Effects of Internal and External Factors on Stock Returns of Large Size Firms in Nigeria

  • James A. Akwe Securities and Exchange Commission, Nigeria
  • Salisu B. Garba Central Bank of Nigeria
Keywords: Firm size, P/E ratio, MBV ratio per share, Management quality, Firm age, Interest rate, Inflation, Money supply, Stock returns


This study examines impacts of internal and external factors on stock returns of large size firms in Nigeria. Developing economies have diverse institutional and structural features when compared with advanced economies or markets. It is therefore, germane to investigate how stock returns in Nigeria behave to the combine effects of internal and external factors. The study examines the combine effects of market to book value (MBV) per share ratio, firm size, P/E ratio, management quality, firm age, interest rate, inflation, and money supply on stock returns of selected large size firms in Nigeria between 2007 and 2016. The study adopts ex-post facto as its research design. Top 25 quoted large size firms by market capitalization constitutes the population of the study. Twenty-one (21) companies that meet selection criteria forms the sample size. It uses secondary data from the CBN and NSE as well as published annual accounts. It deploys Panel data regression for the data analysis. The results indicate significant negative effects between inflation, money supply, interest rate, and stock returns of large size firms in Nigeria, while insignificant negative effect is revealed between management quality, MBV per share ratio, and stock returns in Nigeria. A further result indicates significant positive effect between firm size, firm age and stock returns in Nigeria. However, an insignificant positive effect is revealed between P/E ratio and stock returns of large size firms in Nigeria. The study recommends among others, more surveillance by the apex regulator in Nigeria (SEC), paying more attention to ratios like P/E an MBV, keeping abreast of technological changes and innovations by Board and Management of companies, enhancing corporate values through reasonable level of operating expenses; taking note of systematic risks as a result of inflation, interest rate and money supply; and intensifying capital market sensitization campaigns by the Securities and Exchange Commission. The paper adds to the existing body of knowledge on the effects of internal and external factors on stock returns of large size firms in Nigeria.


Amadi, S. N., & Odubo, T. D. (2002). Macroeconomic variables and stock prices: Causality analysis. The Nigeria Journal of Economic and Management Studies, 4(1&2), 29-41.

Amtiran, P. Y., Indiastuti, R., Nidar, S. R., & Masyita, D. (2017). Macroeconomic factors and stock returns in APT framework. International Journal of Economics and Management, 11(1), 97-206.

Anderson, M. (2016). The effects of leverage on stock returns. Lund University, School of Economics and Management.

Arslan, M., & Zaman, R. (2014). Impact of dividend yield and price earnings ratio on stock returns: A study of non-financial listed firms of Pakistan. Research Journal of Finance and Accounting, 5, 68-74.

Bala, H., & Idris, I. (2015). Firm’s specific characteristics and stock market returns (evidence from listed food and beverages firms in Nigeria). Research Journal of Finance and Accounting, 6(16), 188-200.

Capaul, C., Rowley, I., & Sharp, W. F. (1993). International value and growth stock returns. Financial analyst Journal, 49, 27-35.

Chandra, P. (2004). Investment analysis and portfolio management. New Delhi: McGraw-Hill.

Chambers, N., Sezgin, F. H., & Karaaslan, B. (2013). An analysis of the effect of capital structure and the beta coefficient on stock returns: A case study of the Istanbul stock exchange’s manufacturing industry. International Journal of Business and Social Science, 4(7).

Daniel, K., & Titman, S. (1997). Evidence on the characteristics of cross sectional variation in stock returns. Journal of Finance, 52, 1-33.

DeBondt, W. F. M., & Thaler, R. H. (1987). Further evidence on investor overreaction and stock market seasonality. Journal of Finance, 47.

Dhatt, Kim & Mukherji (1999). The value premium for small-capitalization stocks. Financial Analysts Journal, 55(5), 60-68.

Fama, E. F., & French, K. (1992). The cross-section of expected stock returns. Journal of Finance, 47, 427-465.

Gatuhi, S., Gekara, M., & Muturi, D. (2015). Effect of macroeconomic environment on stock returns of firms in the agricultural sector in Kenya. International Journal of Management & Business Studies, 5(3), 9-23.

Garba, A. (2014). Impact of macroeconomic factors on common stock returns: A study of listed manufacturing firms in Nigeria. European Journal of Business Management, 6(13), 140-150.

Gallizo, J., & Salvador, M. (2006). Share prices and accounting variables: a hierarchical Bayesian analysis. Review of Accounting and Finance, 5(3), 268-278.

Githinji, G. G. (2011). Relationship between price earnings ratio and share prices of companies listed on the Nairobi stock exchange. Unpublished work, University of Nairobi.

Haugen, R., (1995). The new finance: the case against efficient market. Prentice Hall, Englewood Cliffs.

Kazeem, H. S. (2015). Firm specific characteristics and financial performance of listed insurance firms in Nigeria. Unpublished M.Sc. Dissertation.

Kumar, P. (2017). Impact of earning per share and price earnings ratio on market price of share: a study of auto sector in India. International Journal of Research, 5, 113-118.

Loughran, T. (1997). Book-to-market across firm size, exchange, and seasonality: Is there an effect? Journal of Financial and Quantitative Analysis, 32(3), 249-268.

Ltaifa, M. B., & Khoufi, W. (2016). Book to market and size as determinants of stock returns of banks: An empirical investigation from MENA Countries. International Journal of Academic Research in Accounting, Finance and Management Sciences, 6, 142-160.

