CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
A company can be defined as an “artificial person” with legal entity, perpetual succession and a common seal (Wikipedia, 2010).also, accompany has been defined as a complex network of contract binding on various interest groups (Ilaboya, 2008:121). It takes cognizance of the stake of various interest groups in business activities of the company. These stakeholders include the shareholders (owners) of the company, investors, employees, labour unions, government and general public. These various stakeholders have different uses for the financial statement. The financial, statement of a company is the annual report and account, including the balance sheet and profit and loss account, prepared by the company and duly audited by the company’s external auditor(s), copies of which are presented to shareholders, the tax authorities, the Corporate Affairs Commission and other relevant persons/bodies (Igben, 2005:94). According to Statement of Accounting Standard (SAS) No.2, financial statements are the means of communicating to interested parties, information on the resources obligations and performance of the business entity. Section 21 of the Company and Allied Matters Act (CAMA) 2004, prescribed three (3) different types of companies. These are, companies limited by shares, companies limited by guarantee and unlimited companies.
However, whether limited by shares, limited by guarantee or unlimited, a company can either be a private company or public company. However, for the purpose of this research work our focus will be on quoted companies. Section 24 of the Companies and Allied Matter Act (CAMA) 2004 states that, any company other than a private company shall be a public company, and it shall be stated in its memorandum of association that it is a public company. The prescribed minimum membership of a public is seven (7) without a ceiling. Public company can raise capital through the issues of shares and such shares are transferable. They must have minimum of two directors. The ownership and management of a public company are separated which makes the directors render adequate or proper services to the shareholders. The financial statement which is the sole responsibility of the directors to prepare must contain the financial report which enables the various stakeholders to find out the true performance of the company. It has been observed that important decisions that involve huge financial responsibility on the part of investors are made on the basis of information available on the financial report of the company.
Thus, it is very important that the information contained in such financial report goes a long way in intimidating such investors of the true value of the company. The corporate value of the company is known as the value of the company. For the purpose of this research work, the market value of the company would be representing the corporate value. The research work seeks to verify the relationship that exists between the earnings of the company, the dividend it pays out, it trading volume and the values of the company. This is because apart from the fact that a company uses the earnings to pay dividend to its shareholders, it can also plough or invest portion of such earnings back into the business. The decision of what portion of earnings to re-invest is usually made in the light of certain factors. The research work therefore seeks to find out what eect such decision has on the corporate value.
1.2 STATEMENT OF THE PROBLEM
In Nigeria today, many investors especially in the manufacturing sectors, invest lot of money in shares with the hope of maximizing profit in form of dividend without taking in to consideration the earnings and market values of the company. Since earning and market values of a company is an important decision variable, it needs to be handled with care if an investor must maximize profit and remain in business. In view of these complexities and importance surrounding earnings, dividends, trading volume and market values of the firm. This research work has attempted to offer solutions to the problem put in question form as stated below: What influence do the earning of a company as reflected in the Earnings Per Share (EPS) has on the values of the company? What influence does the Dividend Per Share (DPS) paid by the company has on the value of the company? Does the earning yield of a company affect the market value of the firm?