of corporate governance on dividend payout ratio. In order to

investigate the linkage between corporate governance and dividend payout ratio, data of four

fiscal years (2013-2016) was extracted from annual reports of Indonesian publicly listed

companies. The study examines the impact of ownership structure and corporate governance

mechanisms on dividend payout ratio using panel data regression model. The findings of the

study indicated that board independence, board size, institutional ownership, size and earnings

before interest and tax are positive; whereas the CEO duality, managerial ownership, ownership

concentration and leverage are in negative relation with dividend payout ratio. The data for

publicly listed companies in Indonesia may not be effective for decision making in Nigerian

consumer goods sector.

55
Sani and Musa (2017) examined the impact of corporate board attributes on dividend policy of

listed deposit money banks in Nigeria. The data was collected from annual reports and accounts

of the sampled companies for the period of fifteen years from 2006 to 2015. Data is analyzed by

means of descriptive statistics, correlation analysis and panel data regression technique was used

to analyze the data using STATA software version 13.00. The variables tested include board

size, board composition, audit committee size and managerial ownership. The result found that

board size, composition and ownership structure have significant negative impact on dividend

policy of listed DMB’s in Nigeria, and audit committee is statistically insignificant. This study

although done in Nigeria was on DBMs while that current study was done in the consumer goods

sector.

Aloui and Jarboui (2017) investigated the relationship between the stock return, the outside and

the independent directors. The volatility, as the dependent variable in the model, is measured by

the standard deviation of annual stock returns. The sample comprises 89 firms listed on the SBF

120 index over 2006-2012. The study used multiple regression analysis technique to analyse the

data. Findings revealed that the outside directors have a positive and significant effect on the

stock return. Moreover, the firm’s size and ROA have a negative effect on the stock return

volatility, which is clearly evidenced in all the regressions. On the other hand, the CEO, audit

size and debt ratio have statically significant and positive effects on the stock return volatility.

This study data stopped in 2012 while this current study data to 2019 making it more current to

rely on its findings for decision purpose.

Rostami, Rostami and Kohansa (2016) investigated the effect of corporate governance

components on return on assets and stock return of companies listed in Tehran stock exchange.

In order to test the hypothesis, about 469 firm-year observations were collected using systematic

56
sampling for a period of seven years. In this paper, we have used 6 internal components of a

corporate governance system such as ownership concentration, institutional ownership, Board

independence, Board size, CEO duality and CEO tenure as independent variables and their effect

on return on assets and stock return, as the firm financial performance evaluation criteria, were

studied. The control variables of this study are the market value of the equity and the ratio of

book value to market value of the equity. The results, which are based on estimated generalized

least square method, indicate that there is a significant positive relationship between ownership

concentration, Board independence, CEO duality and CEO tenure and return on assets. On the

other hand, there is a significant negative relationship between institutional ownership and Board

size and return on assets. Besides there is a significant positive relationship between institutional

ownership, Board independence, CEO duality and CEO tenure with stock return. However, there

is a significant negative relationship between ownership concentration and Board size with stock

return. Findings from this study will be misleading for decision purpose in Nigeria due problem

of external validity.

Faramarzi and Amini (2016) examined the relationship between board independence on earnings

per share in Tehran. The study used a sample of 109 companies that are listed on the Tehran

Stock Exchange. Data were collected from the annual report for a period of eight years from

2005 to 2012. Multiple regression technique was employed to analyze the effect of board

independence on earnings per share. The result provided insignificant and negative support on

the effect of board independence and earnings per share. Only board independence is considered

here, hence the need for estimations using other board attributes.

Azeez (2015), examined the relationship between board independence on earnings per share in

Sri Lanka. The study used a sample of 100 listed companies in the Colombo Stock Exchange.

57
Data were collected from the annual report for a period of three years from 2010 to 2012.

Multiple regression technique was employed to analyze the effect of board independence on

earnings per share. The result provided significant but negative support on the effect of board

independence and earnings per share. The findings from this study will not be used to take

informed decisions due to differences in corporate governance codes between these countries.

Shehu (2015) examined the relationships between board characteristics and dividend payout

among the Malaysian public listed companies. A sample of 164 Malaysian companies for the

year 2013 was selected from the Bursa Malaysia website. This paper examines the relationships

between independent non-executive directors, board size, CEO, proportion of family member on

board and concentrated ownerships and dividend payout among the Malaysian listed companies.

The findings show that concentrated ownership is found to be positive and significant in

influencing the dividend payout. But the independent director is also found to be significant in

influencing the dividend payout in negative direction. The study although robust was done in

Malaysia which present the problem of external validity

Ayesha, Chathurika, Kumarihami, Sagarika, Nanayakkara and Abeywardane (2015) examined

the relationship between board non-executive independence on earnings per share in Sri Lanka.

The study used a sample of 26 listed manufacturing companies in the Colombo Stock Exchange.

Data were collected from the annual report for a period of six years from 2009 to 2014. Multiple

regression technique was employed to analyze the effect of board non-executive independence

on earnings per share. The result provided significant but negative support on the effect of board

independence and earnings per share. This study was done in the manufacturing companies’

sector while this current study is done in the consumer goods sector.

58
Ahmad and Hamdan (2015) examined the impact of board independence on earnings per share in

Bahrain. The study used a sample of 42 listed companies in Bahrain Stock Exchange database.

Data were collected from the annual report for a period of five years from 2007 to 2011. Multiple

regression technique was used to analyze the effect of board independence on earnings per share.

The result provided negative insignificant support on the effect of board independence directors

on earnings per share.

2.2.8 Board Size and Stock Returns

Sumail (2018) explored the impact of corporate governance on dividend payout ratio. In order to

investigate the linkage between corporate governance and dividend payout ratio, data of four

fiscal years (2013-2016) was extracted from annual reports of Indonesian publicly listed

companies. The study examines the impact of ownership structure and corporate governance

mechanisms on dividend payout ratio using panel data regression model. The findings of the

study indicated that board independence, board size, institutional ownership, size and earnings

before interest and tax are positive; whereas the CEO duality, managerial ownership, ownership

concentration and leverage are in negative relation with dividend payout ratio. The data for

publicly listed companies in Indonesia may not be effective for decision making in Nigerian

consumer goods sector.

Sayumwe and Amroune (2017) examined the relationship between board size on market price

per share in Canada. The study used a sample of 50 Canadian companies that are listed on the

Toronto Stock Exchange. Data were collected from the annual report for a period of five years

from 2009 to 2013. Regression analysis technique was employed to analyze the effect of board

59
size on market price per share. The result provided significant and positive support on the effect

of board size on market price per share. The work was done in Canada and not Nigeria.

Elmagrhi, Ntim, Crossley, Malagila, Fosu, and Vu (2017) examined the extent to which

corporate board characteristics influence the level of dividend pay-out ratio using a sample of

UK small and medium-sized enterprises (SMEs) from 2010 to 2013 listed on the Alternative

Investment Market. The data is analyzed by employing multivariate regression techniques,

including estimating fixed effects, lagged effects and two-stage least squares regressions. The

results show that board size, the frequency of board meetings, board gender diversity and audit

committee size have a significant relationship with the level of dividend pay-out. Audit

committee size and board size have a positive association with the level of dividend pay-out,

whilst the frequency of board meetings and board gender diversity has a significant negative

relationship with the level of dividend pay-out. By contrast, the findings suggest that board

independence and CEO role duality do not have any significant effect on the level of dividend

pay-out. This study used only corporate governance as predictors of dividend payout while the

current study adopted firm specific variables as well as other corporate attributes.

Elmagrhi, Ntim, Crossley, Malagila, Fosu, and Vu (2017) examined the extent to which

corporate board characteristics influence the level of dividend pay-out ratio using a sample of

UK small and medium-sized enterprises (SMEs) from 2010 to 2013 listed on the Alternative

Investment Market. The data is analyzed by employing multivariate regression techniques,

including estimating fixed effects, lagged effects and two-stage least squares regressions. The

results show that board size, the frequency of board meetings, board gender diversity and audit

committee size have a significant relationship with the level of dividend pay-out. Audit

committee size and board size have a positive association with the level of dividend pay-out,

60
whilst the frequency of board meetings and board gender diversity has a significant negative

relationship with the level of dividend pay-out. By contrast, the findings suggest that board

independence and CEO role duality do not have any significant effect on the level of dividend

pay-out. This study used only corporate governance as predictors of dividend payout while the

current study adopted firm specific variables as well as other corporate attributes.

Sani and Musa (2017) examined the impact of corporate board attributes on dividend policy of

listed deposit money banks in Nigeria. The data was collected from annual reports and accounts

of the sampled companies for the period of fifteen years from 2006 to 2015. Data is analyzed by

means of descriptive statistics, correlation analysis and panel data regression technique was used

to analyze the data using STATA software version 13.00. The variables tested include board

size, board composition, audit committee size and managerial ownership. The result found that

board size, composition and ownership structure have significant negative impact on dividend

policy of listed DMB’s in Nigeria, and audit committee is statistically insignificant. This study

although done in Nigeria was on DBMs while that current study was done in the consumer goods

sector.

Rostami, Rostami and Kohansa (2016) investigated the effect of corporate governance

components on return on assets and stock return of companies listed in Tehran stock exchange.

In order to test the hypothesis, about 469 firm-year observations were collected using systematic

sampling for a period of seven years. In this paper, we have used 6 internal components of a

corporate governance system such as ownership concentration, institutional ownership, Board

independence, Board size, CEO duality and CEO tenure as independent variables and their effect

on return on assets and stock return, as the firm financial performance evaluation criteria, were

studied. The control variables of this study are the market value of the equity and the ratio of

61
book value to market value of the equity. The results, which are based on estimated generalized

least square method, indicate that there is a significant positive relationship between ownership

concentration, Board independence, CEO duality and CEO tenure and return on assets. On the

other hand, there is a significant negative relationship between institutional ownership and Board

size and return on assets. Besides there is a significant positive relationship between institutional

ownership, Board independence, CEO duality and CEO tenure with stock return. However, there

is a significant negative relationship between ownership concentration and Board size with stock

return. Findings from this study will be misleading for decision purpose in Nigeria due problem

of external validity.

Haider, Khan, Al-Sufy and Iqbal (2015) examined the relationship between board size on

earnings per share in Pakistan companies. The study used a sample of selected firms listed on the

Pakistan stock exchange. Data were collected from the annual report of the companies for a

period of five years from 2008 to 2012. Multiple regression analysis was used as the method of

data analysis. The result provided significant and positive effect of board size on earnings per

share.

Sayumwe and Amroune (2015) examined the relationship between board size on earnings per

share in Canada. The study used a sample of 36 Canadian companies that are listed on the

Toronto Stock Exchange. Data were collected from the annual report for a period of three years

from 2011 to 2013. Multiple regression technique was employed to analyze the effect of board

size on earnings per share. The result provided significant and positive support on the effect of

board size on earnings per share. The study was done in Canada not Nigeria.

62
Malik, Wan, Ahmad, Naseem and Rehman (2014) investigated the relationship between board

size on earnings per share in Pakistan companies. The study used a sample of selected firms

listed on the Karachi stock exchange. Data were collected from the annual report of the

companies for a period of five years from 2008 to 2012. Linear regression analysis was used as

the method of data analysis. The result provided significant and positive effect of board size on

earnings per share. The study used only board size while this current study used other board

attributes which makes for the much difference.

Meyer and Wet (2014) assessed the relationship between board non-executive and earnings per

share in South Africa. The study used a sample of 126 selected listed South African companies.

Data were collected from the annual report for a period of three years from 2010 to 2012.

Multiple regression technique was employed to analyze the effect of board non-executive on

earnings per share. The result provided significant and positive support on the effect of board

non-executive on earnings per share.

Adebayo, Ayeni and Oyewole (2013) examined the relationship between board independence on

earnings per share in Nigeria non-financial companies. The study used a sample of 30 listed

manufacturing firms, financial and service institutions. Data were collected from the annual

reports for a period of six years from 2005 to 2010. Multiple regression technique was employed

to analyze the effect of board independence on earnings per share. The result provided

significant and positive support on the effect of board independence and earnings per share.

2.2.9 Board Expertise and Stock Returns

Salawudeen and Aminu (2020) examined the direct and indirect effect of board characteristics on

shareholders’ wealth of manufacturing companies in Nigeria using dividend policy as mediator.

63
Correlational and explanatory research designs were used for the study. This study was based on

the functional/ positivist paradigm. As the study is quantitative was nature and used secondary

sources of data. The data were collected from the annual reports and financial statement of the

sampled listed manufacturing companies filed with SEC and NSE. The population of this study

covered the manufacturing companies listed on the Nigerian stock exchange as at 31st

December, 2008 up till 2018. This study sampled listed manufacturing companies on stratified

random sample due to similarity in their assets allocation from other sectors. Using path analysis,

significant impact of dividend payout on BX and SW exist. BC, BS, and BG have positive

significant effect on SW (EPS and MPS). It’s concluded that, board characteristics can improve

shareholders’ wealth by using dividend policy. This study used the entire manufacturing sector

while this current study used only consumer goods sector because the findings of the entire

manufacturing sector cannot be effectively used in making informed conclusions in the consumer

goods sector.

Adamu, Ishak and Hassan (2019) examined the relationship between corporate board attributes

and dividend payout likelihood of non-financial firms in Nigeria. Specifically, the study aimed at

exploring the influence of gender diversity and financial expertise on the likelihood of dividends

payout. Pooled logistic regression was used on a sample of data from non-financial listed firms

in Nigeria spanning from 2009 to 2015. The study documents gender diversity and financial

experts have significant effect on a firm’s likelihood to distribute cash dividends. The results

remain unchanged after adjusting the standard errors for clustering at a firm. The overall finding

suggests that diversity in terms of gender and expertise play a critical role all things being equal

in determining the decision to pay cash dividends shareholders of listed firms in Nigeria. This

64
study concentrated on the entire non-financial firms and the findings cannot be applied to the

consumer goods sector specifically, hence the needs for a consumer goods sector study.

Sarwar, Xiao, Husnain and Naheed (2018) focused on a new dimension; financial expertise on

the corporate board for explaining the dividend policy dynamics in the emerging equity markets

of China and Pakistan.The study employs static (fixed effect (FE) and random effect (RE)) and

dynamic models – two-step generalized method of moments (GMM) estimation techniques by

Arellano and Bond (1991) and Arellano and Bover (1995) – during the timespan from 2009 to

2014. Further, this study re-estimated FE, RE and GMM two-step estimation techniques by

excluding the non-dividend-paying companies, and also employed instrumental variable

regressing by using two instrumental variables – industry average financial expertise of the board

and board size – as proxies for board financial expertise to control the possible endogeneity. The

study reveals that Chinese firms having more financial expertise on the board do not take

dividends as a control mechanism (substitution hypothesis), while Pakistani firms support the

compliment hypothesis and use dividends as a control mechanism to mitigate agency conflict to

protect shareholders’ interests and keep additional funds from the manager’s opportunism.

Further robustness models also confirm the presence of a significant association between

dividend policy and board financial expertise in both equity markets. This study was done in

china and such its findings cannot be applied effectively in the Nigerian context.

