IIARD International Institute of Academic Research and Development

INTERNATIONAL JOURNAL OF ECONOMICS AND FINANCIAL MANAGEMENT (IJEFM )

E-ISSN 2545-5966
P-ISSN 2695-1932
VOL. 4 NO. 2 2019

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Testing for Linearity of Stock Returns in the Nigerian Food and Beverage Industry - A Study of Nestle Plc and Cadbury Plc

Gbalam Peter Eze (Ph.D)

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Abstract

The study tested linearity of stock returns in the Nigerian food and beverage industry using Nesttle Plc and Cadbury Plc as selected firms of study. The objectives of study being to establish the existence of a linear relationship between market capitalization and value of equity on one hand and the impact of market capitalization and stock returns on the other. The methodology used in testing the hypotheses was simple regression where the capitalization and valuation were the determining variables varying the magnitude and direction of stock returns the findings indicated that for both hypotheses, capitalization had a linear and positive relationship which has a significant effect on stock returns. In conclusion, the fundamental role of stock market is to provide adequate guarantee to shareholders of Cadbury Plc and Nestle Plc by carrying out studies about the volatility, performance and efficiency of stock returns remains vital and essential information to investors. It was observed that market capitalization had positive and significant impact on stock returns. The research established that there is a linear relationship between market capitalization and valuation of equity for the two firms under and that stock returns for the two firms are affected by the market capitalization. This study recommends that the Nigerian Securities and Exchange Commission should create policies that will encourage increases in firms profit after tax and their dividends as these variables have been statistically proven to have strong significances on the changes in the company’s performance and the value of market capitalization. New theories should be developed by further studies on the “size effect” of market returns on volume and price. Currently theoretical explanations in literature for size effect do not sufficiently explain the gaps in previous research even though there is a general agreement about the importance of size. It is important that more research be made in studyin

keywords:

Testing, Linearity, Stock Returns, Nestle Plc and Cadbury Plc

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