Maku, O. E., & Atanda, A. A. (2010) Determinants of stock market performance in Nigeria: Long run analysis. Journal of Management and Organizational Behaviour, 1(3), 1-16.

Mburu, T. M. (2014). The relationship between price earnings ratio and stock return for firms quoted in Nairobi securities exchange. Unpublished MBA Dissertation.

Mugambi, M., & Okech, T. C. (2016). Effect of macroeconomic variables on stock returns of listed commercial banks in Kenya. International Journal of Economics, Commerce and Management, 4(6), 390-418.

Nijam, H. M., Ismail, S. M. M., & Musthafa, A. M. M. (2015). The impact of macro-economic variables on stock market performance: evidence from Sri Lanka. Journal of Emerging Trends in Economics and Management Science, 6(2), 151-157.

Nisha, N. (2015). Impact of macroeconomic variables on stock returns: evidence from Bombay. Journal of Investment and Management, 4(5), 162-170.

Ntshangase, K., Mingiri, K. F., & Palesa, M. M. (2016). The interaction between the stock market and macroeconomic policy variables in South Africa. Journal of Economics, 7(1), 1-10.

Olowoniyi, A. O., & Ojenike, J. O. (2013). Capital structure and stock returns in Nigeria: a panel co-integration approach. International Journal of Applied Economics and Finance, 4(5), 162-170.

Osano, J. A. (2010). An evaluation of price to earnings and price to book values as predictors of stock returns of firms listed at the Nairobi stock exchange (NSE). University of Nairobi, Nairbobi.

Osamwonyi, I. O. (2003). Forecasting as a tool for securities analysis. A paper presented at a three-day workshop on introduction to securities analysis, organized by Securities and Exchange Commission, Lagos August 17.

Okoro, C. O. (2017). Macroeconomic factors and stock market performance: evidence from Nigeria. International Journal of Social Sciences and Humanities Reviews, 7(1), 1-9.

Ouma, W. N., & Muriu, P. (2014). The impact of macroeconomic variables on stock market returns in Kenya. International Journal of Business and Commerce, 3(11), 1-31.

Pandey, I. M. (2001). The expected stock returns of Malaysian firms: a panel data analysis. IIMA Working Paper, 8(1).

Panu, C., Peng, C., & Dennis, P. (2007). Firm characteristics and stock return. International DSI/Asia and Pacific DSI. 5(4), 49-62.

Pettersen, A. (2011). An investment strategy based on P/E ratios: How does one make abnormal returns by taking advantage of the price per earnings effect, and does such an effect exist on the Stockholm stock exchange during the period 2000-2009? Published work, Spring University, Sweden.

Rjoub, H., Civcir, I., & Resatoglu, N. G. (2017). Micro and macroeconomic determinants of stock prices: the case of Turkish banking sector. Romanian Journal of Economic Forecasting, 20(1), 150-166.

Roman, A., & Danuletiu, A. E. (2013). An empirical analysis of the determinants of bank profitability in Romania. Annales Universitatis Apulensis Series Oeconomica, 15(2), 580-593.

Rahmani, A., Sheri, S., & Tajvidi, E. (2006). Accounting variables, market variables and stock returns in emerging markets: case of Iran. Allameh Tabatabai University, Tehran, Iran.

Shapiro, A., & Lakonishok, J. (1984). Stock returns, beta, variance and size: an empirical analysis. Financial Analysts Journal, 40 (36).

Sofie, B., & Alexender, B. (2014). Capital structure and stock returns – a study of the Swedish large cap companies. Unpublished PhD Dissertation.

Subing, H. J. T., Kusumah, R. W. R., & Gusni (2017). An empirical analysis of internal and external factors of stock pricing: evidence from Indonesia. Problems and Perspectives in Management, 15(4), 178-187.

Tripathi, V. (2009). Company fundamentals and equity returns in India. India Council of Social Science Research.

Tripathi, V., & Seth, R. (2014). Stock market performance and macroeconomic factors: the study of Indian equity market. Global Business Review, 15(2), 291-316.

Tudor, C. (2010). Firms specific factors as predictors of future returns for Romanian common stock: Empirical evidence. International business and Economics Department, Academy of Economics Studies from Bucharest, Romania.

Umar, M. S., & Musa, T. B. (2013). Stock prices and firm earning per share in Nigeria. JORIND, 11(2), 187-912.

Uwaleke, U. J., & Akwe, J. A. (2018). Effects of price-to-book value and price-to-earnings ratios on stock market returns of consumer goods companies in Nigeria. Bingham University Journal of Accounting and Business, 1(3), 269-280.

Uwubanmwen, A. E., & Obayagbona, J. (2012). Company fundamentals and returns in the Nigerian stock exchange. JORIND, 10(2).

Utami, W. R., Hartoyo, S., & Maulana, N. A. (2015). The Effect of internal and external factors on stock Return: empirical evidence from the Indonesian construction subsector. Asian Journal of Business and Management, 3(5), 370-377.

Vorek, M. (2009). Does high price earnings predict future falls of stock price? Working paper, University of Economics in Prague, Czech Republic.

Zaremba, A., & Konieczka, P. (2014). The Relations between momentum, value, size and liquidity factors and stock returns on the Polish market. Optimum Studia Ekonomiczne NR.

How to Cite
Akwe, J. A., & Garba, S. B. (2019). Effects of Internal and External Factors on Stock Returns of Large Size Firms in Nigeria. Global Journal of Accounting, 5(1), 44-56. Retrieved from http://ihafa.unilag.edu.ng/index.php/gja/article/view/460