Nigerian Banks’ Specific Factors and Market Share Price Nexus: A Cointegration Approach

Shamisudeen O. Badmus, Matthew A. Abata, Yusuf A. Soyebo

Abstract


In modern banking operations, reports on banks’ failure, classified loans and the size of assets, as well as erratic share-price movements, have stirred the interest of various stakeholders in Nigerian banking industry. This study investigates the long-run relationship between Nigerian banks’ specific factor and market share prices using the Pedroni cointegration approach – based on data from 11 out of 15 quoted banks between 2003 and 2015. The specified variables cointegrated for panel analysis and the observed long-run relationship were estimated using Dynamic Ordinary Least Square (DOLS). The result shows a negative relationship between return on assets and market price of shares. Thus, it is recommended that banks should initiate a bad debt reduction policy and diversify their loan portfolios to less risky sectors. Similarly, an optimum asset holding policy should be formulated by banks’ managers for easy classification of assets as either performing or relinquished ones. In addition, investors should diversify their investment holdings optimally across bank assets, non-bank assets, and government stocks.


Keywords


Banks; Non-Performing Loans; Market Price; Performance.

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