Abstract:
Equity investors operate under conditions of uncertainty with the associated risk of Share Price Dispersion (SPD). This risk, being the difference between market Share Price (SP) and its estimated Intrinsic Value (INTV), is presumed to be inversely related to the quality of information available for equity investment decisions. To enhance the quality of information, regulators not only prescribe Mandatory Information Disclosure (MID), but also encourage Voluntary Information Disclosure (VID). Evidence on the impact of Corporate Information Disclosure (CID) on SP behaviour is limited. This study, therefore, assessed the extent to which the quality of information in Corporate Annual Report (CAR) influenced SP behaviour on the Nigerian Stock Exchange (NSE).
A Dividend Share Valuation Model (DSVM), which postulates that SP is the discounted value of stream of dividends conditional on information, was adapted. Adequacy and relevance of information disclosures were used to appraise the quality of CID. Adequacy was assessed through Mandatory Disclosure Indices (MDI) and Voluntary Disclosure Indices (VDI), using average MDI as a benchmark. Relevance was determined through regression models evaluated at p≤0.05 using two estimation techniques. The first is the generalised least squares, which measured the impact of stock of CID, while the stepwise regression was used to assess marginal contribution of each explanatory variable through standardised coefficients. Accounting variables used as explanatory variables, derived from CAR, were Dividend per Share (DPS), Earnings per Share (EPS), Gearing Ratio (GR), Net Asset per Share (NAPS) and Return on Equity (ROE). Macroeconomic variables: Real GDP (RGDP), Interest Rate (IR) and Exchange Rate (ER) were extracted from 2012 edition of Statistical Bulletin of the Central Bank of Nigeria. The SP data were collected from Daily Official Listings’ of NSE while INTV was calculated using DSVM. All seventy-two dividend-paying firms listed on the NSE between 2000 and 2011 were used.
Firms had high level of MID, ranging from 68.0% to 92.0%, with an average of 79.0%. Essential information items not required by law were not voluntarily disclosed, implying information inadequacy, as reflected in low scores in VID, ranging from 10.0% and 60.0%, with an average of 44.0%. Share Price increased as RGDP, DPS, NAPS and EPS increased while SP fell as the ER, GR and ROE increased, confirming the relevance of accounting and macroeconomic information in influencing SP behaviour. Ninety-one per cent of SPD were overvaluation with 9% being undervaluation and SPD increased as MDI increased while VDI was not significant. Mandatory information disclosure had the lowest standardised coefficient of 8.8% with RGDP having the highest standardised coefficient of 36.4% while EPS and ER contributed 29.0% and 19.5% respectively and explained only 14.1% of variations in SPD, indicating information redundancy. Disclosure level (DL) below average MDI, 79.0%, had effect on SPD while DL above average MDI had no effect.
The provision of irrelevant information with non-zero cost but zero benefit is tantamount to economic wastage. Therefore, disclosure regulations should be reviewed to include all relevant information for equity valuation and prevention of misallocation of resources.
Keywords: Asset pricing, Dividend share valuation model, Disclosure index, Share price dispersion
Word Count: 493
