Determinants of Firm Value: Using Selected Accounting Ratios in Nigerian Banks

Abstract

Extant studies alluded to the fact that performance of any organization is measured through its value. The metrics for determining the firm value differ across sectors and it is firm-specific in nature. There are conflicting results in relation to determinants of firm value. This study examined the determinants of firm value in Nigerian deposit money banks. The study used twelve listed Nigerian deposit money banks covering the period from 2011 – 2020. A panel regression was adopted to test the various hypotheses. The analysis found that total asset turnover positively and marginally significantly affects a firm's value. A positive and significant relationship exists between dividends to total assets and the firm's value. Findings also reveal that free cash flow has an insignificant effect on firm value in Nigerian DMBs due to the nature of funding available to the banks. Other results indicate a negative and significant relationship between operating expenses to sales and firm value in Nigerian banks. The control variables, firm size, and financial leverage exhibited a significant relationship with firm value while firm size showed a positive effect, financial leverage had a negative relationship. Based on the findings, the study recommends that deposit money banks in Nigeria efficiently utilize their assets to generate high asset turnover and minimize operating costs to enhance firm value. The recommendation's actualization will depend on the management's ability to effectively set out and implement policies eliminating redundant assets and continuous maintenance of productive assets in their operations and reducing operational costs, thus enhancing firm value.

Key terms: Deposit Money Banks, Dividend Pay-out, Firm Size, Firm Value; Asset Turnover Ratio, Log of Market Capitalization, Financial Leverage, Fixed Effect