Meyer and Wet (2014) assessed the relationship between board non-executive and earnings per

share in South Africa. The study used a sample of 126 selected listed South African companies.

Data were collected from the annual report for a period of three years from 2010 to 2012.

Multiple regression technique was employed to analyze the effect of board non-executive on

65
earnings per share. The result provided significant and positive support on the effect of board

non-executive on earnings per share.

Adebayo, Ayeni and Oyewole (2013) examined the relationship between board independence on

earnings per share in Nigeria non-financial companies. The study used a sample of 30 listed

manufacturing firms, financial and service institutions. Data were collected from the annual

reports for a period of six years from 2005 to 2010. Multiple regression technique was employed

to analyze the effect of board independence on earnings per share. The result provided

significant and positive support on the effect of board independence and earnings per share.

Abdullah, Faudziah and Yahya (2012) examined the relationship between board characteristics

and the firm performance of non-financial listed Kuwaiti firms. To achieve the objectives of the

study, the data were collected from a sample of 136 companies for the financial year 2009.

Variables such as CEO duality, COE tenure, audit committee size, board size and board

composition were considered as predictors of the firm performance that was measured

employing the return on assets (ROA). By contrast, the effects of CEO tenure and leverage on

firm performance were found to be negative and significant at the chosen level of significance.

To test the hypotheses of the study, multiple linear regression analysis using SPSS 18.0 was

utilized. Using the firm size and leverage as a control variable, the findings of the study support

the positive effects of CEO duality and audit committee size on ROA. This study used only data

for 2009 hence, the need for a more current which captures more recent governance rules.

Yusoff and Adamu (2012) examined the relationship between non-executive independence

directors on earnings per share in Malaysia. The study used a sample of 813 listed companies on

Bursa Malaysia. Data were collected from the annual report for a period of three years from 2009

66
to 2011. Correlational analysis was used to test the hypotheses on the relationships between non-

executive independence director and earnings per share. The result provided positive significant

association between non-executive independence directors on earnings per share. This used

correlation as data analysis technique while the current study used multiple regression analysis to

ascertain the causal effects between the dependent and predictor variables.

2.3 Theoretical Framework

2.3.1 Arbitrage Pricing Theory

Arbitrage Pricing Theory (APT) developed by Ross (1976) as a Capital Asset Pricing Model

(CAPM), is premised on the basis that the stock returns are caused by a specific number of

economic variables. The theory further suggests that there are different risks in the economy that

cannot be eradicated by sole diversification. It is a one-period model in which every investor

believes that the stochastic properties of returns of capital assets are consistent with a factor

structure. Ross (1976) argued that if equilibrium prices offer no arbitrage opportunities over

static portfolios of the assets, then the expected returns on the assets are approximately linearly

related to the factor loadings. Ross’ (1976) heuristic argument for the theory is based on the

preclusion of arbitrage. Her formal proof showed that the linear pricing relation is a necessary

condition for equilibrium in a market where agents maximize certain types of utility. The

subsequent work, derives either from the assumption of the preclusion of arbitrage or the

equilibrium of utility-maximization. A linear relation between the expected returns and the betas

is tantamount to an identification of the stochastic discount factor (SDF).

Also, CAPM was introduced by Sharpe (1964), Lintner (1965) and Mossin (1966). The theory

states that non-diversifiable market risk impacts expected security returns. According to Al-

67
Shami and Ibrahim (2013), the general notion behind the APT is that compensation is provided

for the investors due to the time value of money or systematic risk which is characterized by the

risk-free rate. Another compensation for taking up extra risk can be calculated through a risk

measure (Beta) by comparing the asset returns with the market for a time period and with the

market risk premium.

According to Gatuhi, Gekara and Muturi (2015), APT assumes that various market and industry

related factors contribute towards returns on stocks. These multi factor models have been

developed with the assumption that stock returns are based upon several economic factors which

include market return as well as other factors, and can be grouped into industry wide and

macroeconomic forces. The industry related variables can vary with the nature of industry and

economic conditions. The exact number of industry related variables is not identified so far. The

frequently used macroeconomic and industry variables in existing literature are interest rate,

exchange rate, money supply, consumer price index, risk free rate, industrial production, balance

of trade, dividend announcements, and unexpected events in national and international markets.

Amtiran, Indiastuti, Nidar and Masyita (2017) concluded that model APT one factor is valid

more than multi-factor APT. Other studies that found APT useful in relating changes in returns

on investments to unanticipated changes in a range of key value drivers for these investments

include Acikalin, Aktas and Unal (2008), Ali (2013), Ibrahim and Musah (2014), and Kirui,

Wawire and Onono (2014).

Basically, at the core of APT is the recognition that only a few systematic factors affect the long-

term average returns of financial assets. APT does not deny the myriad factors that influence the

daily price variability of individual stocks and bonds, but it focuses on the major forces that

move aggregates of assets in large portfolios. By identifying these forces, one can

68
gain an intuitive appreciation of their influence on portfolio returns. The ultimate goal is to

acquire a better understanding of portfolio structuring and evaluation and thereby to improve

overall portfolio design and performance. The returns on an individual stock in, say, the coming

year, will depend on a variety of anticipated and unanticipated events. Anticipated events will be

incorporated by investors into their expectations of returns on individual stocks and thus will be

incorporated into market prices. Generally, however, most of the return ultimately realized will

be the result of unanticipated events. Of course, change itself is anticipated, and inves tors know

that the most unlikely occurrence of all would be the exact realization of the most probable

future scenario. But even though it is realized that some unforeseen events will occur, their

direction or their magnitude is still unknown. What can be known is the sensitivity of asset

returns to these events.

Asset returns are also affected by influences that are not systematic to the economy as a whole,

influences that impinge upon individual firms or particular industries but are not directly related

to overall economic conditions. Such forces are called idiosyncratic to distinguish them from the

systematic factors that describe the major movements in market returns. Because, through the

process of diversification, idiosyncratic returns on individual assets cancel out, returns on large

portfolios are influenced mainly by the systematic factors alone.

Systematic factors are the major sources of risk in portfolio returns. Actual portfolio returns

depend upon the same set of common factors, but this does not mean that all large portfolios

perform identically. Different portfolios have different sensitivities to these factors. A portfolio

that is so hedged as to be insensitive to these factors, and that is sufficiently large and well-

proponed that idiosyncratic risk is diversified away, is essentially riskless. Because the

systematic factors are the primary sources of risk, it follows that they are the principal

69
determinants of the expected, as well as the actual, returns on portfolios. The logic behind this

view is not simply the usual economic argument that more return can be obtained only by

bearing more risk.

2.3.2 Agency Theory

The separation between owners and managers creates an agency relationship. An agency

relationship exists when one or more persons (the principal or principals) hire another person

or persons (the agent or agents) as decision-making specialists to perform a service. (Ireland,

Hoskisson&Hitt, 2011). Top managers are hired hands who may very likely be more interested

in their personal welfare than that of the shareholders (Berle& Means, 1932). Agency problem

arises where management emphasizes such policies that increase the size of the firm or that

diversify the firm into unrelated businesses to the detriment of the shareholders that result in a

reduction of dividends and stock price. Agency theory is related to examining and deciding

two problems that are prominent in relationship between principals and (shareholders) and

their agents (board of directors): The agency problem that arises when the desires or objectives

of the owners and the agents conflict or it is difficult or expensive for the owners to verify

what the agent is actually doing. The executives may be more interested in increasing their

salary than raising stock dividends (Olowookere, 2008).

Monitoring the functioning of boards, or the 'control' role (Boyd, 1990; Johnson, Daily,

&Ellastrand, 1996), is an important focus of corporate governance research (Hillman &

Dalziel, 2003). The primary theoretical framework that relates this monitoring function to firm

performance is derived from agency theory, which predicts that conflicts of interest can arise

from the separation of ownership and control in organisations (Berle& Means, 1932; Fama&

70
Jensen, 1983). From this perspective, the primary function of boards is to monitor the actions

of managers (agents) in order to protect the interests of shareholders (principals) (Mizruchi,

1983; Eisenhardt, 1989; Andreasson, 2011). Should management pursue their own interests at

the expense of the shareholders' interests (Nicholson & Kiel, 2007), agency costs typically

arise (Berle& Means, 1932). Monitoring by boards of directors may therefore reduce the

agency costs inherent in the separation of ownership and control and, in this way, improve firm

performance (Fama, 1980; Zahra & Pearce, 1989). Agency theory also predicts that the

incentives available to directors and boards vary and are therefore an important precursor to

effective monitoring (Kyereboah-Coleman &Biekpe, 2005), and that firm performance will

therefore improve if these are aligned with the interests of shareholders (Jensen &Meckling,

1976; Fama, 1980).

The principal-agent problem arises when a principal compensates an agent for performing certain

act that are useful to the principal and costly to the agent, and where there are elements of the

performance that are costly to observe. This is the case to some extent for all contracts that are

written in a world of information asymmetry, uncertainty and risk. Wheelen and Hunger (2010)

are of the opinion that, the probability that agency problem will occur increases when shares are

owned by a large number of dispersed shareholders in which no single investor owns more than a

small proportion of the entire issued shares. A similar problem will also arise when the corporate

board is composed of persons who know less about the company or who are personal friends of

top management, and when a larger percentage of members of the board are executive directors.

Consequently, in order to curtail the possibility of the ethical threat associated with separation of

management from control and achieve optimality, principals and agents are involved in

contractual agreement including the institution of control procedures such as auditing. The

71
principal and agent connection as portrayed in agency theory is significant in appreciative of how

the phenomenon of an auditor has evolved. Agents are appointed by the principals and transfer

the authority to make some decisions to them. As a result, agents are entrusted with the resources

of the firms by the principals. But asymmetric information between principals and agents has

engendered divergent interests. Subsequently, lack of trust in the agents necessitated the

initiation of certain control mechanisms, such as the audit, to strengthen this trust (Welch, 2003).

Agency theory therefore is an important accountability economic theory which elucidates the

development of audit quality.

Agency theory is therefore concerned with contractual relationship between two or more

persons called the agent(s) to perform some services on behalf of the principal. Both the agents

and the principal are presumed to have entered into mutual agreement or contract motivated

solely by self-interest. The principal delegates decision making responsibility to agents

(Chowdhury, 2004). It is a concept that explains why behavior or decisions vary when

exhibited by members of a group. Specifically, it describes the relationship between one party,

called the principal that delegates work to another, called the agent. It explains their differences

in behavior or decisions by noting the two parties often have different goals and, independent

of their respective goals, different attitudes toward risk. Invariably, the agents’ decision choices

are assumed to have effect on both parties. These relationships, according to Bromwich (1992)

are perceived in economic and business life and also generate more problems of contracting

between entities in the economy. Other related reviews include; The Sarbanes-Oxley Act of

2002 (SOX) which requires companies to report on the effectiveness of their internal controls

over financial reporting as part of an overall effort to reduce fraud and restore integrity to the

financial reporting process. Morris (2011) asserted that software vendors that market enterprise

72
resource planning (ERP) systems have taken advantage of this new focus on internal controls

by emphasizing that a key feature of ERP systems is the use of “built-in” controls that mirror a

firm’s infrastructure. They emphasize these features in their marketing literature, asserting that

these systems will help firms improve the effectiveness of their internal controls as required by

SOX. Internal control is one of many mechanisms used in business to address the agency

problem. Others include financial reporting, budgeting, audit committees, and external audits

(Jensen and Payne 2003). Studies have shown that internal control reduces agency costs

(Abdel-khalik 1993; Barefield et al. 1993) with some even arguing that firms have an economic

incentive to report on internal control, even without the requirements of SOX (Deumes and

Knechel 2008). Their argument assumes that providing this additional information to the

principal (shareholder) about the behaviour of the agent (management) reduces information

asymmetry and lowers investor risk and, therefore, the cost of equity capital.

During the 1980s, several high-profile audit failures led to creation of the Committee of

Sponsoring Organizations of the Treadway Commission (COSO) organized for the purpose of

redefining internal control and the criteria for determining the effectiveness of an internal

control system (Simmons 1997). They studied the causal factors that can lead to fraudulent

financial reporting and developed recommendations for public companies, independent

auditors, educational institutions, the Securities Exchange Commission (SEC) and other

regulators (COSO 1985). The product of their work is known as the COSO Internal Control—

Integrated Framework (Simmons 1997). The framework also points out that controls are most

effective when they are “built into” the entity’s infrastructure (COSO 1992,) and further states

that “built in controls support quality and empowerment initiatives, avoid unnecessary costs

and enable quick response to changing conditions” (COSO 1992).

73
Morris (2011) separates internal controls into those that are general (entity-wide) controls from

those that are specific (account-level) controls. He believes that if management was overriding

control features in order to manage earnings, then one would expect to find more Internal

Control Weaknesses related to general controls, even if the specific (account-level) controls are

effective. This type of behaviour should be uncovered during the audit process since this is an

area of concern specifically identified in Auditing Standard No. 5, Paragraph 24, which states

that entity-level controls include controls over management override. On the other hand, a

stronger argument could be made that if general controls are in place and working, then one

would expect to find less Internal Control Weaknesses related to general controls.

In the Executive Summary of “Enterprise Risk Management-Integrated Framework” 2004 by

the Committee of Sponsoring Organizations (COSO, 2004) of the Treadway Commission,

Internal controls have been incorporated into policies, rules and regulations to help

organizations achieve their established objectives. This is in line with Pany, Gupta and Hayes’

assertion that internal controls are meant to help an organization achieve its objectives. The

COSO commission was partly instituted in response to a series of high-profile scandals and

business failures where stakeholders (particularly Investors) suffered tremendous losses. This

study however differs in that it is done for an institution that is not ailing though there are

reported incidences of scandals and financial misfeasance. The end results should therefore aid

the preventive mechanism rather than being reactionary. Entities exist to provide value to its

stakeholders but are normally face with uncertainty.

2.3.3 Stakeholder Theory

74
Stakeholder theory was propounded by Edward Freeman in 1984. Stakeholder theory is an

extension of the agency view, which expects board of directors to take care of the interests of

shareholders. However, this narrow focus on shareholders has undergone a change and boards

are now expected to take into account the interests of many different stakeholder groups,

including interest groups linked to social, environmental and ethical considerations (Freeman,

1984; Donaldson & Preston, 1995; Freeman, Andrew, Wicks, Bidhan& Parmar, 1991). This

shift in the role of the boards has led to the development of stakeholder theory. Stakeholder

theory views that “companies and society are interdependent and therefore the corporation

serves a broader social purpose than its responsibilities to shareholders (Kiel & Nicholson,

2003). Likewise, Freeman (1984), one of the original proponents of stakeholder theory, defines

stakeholder as “any group or individual who can affect or is affected by the achievement of the

organization’s objectives”. There is considerable debate among scholars on whether to take a

broad or narrow view of a firm’s stakeholder. Freeman’s definition (1984) cited above proposes

a broad view of stakeholders covering a large number of entities, and includes almost all types

of stakeholders. In contrast, Clarkson (1994) offers a narrow view, suggesting that voluntary

stakeholders bear some form of risk as a result of having invested some form of capital, human

or financial, or something of value, in a firm. Involuntary stakeholders are placed at risk as a

result of a firm’s activities. But without the element of risk there is no stake. The use of risk

enables stakeholders a legitimate claim on a firm’s decision making, regardless of their power

to influence the firm. Donaldson and Preston (1995) identify stakeholders as “persons or groups

with legitimate interests in procedural and/or substantive aspects of corporate activity.” For

Example, Wheeler and Sillanpaa (1997) identified stakeholder as varied as investors, managers,

employees, customers, business partners, local communities, civil society, the natural

75
environment, future generations, and non-human species, many of whom are unable to speak

for them.

