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Impact of Earnings Per Share Growth on the Share Price of Listed Companies in Nigeria

Abstract

Earnings per share (EPS) growth is an important indicator of changes in a company's earnings attributable to each ordinary share over time and provides useful information about the company's profitability, growth prospects, and capacity to generate shareholder returns. Share price represents the market price assigned to a company's shares by investors and reflects market expectations regarding its current performance, future earnings, risk, growth opportunities, and overall financial prospects. Sustained growth in earnings per share may provide a positive signal to investors regarding improving profitability and management efficiency, potentially increasing demand for the company's shares and resulting in higher share prices. In Nigeria, listed companies operate in an economic environment characterized by inflation, exchange rate volatility, high operating costs, changing interest rates, economic uncertainty, and fluctuations in consumer demand. These conditions can affect corporate earnings, investment decisions, investor sentiment, and stock market valuations. The relationship between earnings performance and share price is therefore particularly important for investors seeking to assess the financial prospects of listed companies. Regulatory institutions such as the Securities and Exchange Commission (SEC), the Financial Reporting Council of Nigeria (FRCN), and the Nigerian Exchange Group (NGX) promote transparent financial reporting and disclosure practices that enable investors to evaluate corporate performance and make informed investment decisions. Despite these regulatory efforts, variations exist in earnings growth and share price performance among listed companies, raising questions about the extent to which changes in earnings per share influence market prices. Although previous studies have examined earnings per share, profitability, and share price, empirical evidence regarding the impact of earnings per share growth on the share price of listed companies in Nigeria remains limited and inconclusive. Against this background, this study investigates the impact of earnings per share growth on the share price of listed companies in Nigeria. The study is anchored on Signaling Theory, Efficient Market Hypothesis (EMH), and Ohlson Valuation Model. Signaling Theory suggests that sustained growth in earnings per share provides investors with positive information concerning a company's profitability, future earnings capacity, and financial prospects. The Efficient Market Hypothesis proposes that publicly available information about corporate earnings is incorporated into share prices as market participants respond to new financial information. The Ohlson Valuation Model establishes a relationship between accounting information, particularly earnings and book value, and the market value of equity, thereby providing a theoretical basis for examining the influence of earnings information on share prices. Collectively, these theoretical perspectives provide a comprehensive framework for explaining the relationship between earnings per share growth and share price of listed companies in Nigeria. The study adopts a quantitative research design using a structured questionnaire administered to chief financial officers, finance managers, accountants, financial controllers, investment analysts, portfolio managers, fund managers, stockbrokers, institutional investors, internal auditors, external auditors, and other professionals involved in financial reporting and investment decisions within selected listed companies in Nigeria. A stratified random sampling technique will be employed to ensure adequate representation of companies operating in the financial services, manufacturing, consumer goods, industrial goods, oil and gas, telecommunications, agriculture, healthcare, and other sectors listed on the Nigerian Exchange Group (NGX). Earnings per share growth will be measured using annual growth in EPS, consistency of EPS growth, growth in earnings attributable to ordinary shareholders, changes in earnings per ordinary share, and sustainability of earnings growth, while share price will be measured using market price per share, annual share price movement, share price appreciation, market-adjusted share price performance, and price volatility. Primary data collected from respondents will be analyzed using descriptive statistics to summarize respondents' demographic characteristics and perceptions regarding EPS growth and share price. Structural Equation Modeling (SEM) will be employed to examine the impact of earnings per share growth on share price. The measurement model will be evaluated using Cronbach's Alpha, Composite Reliability (CR), Average Variance Extracted (AVE), and Confirmatory Factor Analysis (CFA) to establish the reliability and validity of the research instrument. Additional diagnostic tests, including multicollinearity assessment, common method bias analysis, and model fit indices such as the Comparative Fit Index (CFI), Tucker-Lewis Index (TLI), Root Mean Square Error of Approximation (RMSEA), and Standardized Root Mean Square Residual (SRMR), will be conducted to ensure the adequacy, consistency, reliability, and robustness of the structural model. The study anticipates that earnings per share growth will have a significant positive impact on the share price of listed companies in Nigeria. Sustained growth in EPS is expected to increase investor confidence by providing evidence of improving profitability, stronger earnings-generating capacity, and favourable future prospects. Investors may interpret consistent EPS growth as an indication of effective management, improved operational efficiency, successful business expansion, and the company's capacity to generate increasing returns for ordinary shareholders. Such positive expectations may increase demand for the company's shares and contribute to higher market prices. Conversely, declining or volatile EPS growth may signal weakening profitability, increased business risk, poor operational performance, or uncertainty regarding future earnings, potentially resulting in lower investor demand and declining share prices. However, EPS growth may not always result in an immediate increase in share price because investors may also consider dividend policy, macroeconomic conditions, interest rates, inflation, exchange rate movements, industry conditions, corporate governance, and overall market sentiment. Consequently, the effect of EPS growth on share price is expected to depend on the sustainability and credibility of the reported earnings and investors' expectations concerning future corporate performance. This study is expected to make significant theoretical and empirical contributions to the literature on financial accounting, earnings information, corporate finance, and capital market valuation by providing comprehensive evidence on the relationship between earnings per share growth and share price of listed companies in Nigeria. Unlike previous studies that broadly examined earnings per share or accounting information, this research specifically evaluates EPS growth as a determinant of share price using primary data and Structural Equation Modeling (SEM). The findings will provide valuable insights for listed companies, accountants, financial reporting professionals, investment analysts, portfolio managers, investors, stockbrokers, auditors, the Securities and Exchange Commission (SEC), the Financial Reporting Council of Nigeria (FRCN), the Nigerian Exchange Group (NGX), professional accounting bodies, policymakers, regulators, and academic researchers regarding the importance of sustainable earnings growth in capital market valuation. The study will also provide evidence-based recommendations for improving earnings quality, strengthening financial reporting practices, enhancing investor communication, promoting sustainable profitability, and providing timely and reliable earnings information to support informed investment decisions and efficient share price valuation in the Nigerian capital market.

Keywords: Earnings per share growth, share price, listed companies, earnings information, profitability, investor confidence, market valuation, accounting information, capital market, Structural Equation Modeling (SEM), Nigeria.