EARNINGS PERSISTENCE AND STOCK MARKET REACTION: EVIDENCE  FROM THE NIGERIAN STOCK EXCHANGE
ABSTRACT
This study Earnings Persistence and the Market reaction to stock returns is work done to help Stakeholders who use accounting information. The study is to enable investors to make long term Investment decisions for Effectiveness and Efficiency in its firms.
Earnings persistence, hence captures the Extent to which the current period innovation becomes a stable part of the earnings series. Persistence is believed to be associated with larger investor’s responsiveness to Reported Earnings.
    The study looks at Earnings Quality, its determinants, Measurements of Earnings Quality, the Capital Market, Earnings Persistence; consequences and determinants of Earnings persistence.
    The Research adopted is an Ex-post research design focusing on Listed Firm’s historical data that helps us investigate how earnings persistence affects stock returns.  Our population and Sample is drawn from Firms listed in the Nigerian Stock Exchange that are about 300 as at the time-series which is dated from 2009-2013, a period of 5 years. Meanwhile, our sample is taken from various Industrial sub-sectors excluding the financial firms such as Banks and Insurance Companies and the Non- financial firms that their financial year does not end on 31st December every year. Thereby, streamlining our focus to about 60 firms who meet up to the requirements of this study.
Using  Jarques-Bera  statistics  which we apply in the Regression Analysis. A correlation analysis of the variables in the study was also ran. We also used pooled data which combines cross sectional and time series data.
This study examines information content of earnings, cash flows and accruals components of earnings and the market reaction to these Information.
In chapter four, Data was presented, interpreted and analysed extensively. Marching up with our research hypothesis of which each was analysed, testing their goodness of fit and t-statistics.
In conclusion, the current earnings are positive variant of future earnings performance but not associated with cash flows and accruals component of earnings.
    TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
Background to the study    -    -    -    -    -    -     -    
Statement of problem    -    -    -    -    -    -     
 Objectives of the study    -    -    -    -    -    -     
Research hypothesis    -    -    -    -    -    -     -
Scope of the study        -    -    -    -    -    
Significance of the study    -    -    -    -    -    -
Limitation of the study    -    -    -    -    -    
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction    -    -    -    -    -    -    -
2.2 Theoretical framework    -    -    -    -    -    -
2.2.1 Determinants of Earnings Quality    -    -    -    -    -
2.3 Measures of Earnings Quality    -    -    -    -    
2.3.1 Accruals     -    -    -    -    -    -    -     
2.3.2 Smoothness    -    -    -    -    -    -
2.3.3 Excess Returns and Earnings Quality    -    -    -    -     
2.3.4 Persistence    -    -    -    -    -    -    -
2.3.5 Predictability     -    -    -    -    -    -    -    
2.3.6 Ways to Lower Earnings     -    -    -    -    
2.4 Earnings Management     -    -    -    -    -    -
2.5 Capital Market Reaction to Earnings Quality    -    -    
2.6 Conceptual framework     -    -    -    -    -    -    
2.6.1 Determinants of Earnings Persistence     -    -    -    -    
2.6.2 Consequences of Persistence     -    -    -    -    -    -
CHAPTER THREE: METHODOLOGY
3.1 Introduction     -    -    -    -    -    
3.2 Research Design    -    -    -    -    -    -    -    -
3.3 Population and Sampling of the study    -    -    -    -     
3.4 Model Specification    -    -    -    -    -    -
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS    
4.1 Introduction    -    -    -    -    -    -    -    -
4.2 Descriptive statistics    -    -    -    -    -    -    -
4.3 Correlation Coefficient     -    -    -    -    -    -    -    
4.4 Presentation of Regression Results    -    -    -    -    -    
CHAPTER FIVE: SUMMARY OF FINDINGS, RECOMMENDATIONS AND CONCLUSION
5.1 Introduction    -    -    -    -    -    -    -    -    
5.2 Key Findings of Study    -    -    -    -    -    -    -    -
5.3 Recommendation    -    -    -    -    -    -    -    
5.3.1 Regulatory Authorities     -    -    -    -    -    -    
5.3.2 Investors    -    -    -    -    -    -    -    -    -
5.4 Conclusion    -    -    -    -    -    -    -    -
Bibliography    -    -    -    -    -    -    -    -    
Appendix  -    -    -    -    -    -    -    -    -    -
CHAPTER ONE
1.1 BACKGROUND TO THE STUDY
     Accounting today is considered an information and accounting figures are one of the most important items obtained from the information system. Accounting earnings is a very significant number of the financial statements and is a measure for evaluating the profitability, free cash flows and managerial performance.