Mitchell, Agle and Wood (1997) argued that stakeholders can be identified by possession of

one, two or all three of the attributes of: power to influence the firm, the legitimacy of

relationship with the firm, and the urgency of their claim on the firm. This typology allows

managers to pay attention and respond to various stakeholder types. Stakeholder theory

recognizes that many groups have connections with the firm and are affected by firm’s decision

making. Freeman et al. (2004) suggests that the idea of value creation and trade is intimately

connected to the idea of creating value for shareholders; they observe, “business is about

putting together a deal so that suppliers, customers, employees, communities, managers, and

shareholders all win continuously over time.” Donaldson and Preston (1995) refer to the myriad

participants who seek multiple and sometimes diverging goals. Manager’s view of the

stakeholders’ position in the firm influences managerial behaviour.

However, Freeman et al. (2004) suggests that managers should try to create as much value for

stakeholders as possible by resolving existing conflicts among them so that the stakeholders do

not exit the deal. Carver and Oliver (2002) examine stakeholder view from non-financial

outcomes. For example, while shareholders generally define value in financial terms, others

stakeholders may seek benefits “such as the satisfaction of pioneering a particular

breakthrough, supporting a particular kind of corporate behaviour, or, where the owner is also

the operator, working in a particular way. It means stakeholders have ‘no equity stakes’ which

requires management to develop and maintain all stakeholder relationships, and not of just

shareholders.

76
This suggests the need for reassessing performance evaluation based on traditional measures of

shareholder wealth and profits by including measures relating to different stakeholder groups

who have non-equity stakes. Nonetheless many firms do strive to maximize shareholder value

while, at the same time, trying to take into account the interest of the other stakeholders.

Sundaram and Inkpen (2004) argued that objective of shareholder value maximization matters

because it is the only objective that leads to decisions that enhance outcomes for all

stakeholders. They argue that identifying a myriad of stakeholders and their core values is an

unrealistic task for managers (Sundaram &Inkpen, 2004). Proponents of stakeholder

perspective also argue that shareholder value maximization will lead to expropriation of value

from non-shareholders to shareholders. However, Freeman et al. (2004) focus on two core

questions: ‘what is the purpose of the firm?’ and ‘what responsibility does management have to

stakeholders? They posit that both these questions are interrelated and managers must develop

relationships, inspire their stakeholders, and create communities where everyone strives to give

their best to deliver the value the firm promises. Thus, the stakeholder theory is considered to

better equip managers to articulate and foster the shared purpose of their firm.

2.3.4 Stewardship Theory

While Agency theory assumed that principals and agents have divergent interests and that

agents are essentially self-serving and self-centered, Stewardship theory takes a diametrically

opposite perspective. It suggests that the agents (directors and managers) are essentially

trustworthy and good stewards of the resources entrusted to them, which makes monitoring

redundant (Donaldson 1990; Donaldson & Davis, 1991; Donaldson & Davis, 1994; Davis,

Schoorman& Donaldson, 1997). Donaldson and Davis (1991) observed that organizational role-

holders are conceived as being motivated by a need to achieve, to gain intrinsic satisfaction

77
through successfully performing inherently challenging work, to exercise responsibility and

authority, and thereby to gain recognition from peers and bosses. The stewardship perspective

views directors and managers as stewards of firm. As stewards, directors are likely to maximize

the shareholders’ wealth. Davis et al. (1997) posited that stewards derive a greater utility from

satisfying organizational goals than through self-serving behavior. They argued that the

attainment of organizational success also satisfies the personal needs of the stewards.

Stewardship theory suggests that managers should be given autonomy based on trust, which

minimizes the cost of monitoring and controlling behavior of the managers and directors. When

managers have served a firm for considerable period, there is a “merging of individual ego and

the corporation (Donaldson & Davis, 1991). Stewardship theory considers that manager’s

decisions are also influenced by nonfinancial motives, such as need for achievement and

recognition, the intrinsic satisfaction of successful performance, plus respect for authority and

the work ethic. These concepts have been well documented throughout the organizational

literature in the work of scholars such as Argyris (1964), Herzberg (1966), McClelland (1961),

and Muth and Donaldson (1998).

Davis et al. (1997) suggested that managers identify with the firm and it leads to personalization

of success or failure of the firm. Daily (2003) argued that managers and directors are also

interested to protect their reputation as expert decision makers. As a result, managers operate

the firm in a manner that maximizes financial performance, including shareholder returns, as

firm performance directly impacts perception about managers’ individual performance. Fama

(1980) suggested that managers who are effective as stewards of the firm are also effective in

managing their own careers. Supporting this view, Shleifer and Vishny (1997) suggested that

managers who bring good financial returns to investors, establish a good reputation that allows

78
them to re-enter the financial markets for the future needs of the firm. From the stewardship

theory perspective, superior performance of the firm was linked to having a majority of the

inside (executive) directors on the board since these inside directors (managers) better

understand the business, and are better placed to govern than outside directors, and can

therefore make superior decisions (Donaldson, 1990, Donaldson & Davis, 1991).

Stewardship theory argues that the effective control held by professional managers empowers

them to maximize firm performance and corporate profits. Consequently, insider-dominated

boards are favored for their depth of knowledge, access to current operating information,

technical expertise and commitment to the firm. Similarly, CEO duality (i.e., same person

holding the position of Chair and the chief executive) is viewed favorably as it leads to better

firm performance due to clear and unified leadership (Donaldson & Davis, 1991; Davis, et al.,

1997). Several studies supported the view that insider directors (managers), who possess a

superior amount and quality of information, make superior decisions (Baysinger & Hoskisson,

1990; Baysinger, Kosnick & Turk, 1991; Boyd 1994; Muth & Donaldson, 1998) compared the

predictions of agency theory with that of stewardship theory and found support for stewardship

theory being a good model of reality. Bhagat and Black (1999) have also found that firms with

boards consisting of a greater number of outside directors (representing agency theory

perspective), perform worse than firms with boards with less number of outside directors. As

such, some support exists for the stewardship perspective both conceptually e.g., Davis et al.,

(1997) and also empirically Bhagat and Black (1999).

CHAPTER THREE

RESEARCH METHODOLOGY

79
3.1 Research Design

This study adopted a descriptive ex- post facto research method and positivist research

philosophy for the purpose of addressing the research problem. An ex- post facto research design

is commonly used in studies that investigate possible cause-and-effect relationships by observing

a condition and searching back in time for plausible causal factors. A positivist research is

applied when a research tests a theory rather than develop a new one. In the case of this study,

the research investigated the effect of firm attributes, ownership structure and board attributes on

stock returns after the event under investigation has taken place.

3.2 Population, Sample and Sampling Techniques

The population of the study comprised all the twenty-three (23) listed consumer good firms on

the Nigerian Stock Exchange as at 2019. The study used purposive sampling technique to obtain

a sample size of sixteen (16) firms listed in the consumer goods sector. This number is arrived at

using the criteria that a company must have complete information for the number of years under

consideration.

Table 3.1 Population of the Study

80
S/N Name Year of Listing

1 Champion Brewery Plc 1983

2 Golden Guinea Brewery Plc 1979

3 Guinness Nigeria Plc 1965

4 International Brewery Plc 1995

5 DN Tyre& Rubber Plc 2001

6 Nigerian Breweries Plc 1973

7 Nigerian Enamelware Plc 1979

8 7 Up Bottling Company Plc 1986

9 Vita Foam Nigeria Plc 2007

10 Dangote Sugar Refinery Plc 2006

11 Flour Mills Nigeria Plc 1979

12 Honeywell Flour Mill Plc 2006

13 P. Z. Cussons Nigeria Plc 1974

14 Multi – Trex Integrated Foods Plc 2010

15 Nascon Allied Industries Plc 1992

16 Northern Nigeria Flour Mills Plc 1978

17 Dangote Flour Mills Plc 2008

81
 18 Union Dicon Salt Plc 1993

19 U.T.C. Nigeria Plc 1972

20 Mcnichols Plc 2009

21 Unilever Nigeria Plc 1973

22 Cadbury Nigeria Plc 1979

23 Nestle Nigeria Plc 1976

Source: N.S.E. website, 2020.

Table 3.2 Sample Size of the Study

S/N Name

1 Champion Brewery Plc

2 Guinness Nigeria Plc

3 Unilever Plc

4 Nigerian Enamelware Plc

5 Multi-Trex Integrated food plc

6 Vita Foam Nigeria Plc

7 Dangote Sugar Refinery Plc

8 Flour Mills Nigeria Plc

9 Honeywell Flour Mill Plc

82
 10 P. Z. Cussons Nigeria Plc

11 Nascon Allied Industries Plc

12 Northern Nigeria Flour Mills Plc

13 International Breweries Plc

14 McNichols Plc

15 Cadbury Nigeria Plc

16 Nestle Nigeria Plc

Source: N.S.E. website, 2020.

83
3.3 Methods of Data Collection

The study employed secondary sources for the purpose of data collection. The data was collected

from the annual reports of the sampled companies for a period of ten (10) years (2010 to 2019).

These firms are public limited companies listed on the Nigerian Stock Exchange. By virtue of

being public limited companies and as a requirement of being listed, annual financial report has

to be made available to the Nigerian Stock Exchange. Annual financial statements are a preferred

choice for the purpose of data collection based on the type of data to be collected, availability of

data to be collected, ease of access ability and ease of results comparability.

3.4 Techniques of Data Analysis and Model Specification

The study employed multiple regression technique as the procedure of analysis with aid of

STATA version 13 as a tool for analysis. The data for the study is panel in nature (that is cross-

sectional time series data). In order to check for endogeneity, the study used the Hausman

specification test. Additional robustness tests adopted in this research include the test for

Multicollinearity using the Variance Inflation Factor (VIF) and the Breutsch-Pagan test for

heteroscedasticity, to check for the fitness of model and reliability of findings.

Model Specification and Variable Measurement

The crux of the model is to study the determinants of stock returns of quoted consumer goods

companies in Nigeria. The determinants used as predictors of stock returns include firm

characteristics, ownership structure and board attributes. Thus, statistical analysis for this study

was rooted in Arbitrage Pricing Theory (APT) which is on the basis that the stock returns are

caused by a specific number of economic variables. The study examined the determinants of

84
stock returns among consumer goods firms. The model for the study in tandem with other

previous studies of Nguyen and Nguyen (2016) and Ltaifa and Khoufi (2016) is as presented

below:

SRit = b ๐+ β1FZit +β2FAit +β3PRit + β4OCit +β5IOit +β6MOit + β7BIit +β8BZit +β9BEit Ɛit…… (i)

Where: SR= Stock Returns, FZ= firm size, FA= age, PR= profitability, OC= ownership

concentration, IO= institutional ownership, MO= managerial ownership, BI= board

independence, BZ= board size, BE= board expertise

b0 = intercept (constant)

i= cross-sectional time

t=time series

ε = Error term

85
Measurement of Variables

S/N Variables Definitions Type Measurement Construct

Validity
Source

1 SR Stock Returns Dependent P1-P0 /P0 × 100 Ayuba

(2018); Bala
Where: P1 and Idris
represent price of (2015).
the stock in current
year as quoted at
the end of the
financial year. P0
represent price of
the stock in the last
financial year end.

2 FZ Firm Size Independent measured by Nguyen and

Natural logarithm Ngyuyen
of Total Assets. (2016); Bala
and Idris
(2015).
Akwe et al.
(2018).

Measured by
3. FA Age Independent firm’s listing age; Shafana,
that is the number Fathima and
of years that have Jariya
elapsed since the (2013)
year of the
company’s IPO.

4. PR. Profitability Independent Measured by ROA Sani,

which is given as (2016);
PBIT divided by Handoko
Total Assets. (2016).

5. OC Ownership Independent Measured by the Iqbal,

Concentration proportion of the Siddiq and
value of shares Gul (2016);

86
 held by number of Erivelto and
block holders, Fernando
exceeding 5% to (2016);
the total number of Foroughi
ordinary and Fooladi
shareholders. (2012).

6. MO Managerial Independent Measured by the Ezazi,

Ownership proportion of Sadeghi and
number of shares Amjadi
owned by directors (2011);
to the total number Bawa and
of ordinary shares Isa (2014);
issued.
Teshima and
Shuto
(2008);
Wafa and
Younes,
(2014).

7. IO Institutional Independent Measured by the Iqbal,

Ownership proportion of Siddiq and
number of equity Gul (2016);
shares of the firm Hajara,
held by (2015);
institutional Yang, Chun
investors to the and
total number of Ramadili
ordinary shares. (2009).

8. BI Board Independent measured by the Alvas

Independence proportion of (2014);
independent non- Hassan and
executive directors Bello
on the board to the (2013);
total number of Akeju and
directors. Babatunde
(2017).

9. BZ Board Size Independent measured by the Adebiyi

87
 total number of (2017);
executive and non- Holtz and
executive directors Neto (2014);
on the board Chalaki,
Didar and
Riahinezhad
(2012).

10 BE Board Independent Measured by the Gray and

Expertise proportion of Nowland
directors on the (2015);
board with Güner,
financial expertise Malmendier
to the total number and Tate
of directors. (2008).

Source: Researcher’s Compilation, 2020.

3.5 Justification of Methods

The choice of ex-post facto approach is that the event under study has already taken place. This

study depends on historical data. In line with the objectives and hypotheses formulated the study

made use of multiple regressions technique to determine the impact of independent variables on

the dependent variable, since it is the most suitable techniques for determining the extent of

impact of independent variables on dependent variable. Stata Statistical Package was used since

it allows for establishing the impact of independent variables on the dependent variable as well

as testing for robustness such as heteroscedasticity test, fixed and random effect test,

Multicollinearity test. The choice of secondary data is based on the fact that financial statements

are readily available and made public in company annual reports.

88
 CHAPTER FOUR

DATA ANALYSIS AND INTERPRETATION

4.1 Data Presentation

The chapter begins with the discussion of the descriptive statistics of the variables, and then the

correlation matrix of the variables of the study. This is followed by the presentation,

interpretation and discussion of the regression results and test of hypotheses of the study. The

chapter ends with the discussion of the major findings of study. See appendix A.

4.1.1 Descriptive Statistics

This section contains the description of the properties of the variables ranging from the mean of

each variable, minimum, maximum and standard deviation. The summary of the descriptive

statistics of the variables are presented in table 4.1. The full result is contained in appendix B. 

89
Table 4.1: Descriptive Statistics

Variables Obs Mean Std Dev Min Max

SR 160 .5684284 5.108861 . -1 63.79638

FZ 160 7.665493 2.200853 2.83181 14.8783

FA 160 28.3 14.39025 1 54

PR 160 .3020525 .2332101 -.223967 .891987

OC 160 .5958285 .1879737 .01 .861

MO 160 .1754935 1.182254 .001 .15

IO 160 .1927492 .0811085 .092 .701

BI 160 .0894777 .0604368 .0 .285714

BZ 160 12.10625 2.1503316 6 16

BE 160 .092468 .0756545 .0 .25

Source: STATA OUTPUT, 2021.

