Value Relevance of Financial Derivatives: Evidence from Nigerian Listed Banks

Abstract

The usefulness of accounting information to the investors can be measured by the relevance of such information. In literatures relevance is operationalized by the value relevance which is the extent to which accounting information summarises the information in stock prices. The primary objective of this paper was to ascertain the relevance of financial derivates instruments. The paper uses a sample of fourteen quoted banks in the Nigerian stock Exchange over the period 2012 to 2015. Using a modification of the standard Ohlson model which regresses earnings and book value deflated by shares outstanding at year end, the variables of financial derivative assets and liabilities are in included in the standard model. The paper employes a Panel regression method to accommodate the heterogeneity of the sample data. Findings in this study indicate that derivative assets do not have a statistical significant association with share prices of listed commercial banks in Nigeria. The analysis reveals that except for the variable of earnings per share and firm size, all other independent variables of derivative assets, derivative liabilities and book value per share did not show any significance value relevance in the Nigerian commercial banks during the period of under consideration. Premised on this, the study recommends that investors should pay close attention to the book value per share in the financial statements rather than the net derivatives with a view to maximizing wealth

Keywords: Derivatives, Value Relevance, Ohlson Model, Panel Regression