Relationship Between Firm Profitability and Market Value: Review of Quoted Manufacturing Firms in Nigeria

Abstract

This study investigated the relationship between profitability indicators (Return on Assets, Return on Equity and Earnings Per Share) and the market valuation of listed manufacturing firms in Nigeria. Using a panel data regression technique, the study analyzed secondary data from 44 manufacturing firms over a ten-year period (2015-2024). The results from the fixed-effects regression model revealed that the overall model is statistically significant (F = 51.15; p < 0.01), indicating that the explanatory variables jointly influence market valuation. Specifically, Return on Equity was found to have a positive and statistically significant effect (β = 0.3330, p = 0.000), implying that firms with higher equity returns tend to attract higher market valuations. Conversely, Return on Assets exhibited a positive but weakly significant relationship (β = 0.0012, p = 0.085), leading to a failure to reject the null hypothesis, while Earnings Per Share showed a negative and statistically insignificant effect (β = -0.1802, p = 0.442). The study concluded that while Return on Equity is a critical profitability metric with significant implications for market valuation, Return on Assets and Earnings Per Share have limited influence on market valuation in the context of Nigerian manufacturing firms. Recommendations included focusing on improving asset utilization strategies and adopting policies that enhance shareholder returns, alongside enhancing transparency in earnings quality to restore investor confidence in EPS disclosures.