The outcomes in Table 4.1 indicates that the measure of share return (SR), which is the inverse

of the variance in stock returns behaviour of the sampled consumer goods firms has an average

value of 0.5684284 and a corresponding standard deviation of 5.108861, This imply that the

changes in stock returns between companies within the period significantly differ. Also, the

minimum and maximum values stood at -.1 and 63.79638 respectively. The firms tend to record

a significantly high stock returns in some years than in others. also, as evidenced by the

minimum most companies record negative returns.

90
The table also indicates that the sample firms have an average firm size of 7.665493 with

standard deviation of 2.200853. This means that the average value of firm size within the period

of the study is 7.67 billion. The figure of the standard deviation means that there is a high level

of variance in firm size among the companies. The minimum and the maximum as shown by the

table is 2.83181 and 14.8783. This implies that the least amount of firm size is 2.83 billion and

the largest is 14.88 billion.

The descriptive statistics in Table 4.1 shows that on average, the firm age of companies during

the period of the study is 28.3 years, with an accompanying standard deviation of 14.39025. This

shows that on average firms have being in existence for 28 years. The value of the standard

deviation which is far from the mean show that there is a lot of differences in age among the

sampled firms. The value of firm age for minimum and maximum is 1 and 54 respectively.

The descriptive statistics from Table 4.1 also indicates the mean of profitability is .3020525

which signifies that on the average 30% of the companies’ sampled made profit within the period

of the study. Meanwhile, the value of the standard deviation which is .2332101 (23%) is close to

the mean implying certain of agreement with the claim that at least 30% of the companies

registered profit at various periods in the ten years captured by this study. The profitability shows

a minimum and maximum value of -.223967 and .891987 respectively. The minimum figure

indicates 22% of the companies’ make losses while a maximum of 89% recorded profit figures.

For ownership concentration, the table shows a mean value of .5958285 and a corresponding

standard deviation of .1879737. This shows that average 59% of the firms under study have

concentrated owners in their ownership structure and the value of the standard deviation

confirms this assertion. The lowest number stands at 1% while the maximum number is 86%.

91
Table 4.1 also shows that the average managerial ownership of the sampled consumer goods

firms during the period of the study is .1754935 with a standard deviation of 1.182254. This

implies that an average of 17% of consumer goods firms in Nigeria have top level managers who

are also, shareholders of the company. This assertion is refuted by the standard deviation which

suggests that the data is not distributed around the mean. The minimum and maximum values of .

001 and .15 respectively. The maximum figure implies that just 16% of the companies have

managerial shareholders.

The descriptive statistics in Table 4.1 shows a mean value of .1927492 and a corresponding

standard deviation 0.0811085. This means that on average, 19% of companies during the period

of the study had institutional investors in their ownership composition. However, the value of the

standard deviation which is far from the mean shows that there is a lot of differences in level of

institutional ownership among the sampled firms. The value of institutional ownership for

minimum and maximum is .092 and .701 respectively. This means that highest number of

institutional owners is 70%.

The Table also indicates that the sampled consumer goods firms in Nigeria have an average of .

0894777 independent directors on the board stood during the period of the study, with a standard

deviation of .0604368. This suggests that an average of 8% directors have independent status.

This is confirmed by the value of the standard deviation which is close to the mean. Meanwhile,

the minimum and maximum value stood at 0% and 28% respectively.

Again, the Table show that the mean board size of all sampled consumer goods firms in Nigeria

during the period of the study stood at 12.10625 with a corresponding standard deviation of

2.150316. This suggests that on average the size of the board is 12. However, the value of the

92
standard deviation shows a certain level of disagreement. The result further, show that the

minimum and maximum number of directors stands at 6 and 16 respectively.

The descriptive statistics in Table 4.1 shows that on average, 9% of the board members in the

sampled consumer goods companies have financial expertise. This evidenced by the mean value

of .092468 and the standard deviation of .0756545. The value of the standard deviation which is

close to the mean significantly upholds this claim. Meanwhile, the value of board financial

expertise for minimum and maximum is 0 and .25 respectively. This means the highest number

of directors with financial expertise in the company stood at 25%

4.1.2 Correlation Matrix

The Pearson correlation analysis matrix shows the relationship between the explanatory and the

explained variables and also the relationship among all pairs of independent variables

themselves. It is useful in discerning the degree or extent of relationship among all independent

variables as excessive correlation could lead to multicollinearity, which could consequently lead

to misleading findings and conclusions. The correlation matrix does not lend itself to statistical

inference but it is relevant in deducing the direction and extent of association between the

variables. Table 4.2 presents the correlation matrix for all the variables.

93
94
Table 4.2 Correlation Matrix

Variable SR FZ FA PR OC MO IO BI BZ BE

SR 1.0000

FZ 0.1166 1.0000

FA 0.0535 0.5138 1.0000

PR 0.0914 0.3674 -0.0230 1.0000

OC 0.0243 0.0662 -0.2215 0.1245 1.0000

MO -0.0005 0.3509 0.0424 0.3717 -0.2145 1.0000

IO 0.1178 0.1183 0.3172 -0.0485 0.0831 0.5003 1.0000

BI -0.0361 0.2662 0.2337 0.1215 0.2863 -0.1179 0.0233 1.0000

BZ 0.0713 0.2310 0.2883 0.0019 -0.1157 0.1146 0.0194 -0.4836 1.0000

BE 0.0430 0.2249 0.0951 0.8717 0.0884 -0.1081 0.0386 0.3121 0.0728 1.0000

Source: STATA OUTPUT, 2021

Table 4.2 showed that the correlation between the dependent variable, SR and the independent

variables, FZ, FA, PROF, OC, MO, IO, BI, BZ and BEXP on one hand, and among the

independent variables themselves on the other hand. Generally, high correlation is expected

between dependent and independent variables while low correlation is expected among

independent variables. According to Gujarati (2004), a correlation coefficient between two

independent variables 0.80 is considered excessive and thus certain measures are required to

correct that anomaly in the data. From Table 4.2, it can be seen that all the correlation

coefficients among the independent variables are below 0.80. This points to the absence of

95
possible Multicollinearity, though the variance inflation factor (VIF) and tolerance value (TV)

test is still required to confirm the assumption.

The table reveals a positive correlation between the dependent variable stock returns and the

explanatory variables of firm size, firm age and profitability with coefficients of 0.1166, 0.0535

and 0.0914 respectively. This implies that the three explanatory variables move in the same

direction with stock returns. Other variables that move in the same direction with stock returns

are ownership concentration, institutional ownership, board size and board financial expertise.

While the table reveals that managerial ownership and board independence exhibit negative

correlation with stock returns with a coefficient of -0.0005 and -0.0361. It means that these

explanatory variables and the outcome variable move in different directions.

4.1.3 Robustness Test

The following healthiness tests are carried out to find out whether data used for analysis are

reliable.

4.1.3.1 Test for Multicollinearity

Non-existence of Multicollinearity is a key assumption of linear regression analysis.

Multicollinearity occurs when the explanatory variables are not independent of each other.

Multicollinearity is examined using tolerance and variance inflation factor (VIF) values. The

result of Multicollinearity test is shown in the table below.

Table 4.3: Tolerance and VIF Values

96
 Variable VIF 1/VIF

FZ 1.89 0.528388

FA 2.03 0.491734

PR 1.31 0.766126

OC 1.40 0.715010

MO 1.77 0.563864

IO 1.76 0.566706

BI 1.73 0.579506

BZ 1.52 0.656455

BE 1.29 0.773772

Mean VIF 1.63

Source: STATA Output, 2021.

Based on the evidence presented in Table 4.3, it can be concluded that there is no

Multicollinearity problem. This is because the VIF values for all the variables are less than 10

and the tolerance values for all the variables are greater than 0.10 (rule of thumb).

4.1.3.2Test for Heteroscedasticity

This test was conducted to check whether the variability of error terms is constant or not. The

presence of heteroskedasticity signifies that the variation of the residuals or term error is not

constant which would affect inferences in respect of beta coefficient, coefficient of determination

(R2) and F-statistic of the study. Heteroscedatiscity was tested using Breusch Pagan’s Test. The

97
results of heteroscedasticity for the study shows that the goodness of fit test which is a statistical

hypothesis test to show how sample data fit a distribution from a population with a normal

distribution shows pearson chi2 value of 0.74 and a corresponding probability of 0.1202. (see

Appendix B). This indicates that the adjustment of the observations problem is well and no errors

exist underlining the general fitness of the model.

4.2.6 Hausman Specification Test

In panel data analysis (the analysis of data over time), the Hausman Test can help to choose

which between fixed effects model or a random effects model is appropriate for interpretation.

The null hypothesis is that the preferred model is random effects; The alternate hypothesis is that

the model is fixed effects. Essentially, the tests look to see if there is a correlation between the

unique errors and the regressors in the model. The null hypothesis is that there is no correlation

between the two. Therefore, because of the homogeneity of data used in this study, which

assumes that fixed effects and random effects models are similar, Hausman test is performed to

determine which of the two models is more efficient. The result for the Hausman Specification

Test for the study revealed that the value of chi2 is 0.69 and an associating probability of 0.9999.

The insignificant value as reported by the probability of chi2 indicates that the Hausman Test is

in favour of random effect model. Furthermore, to meet the condition that one or more equations

have to be satisfied exactly by the chosen values of the variables, the Breusch and Pagan

Lagrangian Multiplier Test for random effect was conducted to choose between the random

effect result and pooled OLS regression which is more appropriate. The result revealed that the

prob>chi2 for all variables indicates 0.0000. From this result, the best model to be interpreted is

the pooled OLS regression model since the prob>chi2 is less than 0.05.

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4.2. Data Analysis and Results

A single regression model was stated in methodology with the aimed at achieving the specific

objectives of the study. The model examined relationship between firm size, age, profitability,

ownership concentration, managerial, institutional ownership, board size, board independence

and board financial expertise and stock returns. The result of the model using pooled OLS

regression as specified by the outcome of the Breusch and Pagan Lagrangian multiplier test for

random effect is presented below as well as the test of hypotheses.

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Table 4.6 Pooled OLS Regression Result

SR Coefficient T p-value

FZ 11.55934 0.97 0.336

FA 2.709042 1.43 0.155

PR 303.9675 3.24 0.001

OC 1.306201 7.98 0.000

MO -12.21482 -0.57 0.572

IO 266.9867 2.22 0.028

BI 7.626885 1.75 0.082

BZ 7.795936 0.71 0.479

BE .1673587 2.01 0.046

Cons -1.745176 -6.96 0.000

R-Square 0.6251

Adjusted R- 0.5953
Square

F-Statistics 52.30

Prob > F 0.0000

Source: STATA OUTPUT, 2021.

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In regression analysis, the result of the R-square value shows the level at which the explanatory

variables explain the dependent variable. Table 4.6 revealed that the R-square is 0.6251. This

means that the selected variables in the study explained stock returns to the tune of 62%. The

value of F - statistic is 52.30 with probability of chi2 = 0.0000. The probability of chi2 is

significant at 5%, indicating that the model is fit. This serves as a substantial evidence to

conclude that the variables selected for the study are suitable and can be used to predict the

behaviour of the dependent variable.

Ho1: Firm attributes have no significant effect on the stock returns of Quoted Consumer

Goods Companies in Nigeria.

The first hypothesis addressed firm size, firm age and profitability. Based on the individual

explanatory variables, Table 4.6 shows that firm size has an insignificant positive effect on the

stock returns of sampled consumer goods firms in Nigeria, from the coefficient of 11.55934 with

t-value of 0.97 and a p-value of 0.336 which is statistically insignificant at 5% level of

confidence. This result suggests that, an increase in firm size will increase the level of stock

returns of firms. However, looking at the p-value such increase is considered insignificant.

Hence, the study accepts the assertion that firm size has no significant effect on the stock returns

of listed consumer goods firms in Nigeria.

The study also, examined whether age as a firm characteristic can determine the level of stock

returns among quoted consumer goods companies in Nigeria. The result obtained from the

pooled OLS regression indicates that age has a positive but insignificant effect on stock returns.

This is evidenced by the value of coefficient and probability of 2.709042 and 0.155 respectively.

This implies that the age of firms has a positive contribution to stock returns. However, since the

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p-value is above the 5% level of significance, the study lacks evidence to conclude that age can

significantly influence the stock returns of firms in the area covered by the study.

From the table 4.6, it can be seen that profitability can significantly, determine the stock returns

of quoted consumer goods companies in Nigeria. This result is evidenced by the value of

coefficient which is 303.9675 and a p-value of 0.001 indicating a strong likelihood that

profitability can be used to predict the level of stock returns in the consumer goods sector. Based

this the study rejects the hypothesis that profitability has no significant effect on stock returns of

quoted consumer goods companies in Nigeria.

Ho2 Ownership Structure has no significant effect on stock returns of quoted consumer

goods companies in Nigeria.

The second hypothesis addressed ownership concentration, managerial ownership and

institutional ownership. The table 4.6 presents evidence to show that ownership concentration

which is one of the ownership structure variables has a positive and significant effect on stock

returns of quoted consumer goods companies in Nigeria. This is evidenced by the coefficient of

1.306201 and the p-value of 0.000 which is significant at 5% level of confidence. Given this

outcome, the study has significant statistical evidence to reject the hypothesis which states that

ownership concentration has no significant effect on stock returns of quoted consumer goods

companies in Nigeria.

Table 4.6 signal that managerial ownership has a t-value of -0.57, a coefficient of -12.21482 and

a p-value of 0.572 which is insignificant at 5%. This means that managerial ownership has an

insignificant negative relationship with stock returns of listed consumer goods firms in Nigeria.

The 5% significance level reveals that managerial ownership does not have any strong statistical

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influence on stock returns of consumer goods firms in Nigeria. Based on this, the study accepts

the null hypothesis which states that, managerial ownership has no significant effect on stock

returns of listed consumer goods firms in Nigeria.

This study also, determined the effect of institutional ownership as one of the ownership

attributes on stock returns of quoted consumer goods companies in Nigeria. The result emanating

from table 4.6 indicates that institutional ownership has a statistically positive and significant

effect on stock returns in the area covered by the study. This claim is substantiated by the value

of the coefficient and the p-value is 266.9867 and 0.028 respectively. This indicates a strong

likelihood that institutional owners can be used to determine the level of stock returns of

investors in the consumer goods sector.

Ho3 Board attributes have no significant effect on stock returns of quoted consumer goods

companies in Nigeria.

The third hypothesis addressed board independence, board size and board financial expertise.

Given the individual explanatory variables the summary of the result in table 4.6 shows that

board independence has a positive and insignificant effect on stock returns. This is based on the

evidence of the coefficient which is 7.626885. This means the independent directors have

positive influence on the level of returns on stock. However, this is said to be insignificant

considering the p-value which is greater than 0.05 as seen from the regression output. Hence, the

study accepts the hypothesis which states board independence has no significant effect on stock

returns of consumer goods companies quoted on Nigerian the stock exchange.

