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Effect of Earnings Quality on Stock Valuation

Tonye, Ogiriki, Eniekezimene, Ezougha Timothy

Abstract

This study examined the effect of earnings quality on stock valuation of listed oil and gas companies in Nigeria, with specific focus on accrual quality and earnings persistence. An ex-post facto research design was adopted, and the population comprised the seven oil and gas companies listed on the Nigerian Exchange Group . A census sampling technique was employed, covering a five-year period from 2020 to 2024. Secondary data were obtained from the published annual financial statements of the selected companies. Accrual quality was measured using discretionary accruals, while earnings persistence was derived from the coefficient of lagged earnings. Share price served as the proxy for stock valuation. The data were analyzed using descriptive statistics, diagnostic tests, and panel least squares regression analysis. The Breusch– Pagan Lagrange Multiplier test confirmed the presence of significant cross-sectional effects (?2 = 25.49, p < 0.01), justifying the use of panel estimation techniques. The regression results showed that earnings quality variables jointly had a statistically significant effect on share price, as indicated by an F-statistic of 9.46 (p = 0.0005) and an R-squared value of 0.61. Individually, accrual quality exhibited a negative and significant effect on share price (? = ?113.85, p = 0.025), suggesting that lower-quality accruals reduced market valuation. Earnings persistence, on the other hand, had a positive and significant influence on share price (? = 333.14, p = 0.018), indicating that firms with more sustainable earnings attracted higher market valuation. The study concluded that earnings quality is a critical driver of stock valuation in the Nigerian oil and gas sector and recommended improved financial reporting quality to enhance investor confidence.

Keywords

Earnings QualityAccrualsEarnings PersistenceStock Valuation

References

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