An Analysis Of The Relationship Between Accounting Indicators And Share Price On The Namibian Stock Exchange

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Abstract
Extensive research has proven the stock market to be a catalyst for economic development, more so in emerging African economies. Over time, finance has established several methods used to evaluate performance of stock markets. One of these is the return model which describes the relationship between stock returns and accounting earnings, this model has roots in behavioral finance and is the reference point for this study. Other models have proven to be too complex for most small and developing stock markets, which generally suffer from low liquidity and low market capitalization. The major issue with the more sophisticated models is the set of assumptions which are not achievable by a market such as the Namibian Stock Exchange (NSX). In this study, the researcher has used panel regression analysis to propose a model that relates fundamental accounting indicators to the movement in stock prices of companies traded on the NSX. In doing so, the researcher found a number of statistically significant relationships between the latter and the former. Sales, earnings per share, dividend per share, market value and return on assets all showed positive relationships with the share price. However, the coefficient corresponding to return on assets was statistically insignificant while earnings per share showed the strongest significant relationship to the share price. Additionally, the results for net profit were unexpected as they indicate an inverse relationship with the share price. Ultimately, these findings allowed the researcher to draw conclusions about value relevance of accounting information presented by companies listed on the NSX. Such conclusion is that these statements produce information that is relevant to investors on this stock market and that explains why the study found positive relationships between the share price and accounting indicators that are calculated from these financial statements. The inferences drawn from the findings and the model produced by this study bring together the fields of accounting and finance and points to a pivotal interconnection of these disciplines on the NSX and that is peculiar to this study and is its main contribution to literature on these vital subjects.

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An Analysis Of The Relationship Between Accounting Indicators And Share Price On The Namibian Stock Exchange

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