The relationship between board size and stock returns was also, investigated and the result from

table 4.6 clearly show that board size has no positive influence on stock returns in the consumer

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goods sector. The evidence from the result shows a coefficient of 7.795936 and a p-value of

0.479 indicating a statistically, insignificant relationship. Hence, the study aligns with the

hypothesis that board size has no significant effect on stock returns of quoted consumer goods

companies in Nigeria.

The study also, looked at the extent to which board financial expertise can influence the stock

returns of quoted consumer goods companies in Nigeria. The output in table 4.6 shows a positive

and strong statistical relationship exist between board financial expertise and stock returns. This

is evidenced by the value of coefficient and probability of .1673587 and 0.046 respectively. This

shows that the boards with financial experts determine the level of stock returns. Based on this

the study rejects the hypothesis which states that board financial expertise has no significant

effect on stock returns of quoted consumer goods companies in Nigeria.

4.3 Discussion of Findings

4.3.1 Firm Attributes and Stock Returns

The first objective of this research is to ascertain the effect of firm attributes (i.e firm size, firm

age and profitability) on stock returns of quoted consumer goods companies in Nigeria. The

result of the study shows that firm size has positive insignificant statistical influence on stock

returns of listed consumer goods sector suggesting that the size of a firm contributes positively

towards the level of stock returns. Based on the result, such contribution is insignificant in

determining or predicting the level of stock returns of consumer goods companies in Nigeria.

This finding implies that the size of company does not necessarily; influence the level of stock

returns. This assertion can hold true because according to CAPM what states that small

companies will get higher returns. Investments in these companies can be considered to be at the

104
highest level of risks and are deserved to earn higher returns. With the assumption, CAPM can

successfully support the hypothesis that small firms can bring higher profits where high risks

investments should be compensated with higher returns. However, larger firms are associated

with having more diversification capabilities, ability to exploit economies of scale and scope and

also being highly formalized in terms of procedures. This finding is in tandem with those of

Chabachib et al, (2020); Ahmed (2019); Akwe, Garba and Dang (2018); Nguyen and Nguyen

(2016).This finding supports the Arbitrage Pricing Theory (APT) which is a Capital Asset

Pricing Model (CAPM), on the basis that the stock returns are caused by a specific number of

economic variables.

Again, the study found that firm age has a positive but insignificant impact on stock returns

among consumer goods companies in Nigeria. Here firm age is found to have a positive effect

but not significant increase in stock returns. This means that the age of the firm does not

significantly determine the level or extent of stock returns to the shareholders. Although it has a

positive contribution on stock returns. Firm age is an important factor in respect to stock returns.

This is because as firms grow older, they are characterized by lower rate of failure and low costs

to obtain capital (Koh, Durand, Dai & Chang, 2015), and they have experience to negotiate

favorable debt capital to increase returns. Although, the reverse is true for young firms in the

birth stage (Stepanyan, 2012). The fact is as listed firms becomes older and closer to maturity

stage in their firm life cycle, they acquire more business experience to make effective capital

structure decisions and do utilize debt to increase returns. Also, the life-cycle model of the firm

can explain the relationship between firm age and shareholders’ returns. Firms closer to maturity

have substantial experience (Stepanyan, 2012) and make effective capital structure decisions by

105
maximizing the benefits of a debt interest tax shield emphasized in Modigliani and Miller (1963)

theory. This finding is in line with Oduma and Odum (2017); Matemilola et al, (2017).

Also, Profitability of the firm is another dimension of the firm’s characteristics focused in this

study. The study finds that profitability has a positive significant effect on stock returns of

quoted consumer goods companies in Nigeria. This outcome provides statistical evidence that

profitability has a significant influence on stock returns. Consler and Lepak (2016) avers that

more profitable firms are likely to guarantee higher returns. EPS (Earning per share) usually

have significant positive influence on market return as shown in many past researches. This

indicates that the higher the firm’s EPS, the higher market adjusted return and abnormal return

that can be resulted by firm’s stock, because a higher EPS means higher profit obtained from

every naira price earned by the firm. Investors/shareholders consider current earnings, future

earnings, and earnings stability are important, thus they focus their analysis on firm’s

profitability. They concern about financial condition which will affect firm’s ability to pay

dividend. This finding aligns with the stakeholder theory which focused on how various

stakeholders including investors can be satisfied given the performance of the company. This

finding is consistent with that of Chabachib et al., (2020); Handoko (2016); Sani (2016).

4.3.2 Ownership Structure and Stock Returns

The effect of ownership structure as a monitoring mechanism is also, investigated with the aim

of ascertaining the individual effects of ownership concentration, managerial ownership and

institutional ownership on stock returns. Hence, the second objective of the study is to ascertain

the effect of ownership structure on stock returns of quoted consumer goods firms in Nigeria.

Based on the individual explanatory variables, the study reveals that there is a strong likelihood

106
that ownership concentration is a determinant of stock returns. This is evidenced by the outcome

which shows that ownership concentration has positive and statistically, significant effect stock

returns. This means that a unit increase in concentrated ownership will lead to an increase in the

stock returns in the area covered by the study. Basically, large block holders have greater

incentive to monitor management as the costs involved in monitoring is less than the benefits to

large equity holdings in the firm. This will go a long way in creating additional wealth that can

be made available for distribution as dividends. However, Demsetz and Lehn (1985) realize with

empirical evidence that ownership concentration is normally associated with high stock price

volatility. This is because the closed corporate governance system associated with high

ownership concentration means that the outside investors have little information and there is a

high probability of insider trading. Importantly, in a diverse situation where the shareholders

hold lower stock in a firm the incentive to monitor management is low because the costs

involved in monitoring outweigh the benefits to be derived. This finding is in line with the

agency theory which seeks to resolve the problem of information asymmetry between

management and shareholders and are in tandem with the previous findings of Amal and Ahmed

(2017); Shindu, Hashmi, Haq and Ntim (2016) and Faten, Adel and Mohammad (2015).

This study also, investigates the effect of managerial ownership on stock returns of quoted

consumer goods companies in Nigeria. The result of the study provides evidence that managerial

ownership has no statistical influence on stock returns in the area covered by the study. This

imply that managerial shareholding is not a determinant of stock returns. Hence, a unit change in

managerial shareholding does not affect the returns of shareholders. This finding contravenes the

general notion that ordinarily, managerial ownership should affect firm performance positively

as it is expected that directors will make good decisions because they partly own the firm hence

107
their interest in the decisions made. The stock price should thus increase with more shares being

held by directors. Literatures suggest that the interest of both shareholders and management

starts to converge as the management holds a portion of the firm’s equity ownership. This

implies that the need for intense monitoring by the board should decrease (Jensen &Meckling,

1976). The motive behind the rise of this corporate governance variable is rooted in the agency

theory, which assumes that manager’s equity holdings inspires them to act in a way that

maximizes the value of the firm. This finding is in line with that of Boubaker (2018) and

contradicts those of Afriyani (2018) and Otieno (2016) and Oyerogba, Olaleye and Zaccheaus

(2014).

This study also, examines the extent to which institutional ownership as a monitoring mechanism

affect the stock returns of consumer goods companies quoted on the Nigerian stock exchange.

The finding reveals that institutional owners significantly, influence the behaviour of stock

returns of companies in the area covered by the study. This result implies that institutional

ownership is a determinant of stock returns. This result may hold true because several literatures

align with the assertion that institutional ownership has an effect on stock returns, because the

higher institutional ownership, the stronger the external control of the company, so that it can

encourage managers to increase dividend payments. It is important in monitoring management

because with institutional ownership it will encourage more optimal supervision. Although,

several arguments indicate that institutional investors may not limit managers’ earnings

management discretion and may increase managerial incentives to engage in earnings

management. This is based on the argument that institutional owners are overly focused on short-

term financial results, and as such, they are unable to monitor management. This finding

supports the agency theory which is a theory that seek to reconcile the conflict of interest

108
between management and owners. Amal and Ahmed (2017) finding contradict the position of

this study while Moghaddam (2014); Boubaker (2018); Afriyani (2018) findings are in

agreement with the that of the current study.

4.3.3 Board Attributes and Stock Returns.

The concept of the board is derived from the attributes that play a significant role in monitoring

managers and can be described as a bridge between company management and shareholders. To

understand the role of the board, it should be recognized that boards consists of a team of

individuals, who combine their competencies and capabilities that collectively represent the pool

of social capital for their firm that is contributed towards executing the governance function.

Given the level of importance of boards to company management and control, the third objective

of this study examines the effect of board attributes on stock returns of quoted consumer goods

companies in Nigeria. Under this section board independence, board size and board financial

expertise were used as predictor variables.

The individual explanatory variables board independence was found to have a positive and

insignificant influence on the stock returns of consumer goods companies in Nigeria. This result

implies, that the more independent directors on the board the more the possibility that dividends

will be paid to shareholders. Hence, the study finds evidence to suggest that board independence

is a predictor of stock returns in the area covered by the study. It should be worthy of note

however, that no consistent empirical evidence has been found to suggest increasing percentages

of outsiders on boards will enhance stock performance, but pushing too far to remove insider and

affiliated directors may harm firm stock performance by depriving boards of the valuable firm

and industry specific knowledge they provide. To resolve this tension, however, agency theory is

109
in favour of a majority of independent non-executive directors. Also, studies such as Sumail

(2018); Aloui and Jarboui (2017); Rostami, Rostami and Kohansa (2016); Azeez (2015);

Meanwhile, findings of Elmagrhi, Ntim, Crossley, Malagila, Fosu, and Vu (2017); Faramarzi and

Amini (2016) are in disagreement with the current finding.

Again, this study explores that influence of board size as a corporate governance mechanism on

stock returns of quoted consumer goods companies in Nigeria. The finding of the study reveals

that board size has a negative and statistically insignificant influence on stock returns in the

sector covered by the study. This implies that board size is not a determinant of stock returns. It

also, means that a percentage increase in the number of board members will not affect the level

of stock returns. There have been diverging opinions by various researchers on the number of

persons that should make up an ideal board. Some school of thoughts are of the opinion that a

small board is more effective because it enhances fast decision making and cannot be

manipulated by management. Dozie (2003) also argued that a smaller board may be less

encumbered with bureaucratic problems, more functional and is able to provide better financial

reporting oversight.

Conversely, from an agency theory perspective, larger boards allow for effective monitoring by

reducing the domination of the CEO within the board and protect shareholder’s interests. Also,

agency theory states that the board size, which is one of the variables that predicts if corporate

governance can prevent the tendency of managers to behave in an opportunistic manner, by

distributing free cash flow to shareholders as cash dividends. The finding in this study is

supported previous study of Sani, Sani and Musa (2017). Although, majority of the studies in

literature present evidence that board size significantly, influence stock returns.

110
 Furthermore, this examines whether board financial expertise is likely to influence the stock

returns of quoted consumer goods companies in Nigeria. The result of the study using regression

analysis technique reveal that board financial expertise has a positive and significant effect on

stock returns of quoted consumer goods in Nigeria. This study considers board financial

expertise as a good predictor of stock returns variation. This basically, entails having a member

on the board that is financially, literate. Kirkpatrick (2009) and Walker (2009) argue that the lack

of financial expertise on corporate boards played a major role during the financial crisis.

Therefore, the presence of more financial expertise on a board ultimately influences the board’s

decisions, including dividend policy. Having financial expertise on the board will keep them

from being accused of failure in their watchdog role and will better serve the shareholders’

interests. The expertise criteria are specified in Nigeria by the 2011 and 2018 SEC Codes, 2006

Post consolidation CBN code amongst other codes. The confidence of shareholders has been

shaken by various accounting scandals and financial crises since the beginning of the 21 st

Century, such as Enron, HealthSouth, Tyco, WorldCom and the financial crisis of 2007-2008,

which has stressed the regulators and market makers to the need for board members to have

financial expertise. This finding is in line with the findings of Adamu, Ishak and Hassan (2019);

Sarwar, Xiao, Husnain and Naheed (2018).

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 CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary

Stock returns from investments in equity are subject to vary because changes in stock prices

which are a product of several factors and the impacts could either be positive or negative. Also,

emerging markets such as Nigeria have different structures and institutional characteristics from

developed stock markets, and in view of the fact that investors in these markets are interested in

getting more insights into the activities of companies, it is imperative to find out whether stock

returns in Nigeria respond differently to effects of firm level attributes factors or not. Thus, the

need to begin to look up for indicators that guarantees rise in stock returns. Hence, this current

study examined the determinants of stock returns of quoted consumer goods companies in

Nigeria. Specifically, this study examined the effects of firm attributes, ownership structure and

board attributes on stock returns of consumer goods companies quoted on the Nigerian Stock

Exchange from 2010-2019.

Relevant theoretical and empirical literatures were reviewed. The review shows that studies on

stock returns are motivated by the fact that listed firms use returns to communicate their level of

performance to the shareholders and the public at large. It also reveals that previous studies in

this area of research were marred by inconsistent and inconclusive findings. The differences in

findings could be attributed to methodological approaches regarding measurement of the

dependent and independent variables, disparity in research domains and differences in economic

112
systems where these studies were conducted. The literature review also reveals dearth of studies

on the subject in the Nigerian context.

In line with the Arbitrage Pricing and Agency Theories that underpin the study, a multiple

regression model was used with the aim of explaining and predicting empirically the changes in

Stock Returns (return variance) as a result of changes in firm attributes, ownership attributes and

board attributes. The model used for the study examined the association between firm size, firm

age, profitability, ownership concentration, managerial, institutional ownership, board

independence, board size and board financial expertise and one dependent variable: stock

returns.

Balanced panel data were extracted from the financial statements of 16 quoted consumer goods

firms in Nigeria for the period 2010-2019. The pooled OLS result reveals that profitability,

ownership concentration, institutional ownership and board financial expertise have significant

effect on stock returns, while firm size, firm age, managerial ownership, board independence and

board size and have no significant effect on stock returns of quoted consumer goods firms in

Nigeria.

5.2 Conclusions

Stock return and its effect on the activities of firms has become a topical issue in the literature of

Accounting and Finance. Attempt has been made in this study to examine the effect of three

corporate properties on stock returns of quoted consumer goods firms in Nigeria. The study

formulates three hypotheses that firm attributes, ownership structure and board attributes have no

significant effect on stock returns of quoted consumer goods firms in Nigeria. Based on the result

obtained, the study concludes that in so far, the aggregated corporate properties are concerned,

113
their combined influence on stock returns of quoted consumer goods firms in Nigeria is

significant. The effect however gets diluted as the variables are considered on individual basis.

Specifically, the study finds that firm size, firm age, managerial ownership, board independence

and board size do not have any significant influence on stock returns. Based on that the study has

statistical evidence to conclude that these variables are determinants of stock returns of quoted

consumer goods companies in Nigeria.

However, the study finds that profitability, ownership concentration, institutional ownership and

board financial expertise have significant influence on stock returns among consumer goods

companies quoted on the Nigerian stock exchange. Given this result, the study has statistical

evidence to conclude that these attributes are determinants of stock returns in the area covered by

the study.