      The primary purpose of accounting is to provide financial information relating to the business unit for users in order to access decision making process. Financial statements represent very important source the investors need while making investment decision (Hadi,2006). This position is shared by standard boards(NASB) which states in SAS2 that the basic objective of financial statement is to provide information for investment decision making. Accounting information includes a critical metric of accounting earnings which is considered as the important source of information for evaluation of the profitability and future cash flows of the business.
    In recent years, Earnings quality has emerged an issue of interest to investors, managers, analyst and other market participants (Lipe 1990, Chan et al 2006, Cahan et al 2009). Although,Chan et al 2006 investigated the association of earnings quality and stock returns and revealed that poor earnings quality is associated with poor future returns.
1.2 STATEMENT OF PROBLEM
    The primary objective of general purpose financial reporting according to IASB conceptual framework (2010) is to provide information for providers of capital so as to enable them make decisions to provide further capital. In other words, the objective of financial statements is to provide information for investment decision making.
      The conceptual linkage between accounting information and firm value has been established by Olson (1975) framework. Extant literature right from Ball and Brown(1968) and Beaver(1968) have demonstrated the relationship between accounting information and firm value. This studies shows that stock returns are related to accounting information.
     Key accounting information in this study are earnings and book value. Studies in Nigeria show that earnings and book value do not relate to share prices.
     However, finance literature admits that earnings can be evaluated on the basis of quality, measure of earnings quality in literature includes extant of discretionary accruals, smoothness, predictability, earnings persistence and accrual quality.
    Previous studies have ignored the factor of earnings quality in the determination of stock returns accounting models which the basis of previous studies are salient on the factor of earnings quality.
    In the light of the foregoing, the primary problem of this study is to what extent earnings persistence determines stock returns and other questions which the study seeks to provide answers to.
1:3 OBJECTIVES OF THE STUDY
    Various studies have examined the returns earning relationship employing the price and return models. The earnings relationship documented substantial diversity in the association of earnings and returns in the country of Baltic religion, with the returns model revealing better result compared to the price and differenced model.
In the area of contrasting evidence from earlier studies regarding the ability of different model specifications relating earnings to returns. The primary objective of this study is to investigate the relationship between earnings and stock returns in the Nigerian stock exchange.
1:4 RESEARCH HYPOTHESIS
The research hypothesis of this study;
Hypothesis 1: current earnings are positively related to future earnings performance.
Hypothesis 2: current cash flow of operation has a positive relationship with future earnings performance.
Hypothesis 3: current accrual component is a positive variant of future earnings performance.
Hypothesis 4: earnings persistence is over estimated by investors in Nigeria capital market.
Hypothesis 5: cash flow persistence is overestimated by investors in the Nigerian capital market.
1.5 SCOPE OF THE STUDY
 This study focuses on firms quoted in Nigerian stock exchange. The time frame for the study is between 2009-2013. Within this time, the members of firms quoted in the stock exchange has increased from 208 in 2009 to about 300 in 2013.
    The focus on quoted firms drives from the fact that they are subjected to more stringent listing requirement among which is the presentation and publication of audited financial statement.
    The firms make it a good ground to study the earnings quality and how it affects stock returns (earnings return relationship).
1.6 SIGNIFICANCE OF THE STUDY
    This study has significance for several stakeholders who use accounting information for investment decision making.
    Investors in Nigeria who rely solely only information contained in financial statements to make investment decision. Earnings is a good indicator of future performance. Thus, investors should find the results of this study in respect to quality of persistence useful for optimal decision making.
    The Regulatory Authorities whose focus is to improve the quality of information will find the results of this study helpful. This is especially so, for Standard setters and Legislative efforts to improve quality of Financial Reporting.
    Management desiring to go beyond Accounting numbers to the Quality of such numbers can use the results of this study in their efforts to improve the Quality of such Information
1.7 LIMITATION OF THE STUDY
    The Primary limitation of this study is right from the Research design. The study employs a Sample that cuts across industrial sectors which ought to be accommodated in the methodology.
    Another limitation is the coverage of Sample Firms which represent less than 25% of listed Firms in the Nigerian Stock Exchange