5.3 Recommendations

The study offers the following recommendations based on variety of people/organizations that

are involved directly or indirectly with firm level attributes and other corporate properties and

stock returns processes in Nigeria:

1. Firstly, the study provided statistical and empirical evidence to support that profitability

have significant influence on stock returns among quoted consumer goods firms in

Nigeria. It therefore, recommended that the Security and Exchange Commission (SEC)

should continually subject the reported profits of consumer sector to stress quality tests to

insulate the investors and potential investing public from possible rip off.

114
 2. The study recommends that consumer goods companies should encourage higher

institutional shareholding. This is based on the fact that; institutional ownership has an

effect on stock returns, because the higher institutional ownership, the stronger the

external control of the company, so that it can encourage managers to increase dividend

payments.

3. It is further recommended that the Board of Directors of consumer goods firms should

increase their monitoring capacity towards discretionary behavior of management

activities by increasing the number of experts in accounting and finance on the Board to

at least three in order to improve earnings quality. It is also, recommended that more

independent director should be encouraged on the board. This is in an attempt to improve

monitoring activities that will curb the individual behavior of management.

4. The SEC should provide incentive, in form of commendation, to firms that disclose

accounting information necessary for assessment of the quality of their profitability and

earnings as well impose penalty through rebuttal on firms that do not make full

disclosure. This is based on the fact fraudulent reporting misinforms market triggering

stock prices based on fraudulent representations.

5.4 Limitations of the Study

i. Firstly, the study is limited to quoted consumer goods firms in Nigeria. The findings and

recommendations therefore are only applicable to consumer goods firms as behaviour of

stock returns may vary across different sectors. Also, the exclusion of firms, whether due

to the nature of the industry, the size of the industry or the rank of the firm, reduces the

generalizability of the results to all publicly traded consumer goods firms.

115
 ii. Secondly, the study limits itself to firm attributes, ownership attributes and board

attributes. Other studies may consider other properties not used in this study.

5.5 Suggestion for Further Studies

i. The study focused mainly on listed consumer goods sector so it is suggested that future

endeavors can expand the scope by studying the entire non-financial sector.

ii. Also, since the study considered determinants that are within the control of the firm, other

studies may take a different dimension by looking at the effect of factors such as

inflation, interest rates, exchange rate etc that are outside the control of the firm.

116
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130
 APPENDIX ’’ A’’

firms sr fz fa prof oc mo io bi bz bexp

1
Cadbury Nigeria plc 7.75 8.01848 31 0.136008 0.648 0.051 0.176 0.1 0 0
1
Cadbury Nigeria plc 12.3 8.81129 32 0.177884 0.741 0.041 0.196 0.1 0 0
Cadbury Nigeria plc 21.56 7.86151 33 0.552872 0.635 0.051 0.229 0.111111 9 0
Cadbury Nigeria plc 45.5 7.97744 34 0.239839 0.648 0.061 0.229 0.111111 9 0
1
Cadbury Nigeria plc 40 9.18063 35 0.153817 0.561 0.043 0.194 0.090909 1 0
1
Cadbury Nigeria plc 23 9.23149 36 0.201524 0.758 0.071 0.135 0.090909 1 0.090909
1
Cadbury Nigeria plc 10.3 9.29709 37 0.244304 0.748 0.044 0.231 0.090909 1 0.090909
1
Cadbury Nigeria plc 11 9.38237 38 0.687222 0.714 0.079 0.213 0.090909 1 0.090909
1
Cadbury Nigeria plc 9.95 9.49065 39 0.713271 0.641 0.067 0.203 0.090909 1 0.090909
1
Cadbury Nigeria plc 9.9 9.54403 40 0.673507 0.795 0.095 0.235 0.090909 1 0.090909
1
Champion Breweries plc 11.6 6.0665 27 0.210349 0.347 0.014 0.105 0 2 0
1
Champion Breweries plc 9.4 6.22205 28 0.163689 0.447 0.019 0.105 0 2 0
1
Champion Breweries plc 6.5 6.2928 29 0.192657 0.312 0.014 0.115 0 2 0
- 1
Champion Breweries plc 8 6.39156 30 0.223967 0.471 0.014 0.092 0.090909 1 0
1
Champion Breweries plc 6.98 5.43293 31 0.518628 0.477 0.014 0.092 0.090909 1 0
1
Champion Breweries plc 4.6 5.49389 32 0.854956 0.241 0.026 0.107 0.090909 1 0
1
Champion Breweries plc 2.5 7.58696 33 0.513106 0.332 0.026 0.141 0.083333 2 0.083333
1
Champion Breweries plc 1.59 8.59829 34 0.832425 0.512 0.036 0.104 0.090909 1 0.090909
1
Champion Breweries plc 1.5 5.42521 35 0.400139 0.4413 0.044 0.104 0.090909 1 0.090909
1
Champion Breweries plc 1.38 5.43075 36 0.301053 0.4413 0.072 0.121 0.083333 2 0.083333
1
Dangote Sugar Refinery plc 12.5 9.66765 4 0.454898 0.671 0.385 0.177 0.071429 4 0
1
Dangote Sugar Refinery plc 7.5 9.66283 5 0.538138 0.651 0.385 0.177 0.071429 4 0
1
Dangote Sugar Refinery plc 7.43 8.72434 6 0.543235 0.651 0.353 0.145 0.076923 3 0
1
Dangote Sugar Refinery plc 6.9 8.745 7 0.651869 0.791 0.381 0.235 0.071429 4 0
1
Dangote Sugar Refinery plc 6.35 9.70712 8 0.62767 0.753 0.308 0.231 0.071429 4 0
1
Dangote Sugar Refinery plc 6.75 11.1189 9 0.410192 0.653 0.214 0.223 0.153846 3 0.153846

131
 1
Dangote Sugar Refinery plc 6.65 11.1192 10 0.501383 0.753 0.214 0.235 0.153846 3 0.153846
1
Dangote Sugar Refinery plc 13.71 12.1119 11 0.891987 0.653 0.294 0.223 0.166667 2 0.166667
1
Dangote Sugar Refinery plc 13.95 10.1185 12 0.58404 0.693 0.302 0.251 0.153846 3 0.076923
1
Dangote Sugar Refinery plc 8.5 10.1194 13 0.454246 0.659 0.302 0.288 0.083333 2 0.083333
1
Flour mills of Nigeria plc 19.5 8.96464 31 0.233825 0.615 0.148 0.177 0 1 0
1
Flour mills of Nigeria plc 21.5 9.00856 32 0.452102 0.615 0.148 0.177 0 2 0
1
Flour mills of Nigeria plc 31.5 8.32929 33 0.559647 0.591 0.206 0.161 0.083333 2 0
1
Flour mills of Nigeria plc 33.5 9.18285 34 0.500915 0.583 0.243 0.281 0.083333 2 0
1
Flour mills of Nigeria plc 39.2 8.51131 35 0.473907 0.583 0.213 0.181 0.083333 2 0.083333
1
Flour mills of Nigeria plc 21.45 9.27975 36 0.212577 0.434 0.213 0.188 0.090909 1 0.090909
1
Flour mills of Nigeria plc 22.55 9.30725 37 0.220723 0.412 0.243 0.162 0.083333 2 0.083333
1
Flour mills of Nigeria plc 29 9.36317 38 0.450517 0.414 0.243 0.216 0.090909 1 0.090909
1
Flour mills of Nigeria plc 21 9.37835 39 0.48948 0.414 0.243 0.292 0.090909 1 0.090909
1
Flour mills of Nigeria plc 13.5 7.493 40 0.466294 0.514 0.285 0.229 0.090909 1 0
1
Guinness Nigeria plc 13.8 9.0856 45 0.679495 0.714 0.089 0.225 0.090909 2 0.083333
1
Guinness Nigeria plc 23.6 7.57126 46 0.598187 0.714 0.088 0.257 0.083333 2 0.083333
1
Guinness Nigeria plc 88.5 9.789 47 0.706225 0.684 0.099 0.275 0.083333 2 0.083333
1
Guinness Nigeria plc 143.6 13.7025 48 0.841919 0.684 0.109 0.187 0.083333 3 0.076923
1
Guinness Nigeria plc 168.15 13.7636 49 0.650015 0.784 0.079 0.145 0.076923 4 0.071429
1
Guinness Nigeria plc 152.19 11.7539 50 0.744588 0.684 0.109 0.138 0.071429 4 0.142857
1
Guinness Nigeria plc 104.97 14.4679 51 0.130626 0.641 0.142 0.184 0.142857 3 0.153846
1
Guinness Nigeria plc 98.5 14.8783 52 0.620466 0.668 0.111 0.204 0.153846 4 0.214286
1
Guinness Nigeria plc 73 12.966 53 0.52105 0.668 0.129 0.184 0.142857 4 0.214286
1
Guinness Nigeria plc 37.3 13.0072 54 0.817014 0.686 0.131 0.17 0.142857 4 0.214286
1
Honeywell flour mills plc 18.8 8.37384 31 0.153927 0.587 0.052 0.125 0 5 0.066667
1
Honeywell flour mills plc 0.96 8.31311 32 0.216097 0.587 0.025 0.158 0 4 0.071429
1
Honeywell flour mills plc 1.21 8.41427 33 0.063256 0.613 0.065 0.125 0 1 0.090909
1
Honeywell flour mills plc 2.89 8.7028 34 0.512411 0.671 0.075 0.135 0.083333 2 0.083333
1
Honeywell flour mills plc 3.46 8.7636 35 0.116911 0.613 0.075 0.155 0.076923 3 0.153846

132
 1
Honeywell flour mills plc 2.65 8.84991 36 0.010921 0.637 0.085 0.155 0.071429 4 0.142857
1
Honeywell flour mills plc 1.61 8.91621 37 0.189279 0.672 0.052 0.114 0.142857 4 0.142857
1
Honeywell flour mills plc 2.11 8.90279 38 0.404737 0.637 0.041 0.181 0.133333 5 0.133333
1
Honeywell flour mills plc 1.09 8.98192 39 0.186055 0.637 0.062 0.182 0.133333 5 0.133333
1
Honeywell flour mills plc 1.12 7.95515 40 0.403753 0.061 0.065 0.153 0.133333 5 0.133333
1
International breweries plc 3.65 5.89592 15 0.356456 0.081 15 0.701 0 5 0
1
International breweries plc 6.7 2.83181 16 0.01592 0.531 0.071 0.179903 0 5 0
1
International breweries plc 11.8 5.92698 17 0.408713 0.532 0.102 0.179903 0.066667 5 0
1
International breweries plc 18.5 5.92724 18 0.014018 0.432 0.132 0.179903 0.066667 4 0.071429
1
International breweries plc 23.37 6.95257 19 0.164691 0.432 0.103 0.179903 0.071429 4 0.071429
1
International breweries plc 17 5.13251 20 0.186651 0.442 0.093 0.179903 0.071429 4 0.071429
1
International breweries plc 19.95 7.09926 21 0.2421 0.528 0.086 0.136747 0.071429 4 0.071429
1
International breweries plc 35.57 7.37027 22 0.1 0.521 0.086 0.136747 0.071429 4 0.071429
1
International breweries plc 36.4 7.75426 23 0.002797 0.581 0.079 0.112031 0.071429 4 0.071429
1
International breweries plc 38.8 7.55228 24 0.1 0.589 0.092 0.112031 0.071429 1 0.090909
1
Vitafoam Nigeria plc 5.71 7.53867 3 0.470961 0.591 0.121 0.112031 0.090909 1 0.181818
1
Vitafoam Nigeria plc 4.32 7.27008 4 0.302755 0.511 0.103 0.112031 0.090909 1 0.181818
1
Vitafoam Nigeria plc 4.4 6.15613 5 0.661736 0.511 0.154 0.112031 0.090909 1 0.181818
1
Vitafoam Nigeria plc 5.6 6.21892 6 0.599519 0.513 0.134 0.112031 0.090909 1 0.181818
1
Vitafoam Nigeria plc 4.03 6.35113 7 0.515894 0.561 0.105 0.112011 0.090909 1 0.090909
1
Vitafoam Nigeria plc 5.75 6.33604 8 0.7271 0.561 0.105 0.127533 0.090909 1 0.090909
1
Vitafoam Nigeria plc 4.1 6.44131 9 0.355501 0.601 0.112 0.127533 0.090909 2 0.083333
1
Vitafoam Nigeria plc 2.7 6.45827 10 0.669455 0.601 0.124 0.127533 0.090909 2 0.083333
1
Vitafoam Nigeria plc 3.44 6.39593 11 0.138674 0.621 0.105 0.127533 0.090909 2 0.083333
1
Vitafoam Nigeria plc 4.29 9.55241 12 0.449424 0.661 0.168 0.127533 0.090909 2 0.083333
1
Unilever Nigeria plc 15 8.47923 37 0.091242 0.451 0.069 0.283 0.1 0 0
1
Unilever Nigeria plc 17.4 8.48523 38 0.040677 0.451 0.069 0.283 0.1 0 0
1
Unilever Nigeria plc 12.34 8.48462 39 0.308923 0.501 0.053 0.383 0.090909 1 0
1
Unilever Nigeria plc 33.2 8.57271 40 0.598627 0.511 0.059 0.383 0.090909 1 0

133
 1
Unilever Nigeria plc 35.8 8.59739 41 0.559482 0.541 0.039 0.353 0.076923 3 0.076923
1
Unilever Nigeria plc 43.5 8.60598 42 0.258707 0.456 0.039 0.291 0.076923 3 0.076923
1
Unilever Nigeria plc 33.23 8.61627 43 0.080577 0.457 0.049 0.291 0.083333 2 0.083333
1
Unilever Nigeria plc 40 8.64672 44 0.24728 0.457 0.042 0.209 0.083333 2 0.083333
1
Unilever Nigeria plc 38.9 8.69257 45 0.305802 0.487 0.039 0.155 0.083333 2 0.083333
1
Unilever Nigeria plc 29.3 9.69859 46 0.10462 0.489 0.039 0.155 0.083333 2 0.083333
1
PZ cusson Nigeria plc 25.65 8.04363 38 0.060346 0.687 0.088 0.251 0 3 0.076923
1
PZ cusson Nigeria plc 22.7 8.09616 39 0.085927 0.688 0.099 0.281 0 4 0.071429
1
PZ cusson Nigeria plc 21.6 8.30781 40 0.191218 0.701 0.105 0.161 0 3 0.076923
1
PZ cusson Nigeria plc 25.3 8.3447 41 0.20515 0.704 0.109 0.184 0.066667 5 0.066667
1
PZ cusson Nigeria plc 23.8 8.39041 42 0.482522 0.698 0.109 0.142 0.066667 5 0.133333
1
PZ cusson Nigeria plc 27.3 8.51966 43 0.460326 0.687 0.072 0.141 0.071429 4 0.142857
1
PZ cusson Nigeria plc 23 8.5827 44 0.586595 0.721 0.071 0.103 0.071429 4 0.214286
1
PZ cusson Nigeria plc 25.96 8.59851 45 0.463635 0.689 0.071 0.131 0.076923 3 0.230769
1
PZ cusson Nigeria plc 11.5 11.6274 46 0.50672 0.689 0.081 0.202 0.142857 4 0.214286
1
PZ cusson Nigeria plc 5.9 11.6274 47 0.276885 0.681 0.061 0.135 0.153846 3 0.230769
Northern Nigeria flour mill 1
plc 10.05 9.22539 32 0.116737 0.591 0.141 0.154 0 4 0.071429
Northern Nigeria flour mill 1
plc 9.67 6.19678 33 0.186285 0.601 0.14 0.105 0 4 0.071429
Northern Nigeria flour mill 1
plc 12.6 6.25272 34 0.010901 0.01 0.014 0.105 0 3 0.076923
Northern Nigeria flour mill 1
plc 15.4 7.3721 35 0.039314 0.014009 0.014 0.115 0 2 0.083333
Northern Nigeria flour mill 1
plc 16.5 6.38684 36 0.028976 0.014009 0.014009 0.159 0 4 0.142857
Northern Nigeria flour mill 1
plc 17.5 6.4592 37 0.029048 0.026789 0.026789 0.162 0 4 0.142857
Northern Nigeria flour mill 1
plc 18.49 6.53451 38 0.028174 0.026789 0.026789 0.141 0 4 0.142857
Northern Nigeria flour mill 1
plc 19.4 6.57407 39 0.027846 0.026789 0.026789 0.142 0.071429 4 0.142857
Northern Nigeria flour mill 1
plc 20.2 6.63182 40 0.245859 0.026789 0.026789 0.141 0.071429 4 0.142857
Northern Nigeria flour mill 1
plc 18.8 8.69334 41 0.020423 0.026789 0.026789 0.102 0.071429 4 0.142857
1
Nigeria enamelware plc 18.9 5.27804 31 0.303844 0.714 0.056 0.352 0 0 0.2
1
Nigeria enamelware plc 21.7 7.20674 32 0.128999 0.714 0.027 0.358 0 0 0.2
1
Nigeria enamelware plc 20.2 7.16725 33 0.367257 0.682 0.027 0.319 0 1 0.181818

134
 1
Nigeria enamelware plc 15.6 4.57817 34 0.071411 0.681 0.025 0.332 0 1 0.181818
1
Nigeria enamelware plc 31.82 5.03391 35 0.116224 0.656 0.025 0.298 0.076923 3 0.230769
1
Nigeria enamelware plc 26.1 5.07446 36 0.359117 0.711 0.041 0.301 0.153846 3 0.230769
1
Nigeria enamelware plc 27.6 5.61424 37 0.098734 0.689 0.043 0.311 0.153846 3 0.076923
1
Nigeria enamelware plc 32.1 5.06415 38 0.062698 0.713 0.031 0.356 0.153846 3 0.076923
1
Nigeria enamelware plc 28.5 5.1449 39 0.076746 0.761 0.031 0.392 0.076923 3 0.076923
1
Nigeria enamelware plc 22.1 5.09051 40 0.012971 0.671 0.031 0.312 0.071429 4 0.071429
1
Nestle Nigeria plc 1432 8.72782 42 0.02346 0.854 0.023 0.321 0.07 4 0.071
- 1
Nestle Nigeria plc 1175 8.69373 43 0.009885 0.702 0.02 0.215 0 3 0.076923
1
Nestle Nigeria plc 768 8.7391 35 0.011894 0.702 0.02 0.221 0 3 0.076923
- 1
Nestle Nigeria plc 989 8.90104 36 0.028721 0.698 0.05 0.212 0 3 0.076923
1
Nestle Nigeria plc 1003 8.07118 37 0.195852 0.682 0.02 0.258 0.076923 3 0.230769
1
Nestle Nigeria plc 1011.75 8.13192 38 0.162792 0.682 0.01 0.287 0.076923 3 0.230769
1
Nestle Nigeria plc 820 8.24306 39 0.021906 0.689 0.01 0.281 0.153846 3 0.230769
1
Nestle Nigeria plc 850.42 8.19178 40 0.14183 0.686 0.01 0.281 0.153846 3 0.230769
1
Nestle Nigeria plc 1210 7.22076 41 0.118498 0.653 0.02 0.253 0.153846 3 0.153846
1
Nestle Nigeria plc 1485 8.75543 42 0.041101 0.673 0.02 0.258 0.153846 3 0.153846
Nascon Allied Industry plc 5.65 4.58744 18 0.498805 0.597 0.08 0.181 0.166667 6 0
Nascon Allied Industry plc 8.9 4.58997 19 0.139512 0.558 0.08 0.151 0.166667 6 0
Nascon Allied Industry plc 6.32 4.65865 20 0.651978 0.586 0.07 0.191 0.142857 7 0
Nascon Allied Industry plc 12.21 5.89805 21 0.405743 0.558 0.07 0.201 0.142857 7 0
Nascon Allied Industry plc 6.22 4.91086 22 0.136383 0.538 0.05 0.216 0.285714 7 0
1
Nascon Allied Industry plc 6.1 5.9477 23 0.309426 0.703 0.02 0.274 0.2 0 0
1
Nascon Allied Industry plc 7.96 7.34457 24 0.149922 0.702 0.02 0.205 0.2 0 0.2
1
Nascon Allied Industry plc 13.3 7.4677 25 0.196099 0.795 0.03 0.215 0.2 0 0.2
1
Nascon Allied Industry plc 17.9 6.90786 26 0.115374 0.795 0.03 0.201 0.2 0 0.2
1
Nascon Allied Industry plc 13 6.46787 27 0.113917 0.796 0.04 0.206 0.2 0 0.2
Multi-Trex integrated food 1
plc 0.43 4.27662 1 0.11375 0.795 0.001 0.124 0 3 0.076923
Multi-Trex integrated food 1
plc 1.18 4.41206 2 0.207191 0.795 0.001 0.124 0 3 0.076923
Multi-Trex integrated food 1
plc 0.34 4.47992 3 0.40833 0.795 0.002 0.136 0.076923 3 0.076923
Multi-Trex integrated food 1
plc 0.17 4.52132 4 0.025351 0.791 0.003 0.136 0.076923 3 0.076923
Multi-Trex integrated food 0.5 4.48961 5 0.148631 0.861 0.001 0.172 0.071429 1 0.071429

135
plc 4
Multi-Trex integrated food 1
plc 1.76 4.53476 6 0.129769 0.861 0.002 0.176 0.071429 4 0.071429
Multi-Trex integrated food 1
plc 0.5 4.46307 7 0.269556 0.709 0.003 0.141 0.0625 6 0
Multi-Trex integrated food 1
plc 0.65 3.89697 8 0.191609 0.809 0.002 0.132 0.0625 6 0
Multi-Trex integrated food 1
plc 1.65 3.94285 9 0.167859 0.811 0.003 0.141 0.0625 6 0
Multi-Trex integrated food 1
plc 0.76 4.03647 10 0.130353 0.851 0.002 0.141 0.0625 6 0
McNichols plc 0.6 5.00849 2 0.222088 0.795 0.02 0.16 0.142857 7 0
McNichols plc 0.87 6.01512 3 0.6639 0.795 0.01 0.101 0.142857 7 0
McNichols plc 1.12 5.12892 4 0.080666 0.714 0.02 0.111 0.142857 7 0
McNichols plc 0.96 5.4566 5 0.140936 0.745 0.02 0.121 0.125 8 0
McNichols plc 0.5 5.35453 6 0.396596 0.741 0.04 0.121 0.125 8 0
McNichols plc 1.22 5.32494 7 0.333706 0.773 0.04 0.176 0.25 8 0.25
McNichols plc 1.29 6.67887 8 0.275692 0.707 0.02 0.221 0.25 8 0.25
McNichols plc 1.26 6.47531 9 0.180561 0.702 0.04 0.213 0.25 8 0.25
McNichols plc 0.47 6.49118 10 0.247171 0.704 0.02 0.133 0.25 8 0.25
McNichols plc 0.49 6.4682 11 0.041756 0.771 0.016 0.134 0.25 8 0.25

136
APPENDIX ’’ B’’

. *(14 variables, 160 observations pasted into data editor)

. summarize srfz fa prof ocmo bi bzbexp

Variable | Obs Mean Std. Dev. Min Max

-------------+---------------------------------------------------------
sr | 160 84.73062 264.197 .17 1485
fz | 160 7.665492 2.200851 2.83181 14.87833
fa | 160 28.3 14.39025 1 54
prof | 160 .3020525 .2332101 -.2239673 .891987
oc | 160 .5958285 .1879736 .01 .861
-------------+---------------------------------------------------------
mo | 160 .1754935 1.182254 .001 15
bi | 160 .0894777 .0604369 0 .2857143
bz | 160 12.10625 2.150316 6 16
bexp | 160 .0924681 .0756546 0 .25

. sktestsrfz fa prof ocmoio bi bzbexp

Skewness/Kurtosis tests for Normality

------ joint ------
Variable | ObsPr(Skewness) Pr(Kurtosis) adj chi2(2) Prob>chi2
-------------+---------------------------------------------------------------
sr | 160 0.0000 0.0000 . 0.0000
fz | 160 0.0024 0.0693 10.85 0.0044
137
 fa | 160 0.0172 0.0000 31.93 0.0000
prof | 160 0.0073 0.0267 10.52 0.0052
oc | 160 0.0000 0.0001 42.18 0.0000
mo | 160 0.0000 0.0000 . 0.0000
io | 160 0.0000 0.0000 66.42 0.0000
bi | 160 0.0033 0.0793 10.25 0.0060
bz | 160 0.0002 0.2782 13.04 0.0015
bexp | 160 0.0211 0.0036 11.80 0.0027

. correlate fz fa prof ocmoio bi bzbexp

(obs=160)

| fz fa prof ocmoio bi bzbexp

-------------+---------------------------------------------------------------------------------
fz | 1.0000
fa | 0.5138 1.0000
prof | 0.3674 -0.0230 1.0000
oc | 0.0662 -0.2215 0.1245 1.0000
mo| -0.0325 -0.0844 0.0501 -0.2145 1.0000
io | 0.0694 0.2370 -0.0324 0.0831 0.5003 1.0000
bi | 0.0657 -0.1491 0.1625 0.2863 -0.1179 0.0233 1.0000
bz | 0.2061 0.2382 -0.0890 -0.1157 0.1146 0.0194 -0.4836 1.0000
bexp | 0.2283 0.2098 -0.0323 0.0884 -0.1081 0.0386 0.3121 0.0728 1.0000

. regress srfz fa prof ocmoio bi bzbexp

Source | SS df MS Number of obs = 160

-------------+---------------------------------- F(9, 150) = 52.30
Model | 2358815.63 9 262090.626 Prob > F = 0.0000

138
 Residual | 8739394.95 150 58262.633 R-squared = 0.6251
-------------+---------------------------------- Adj R-squared = 0.5953
Total | 11098210.6 159 69800.0666 Root MSE = 241.38

------------------------------------------------------------------------------
sr | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
fz | 11.55934 11.96547 0.97 0.336 -12.08329 35.20196
fa | 2.709042 1.896981 1.43 0.155 -1.039214 6.457298
prof | 303.9675 93.77757 3.24 0.001 -489.2631 -118.6719
oc | 1.306201 .1637748 7.98 0.000 .9810667 1.631335
mo| -12.21482 21.56248 -0.57 0.572 -54.82024 30.39059
io | 266.9867 120.4324 2.22 0.028 29.02357 504.9497
bi | 7.626885 4.364485 1.75 0.082 -.9710693 16.22484
bz | 7.795936 10.98732 0.71 0.479 -13.91396 29.50583
bexp | .1673587 .0833539 2.01 0.046 .0032496 .3314677
_cons | -1.745176 .2507962 -6.96 0.000 -2.238949 -1.251404
------------------------------------------------------------------------------

. estathettest

Breusch-Pagan / Cook-Weisberg test for heteroskedasticity

Ho: Constant variance
Variables: fitted values of sr

chi2(1) = 0.74
Prob > chi2 = 0.1202
.

139
. estatvif

Variable | VIF 1/VIF

-------------+----------------------
fa | 2.03 0.491734
fz | 1.89 0.528388
mo | 1.77 0.563864
io | 1.76 0.566706
bi | 1.73 0.579506
bz | 1.52 0.656455
oc | 1.40 0.715010
prof | 1.31 0.766126
bexp | 1.29 0.773772
-------------+----------------------
Mean VIF | 1.63

. regress srfz fa prof

Source | SS df MS Number of obs = 160

-------------+---------------------------------- F(3, 156) = 7.73
Model | 1436709.98 3 478903.326 Prob > F = 0.0001
Residual | 9661500.61 156 61932.6962 R-squared = 0.1295
-------------+---------------------------------- Adj R-squared = 0.1127
Total | 11098210.6 159 69800.0666 Root MSE = 248.86

------------------------------------------------------------------------------

140
sr | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
fz | 19.19973 11.6543 1.65 0.101 -3.82086 42.22032
fa | 2.940353 1.658177 1.77 0.078 -.335023 6.21573
prof | 327.9157 94.37998 3.47 0.001 -514.3432 -141.4881
_cons | -46.60901 71.63107 -0.65 0.516 -188.101 94.88295
------------------------------------------------------------------------------

. estathettest

Breusch-Pagan / Cook-Weisberg test for heteroskedasticity

Ho: Constant variance
Variables: fitted values of sr

chi2(1) = 0.331
Prob > chi2 = 0.6410

. estatvif

Variable | VIF 1/VIF

-------------+----------------------
fz | 1.69 0.592065
fa | 1.46 0.684108
prof | 1.24 0.804023
-------------+----------------------
Mean VIF | 1.46

regress srocmoio

Source | SS df MS Number of obs = 160

141
-------------+---------------------------------- F(3, 156) = 54.86
Model | 948195.669 3 316065.223 Prob > F = 0.0029
Residual | 10150014.9 156 65064.1982 R-squared = 0.1854
-------------+---------------------------------- Adj R-squared = 0.1678
Total | 11098210.6 159 69800.0666 Root MSE = 255.08

------------------------------------------------------------------------------
sr | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
oc | 4.282942 1.112055 3.85 0.000 2.103354 6.46253
mo | -36.9705 20.69375 -1.79 0.076 -77.8466 3.905607
io | 964.9211 295.6347 3.26 0.001 380.9575 1548.885
_cons | .0034803 .0055717 0.62 0.534 -.0076015 .0145622
------------------------------------------------------------------------------

. estathettest

Breusch-Pagan / Cook-Weisberg test for heteroskedasticity

Ho: Constant variance
Variables: fitted values of sr

chi2(1) = 0.59
Prob > chi2 = 0.0910

. estatvif

Variable | VIF 1/VIF n

-------------+----------------------
mo | 1.46 0.683668
io | 1.41 0.711708

142
oc | 1.10 0.905609
-------------+----------------------
Mean VIF | 1.32

regress sr bi bzbexp

Source | SS df MS Number of obs = 160

-------------+---------------------------------- F(3, 156) = 42.93
Model | 591853.24 3 197284.413 Prob > F = 0.0005
Residual | 10506357.3 156 67348.4445 R-squared = 0.1533
-------------+---------------------------------- Adj R-squared = 0.1351
Total | 11098210.6 159 69800.0666 Root MSE = 259.52

------------------------------------------------------------------------------
sr | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
bi | .8554883 .2471595 3.46 0.001 .3648146 1.346162
bz | 13.78983 11.35383 1.21 0.226 -8.637244 36.21691
bexp | 674.6007 297.3106 2.27 0.025 87.32688 1261.875
_cons | -135.5375 155.6292 -0.87 0.385 -442.9498 171.8748
------------------------------------------------------------------------------

. estathettest

Breusch-Pagan / Cook-Weisberg test for heteroskedasticity

Ho: Constant variance
Variables: fitted values of sr

chi2(1) = 41.92
Prob > chi2 = 0.0000

143
. estatvif

Variable | VIF 1/VIF

-------------+----------------------
bi | 1.55 0.644813
bz | 1.41 0.710626
bexp | 1.19 0.837220
-------------+----------------------
Mean VIF | 1.38

. xtset cross fyear, yearly

panel variable: cross (strongly balanced)
time variable: fyear, 2010 to 2019
delta: 1 year

. xtregsrfz fa prof ocmoio bi bzbexp, fe

Fixed-effects (within) regression Number of obs = 160

Group variable: cross Number of groups = 16

R-sq: Obs per group:

within = 0.3832 min = 10
between = 0.2550 avg = 10.0
overall = 0.4561 max = 10

F(9,135) = 61.36

144
corr(u_i, Xb) = -0.1001 Prob > F = 0.0000

------------------------------------------------------------------------------
sr | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
fz | 5.07188 5.70499 0.89 0.376 -6.210835 16.35459
fa | 5.914911 2.50101 2.37 0.019 .9686824 10.86114
prof | 375.9037 161.4736 2.33 0.021 694.9602 56.84715
oc | 34.43432 58.16078 0.59 0.555 -80.5898 149.4584
mo| -.3475853 7.102189 -0.05 0.961 -14.39353 13.69836
io | 40.18659 137.1143 0.29 0.770 -230.9834 311.3566
bi | 2.289225 160.4349 0.01 0.989 -315.0016 319.5801
bz| -1.990772 5.83022 -0.34 0.733 -13.52115 9.539608
bexp | -243.612 99.73511 -2.44 0.016 -440.8573 -46.36662
_cons | -100.4259 85.38853 -1.18 0.242 -269.2982 68.4463
-------------+----------------------------------------------------------------
sigma_u| 258.73812
sigma_e| 62.905013
rho | .94419036 (fraction of variance due to u_i)
------------------------------------------------------------------------------
F test that all u_i=0: F(15, 135) = 138.24 Prob > F = 0.0000

. estimates store fixed

. estimates store random

. xtregsrfz fa prof ocmoio bi bzbexp, re

Random-effects GLS regression Number of obs = 160

Group variable: cross Number of groups = 16

145
R-sq: Obs per group:
within = 0.5830 min = 10
between = 0.3581 avg = 10.0
overall = 0.6591 max = 10

Wald chi2(9) = 76.17

corr(u_i, X) = 0 (assumed) Prob > chi2 = 0.0000

------------------------------------------------------------------------------
sr | Coef. Std. Err. z P>|z| [95% Conf. Interval]
-------------+----------------------------------------------------------------
fz | 4.88014 5.581122 0.87 0.382 -6.058658 15.81894
fa | 5.653911 2.257903 2.50 0.012 1.228503 10.07932
prof | 195.2497 84.79545 2.30 0.021 29.05371 361.4458
oc | 1.306201 .1637748 7.98 0.000 .9852081 1.627193
mo | -.521908 6.98178 -0.07 0.940 -14.20595 13.16213
io | .4112079 .1099749 3.74 0.000 .1946868 .627729
bi | 4.282942 1.112055 3.85 0.000 2.075233 6.490651
bz| -1.633373 5.643796 -0.29 0.772 -12.69501 9.428264
bexp | 6.730167 3.271975 2.06 0.040 .3172135 13.14312
_cons | -100.8343 111.3901 -0.91 0.365 -319.155 117.4863
-------------+----------------------------------------------------------------
sigma_u| 305.47491
sigma_e| 62.905013
rho | .95931982 (fraction of variance due to u_i)
------------------------------------------------------------------------------

. estimates store randomw

146
. hausman fixed randomw

---- Coefficients ----

| (b) (B) (b-B) sqrt(diag(V_b-V_B))
| fixed randomw Difference S.E.
-------------+----------------------------------------------------------------
fz | 5.07188 4.88014 .1917401 1.182367
fa | 5.914911 5.653911 .2610001 1.075606
prof | -9.579348 -11.8049 2.225548 5.454755
oc | 34.43432 39.18702 -4.7527 12.05146
mo | -.3475853 -.521908 .1743226 1.302239
io | 40.18659 47.5998 -7.413202 28.59072
bi | 2.289225 8.685513 -6.396288 46.33883
bz | -1.990772 -1.633373 -.3573992 1.462542
bexp | -243.612 -234.8789 -8.733076 19.45709
------------------------------------------------------------------------------
b = consistent under Ho and Ha; obtained from xtreg
B = inconsistent under Ha, efficient under Ho; obtained from xtreg

Test: Ho: difference in coefficients not systematic

chi2(9) = (b-B)'[(V_b-V_B)^(-1)](b-B)
= 0.69
Prob>chi2 = 0.9999

. xttest0

Breusch and Pagan Lagrangian multiplier test for random effects

147
sr[cross,t] = Xb + u[cross] + e[cross,t]

Estimated results:
| Var sd = sqrt(Var)
---------+-----------------------------
sr | 69800.07 264.197
e | 3957.041 62.90501
u | 93314.92 305.4749

Test: Var(u) = 0
chibar2(01) = 506.56
Prob > chibar2 = 0.0000

F test that all u_i=0: F(15, 141) = 152.10 Prob > F = 0.0000

. xtregsrfz fa prof, fe

Fixed-effects (within) regression Number of obs = 160

Group variable: cross Number of groups = 16

R-sq: Obs per group:

within = 0.1349 min = 10
between = 0.0696 avg = 10.0
overall = 0.1677 max = 10

F(3,141) = 71.70
corr(u_i, Xb) = 0.0551 Prob > F = 0.0000

148
------------------------------------------------------------------------------
sr | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
fz | 1.299594 5.253722 0.25 0.805 -9.086653 11.68584
fa | 3.714377 1.889034 1.97 0.050 -.0201131 7.448867
prof | 259.5875 116.2891 2.23 0.026 -487.5098 -31.6651
_cons | -26.89928 54.14774 -0.50 0.620 -133.9457 80.1471
-------------+----------------------------------------------------------------
sigma_u| 255.79153
sigma_e| 63.152918
rho | .9425464 (fraction of variance due to u_i)
------------------------------------------------------------------------------
F test that all u_i=0: F(15, 141) = 152.10 Prob > F = 0.0000

. estimates store f1

. xtregsrfz fa prof, re

Random-effects GLS regression Number of obs = 160

Group variable: cross Number of groups = 16

R-sq: Obs per group:

within = 0.2348 min = 10
between = 0.1712 avg = 10.0
overall = 0.2691 max = 10

Wald chi2(3) = 67.24

149
corr(u_i, X) = 0 (assumed) Prob > chi2 = 0.0003

------------------------------------------------------------------------------
sr | Coef. Std. Err. z P>|z| [95% Conf. Interval]
-------------+----------------------------------------------------------------
fz | 1.248305 5.2219 0.24 0.811 -8.986432 11.48304
fa | 3.840369 1.75901 2.18 0.029 .392773 7.287966
prof | 195.2497 84.79545 2.30 0.021 29.05371 361.4458
_cons | -29.04753 79.31832 -0.37 0.714 -184.5086 126.4135
-------------+----------------------------------------------------------------
sigma_u| 239.59637
sigma_e| 63.152918
rho | .93503853 (fraction of variance due to u_i)
------------------------------------------------------------------------------

. estimates store r1

. hausman r1 f1

---- Coefficients ----

| (b) (B) (b-B) sqrt(diag(V_b-V_B))
| r1 f1 Difference S.E.
-------------+----------------------------------------------------------------
fz | 1.248305 1.299594 -.0512898 .
fa | 3.840369 3.714377 .1259923 .
prof | -14.80925 -11.41854 -3.390706 2.176014
------------------------------------------------------------------------------
b = consistent under Ho and Ha; obtained from xtreg
B = inconsistent under Ha, efficient under Ho; obtained from xtreg

150
 Test: Ho: difference in coefficients not systematic

chi2(3) = (b-B)'[(V_b-V_B)^(-1)](b-B)
= 0.76
Prob>chi2 = 0.8590
(V_b-V_B is not positive definite)

. xttest0

Breusch and Pagan Lagrangian multiplier test for random effects

sr[cross,t] = Xb + u[cross] + e[cross,t]

Estimated results:
| Var sd = sqrt(Var)
---------+-----------------------------
sr | 69800.07 264.197
e | 3988.291 63.15292
u | 57406.42 239.5964

Test: Var(u) = 0
chibar2(01) = 553.13
Prob > chibar2 = 0.0000

. xtregsrocmoio, fe

Fixed-effects (within) regression Number of obs = 160

Group variable: cross Number of groups = 16

R-sq: Obs per group:

151
within = 0.2132 min = 10
between = 0.1377 avg = 10.0
overall = 0.2284 max = 10

F(3,141) = 103.15
corr(u_i, Xb) = 0.1479 Prob > F = 0.0000

------------------------------------------------------------------------------
sr | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
oc | 34.33022 56.49128 0.61 0.544 -77.34917 146.0096
mo| -.5780129 6.943003 -0.08 0.934 -14.30385 13.14783
io | 6.821349 136.4277 0.05 0.960 -262.8869 276.5296
_cons | 63.06233 42.57025 1.48 0.141 -21.09614 147.2208
-------------+----------------------------------------------------------------
sigma_u| 263.69123
sigma_e| 64.179622
rho | .94407458 (fraction of variance due to u_i)
------------------------------------------------------------------------------
F test that all u_i=0: F(15, 141) = 154.88 Prob > F = 0.0000

. estimates store fff1

. xtregsrocmoio, re

Random-effects GLS regression Number of obs = 160

Group variable: cross Number of groups = 16

R-sq: Obs per group:

within = 0.1031 min = 10

152
 between = 0.0544 avg = 10.0
overall = 0.1415 max = 10

Wald chi2(3) = 99.60

corr(u_i, X) = 0 (assumed) Prob > chi2 = 0.0000

------------------------------------------------------------------------------
sr | Coef. Std. Err. z P>|z| [95% Conf. Interval]
-------------+----------------------------------------------------------------
oc | 1.398232 .5636374 2.48 0.015 .2771798 2.519284
mo| -1.201359 6.885834 -0.17 0.861 -14.69735 12.29463
io | 17.66289 5.286155 3.34 0.001 7.148944 28.17684
_cons | 57.265 80.66792 0.71 0.478 -100.8412 215.3712
-------------+----------------------------------------------------------------
sigma_u| 276.92816
sigma_e| 64.179622
rho k[| .94902717 (fraction of variance due to u_i)
------------------------------------------------------------------------------

---- Coefficients ----

| (b) (B) (b-B) sqrt(diag(V_b-V_B))
| rfff1 fff1 Difference S.E.
-------------+----------------------------------------------------------------
oc | 38.12874 38.12874 0 6.74e-07
mo | -1.201359 -1.201359 0 0
io | 25.72393 25.72393 0 0
------------------------------------------------------------------------------
b = consistent under Ho and Ha; obtained from xtreg
B = inconsistent under Ha, efficient under Ho; obtained from xtreg

153
 Test: Ho: difference in coefficients not systematic

chi2(2) = (b-B)'[(V_b-V_B)^(-1)](b-B)
= 0.01
Prob>chi2 = .08900
(V_b-V_B is not positive definite)

. xttest0

Breusch and Pagan Lagrangian multiplier test for random effects

sr[cross,t] = Xb + u[cross] + e[cross,t]

Estimated results:
| Var sd = sqrt(Var)
---------+-----------------------------
sr | 69800.07 264.197
e | 4119.024 64.17962
u | 76689.21 276.9282

Test: Var(u) = 0
chibar2(01) = 599.52
Prob > chibar2 = 0.0000

. xtregsr bi bzbexp, fe

Fixed-effects (within) regression Number of obs = 160

Group variable: cross Number of groups = 16

R-sq: Obs per group:

154
within = 0.1264 min = 10
between = 0.0537 avg = 10.0
overall = 0.1101 max = 10

F(3,141) = 78.28
corr(u_i, Xb) = -0.1493 Prob > F = 0.0000

------------------------------------------------------------------------------
sr | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
bi | 13.94844 4.222444 3.30 0.025 .2392349 .5419365
bz | 4.183984 5.301868 0.79 0.431 -6.297445 14.66541
bexp| 16.07462 5.058198 3.17 0.033 -337.5357 28.75986
_cons | 32.33615 63.53624 0.51 0.612 -93.27063 157.9429
-------------+----------------------------------------------------------------
sigma_u| 266.53737
sigma_e| 63.427534
rho | .94640591 (fraction of variance due to u_i)
------------------------------------------------------------------------------
F test that all u_i=0: F(15, 141) = 164.70 Prob > F = 0.0000

. estimates store fx1

. xtregsr bi bzbexp, re

Random-effects GLS regression Number of obs = 160

Group variable: cross Number of groups = 16

R-sq: Obs per group:

within = 0.1763 min = 10

155
 between = 0.1377 avg = 10.0
overall = 0.2165 max = 10

Wald chi2(3) = 101.67

corr(u_i, X) = 0 (assumed) Prob > chi2 = 0.0000

------------------------------------------------------------------------------
sr | Coef. Std. Err. z P>|z| [95% Conf. Interval]
-------------+----------------------------------------------------------------
bi | 9.516366 2.286524 4.16 0.003 -98.59913 456.634
bz | 4.610338 5.226738 0.88 0.378 -5.63388 14.85456
bexp | 171.3354 80.01795 2.14 0.034 -329.3938 -13.27692
_cons | 27.1967 92.14229 0.30 0.768 -153.3989 207.7923
-------------+----------------------------------------------------------------
sigma_u| 270.31198
sigma_e| 63.427534
rho | .94781466 (fraction of variance due to u_i)
------------------------------------------------------------------------------

. estimates store rw1

. hausman fx1 rw1

---- Coefficients ----

| (b) (B) (b-B) sqrt(diag(V_b-V_B))
| fx1 rw1 Difference S.E.
-------------+----------------------------------------------------------------
bi | 179.0175 169.7841 9.233398 17.25646
bz | 4.183984 4.610338 -.4263538 .8893889
bexp | -154.3879 -145.6921 -8.695863 8.251262
------------------------------------------------------------------------------

156
 b = consistent under Ho and Ha; obtained from xtreg
B = inconsistent under Ha, efficient under Ho; obtained from xtreg

Test: Ho: difference in coefficients not systematic

chi2(3) = (b-B)'[(V_b-V_B)^(-1)](b-B)
= 1.24
Prob>chi2 = 0.7440
. xttest0

Breusch and Pagan Lagrangian multiplier test for random effects

sr[cross,t] = Xb + u[cross] + e[cross,t]

Estimated results:
| Var sd = sqrt(Var)
---------+-----------------------------
sr | 69800.07 264.197
e | 4023.052 63.42753
u | 73068.56 270.312

Test: Var(u) = 0
chibar2(01) = 584.04
Prob > chibar2 = 0.0000

157