ACTIVITY RATIOS AND STOCK RETURN OF DEPOSIT MONEY BANKS IN NIGERIA

Abstract

Activity Ratios are measures of a company’s effectiveness and efficiency in utilizing financial resources. The major objective of this study was to ascertain the relationship between activity ratios and stock returns of deposit money banks in Nigeria for the period 2011-2022. The study used cash/asset ratio as a measure of efficiency of operations and adopted secondary data obtained from the financial statement of sampled banking firms and the records of Nigeria Exchange Limited (NGX) for analysis and adopted the Generalized Method of Moments (GMM) technique for data analysis. Findings from the analysis showed that, cash/asset ratio, had negative and significant relationship with stock returns of deposit money banks in Nigeria. Hence, a balance link from cash received as deposits and approved loans is a prerequisite for healthy banking operations. Therefore, the study recommended that managers should take decisions to ensure balanced trade-off between customers’ satisfaction and profitability; managers of firm as agents should be thorough (maintain ethics) in the report of financial statement information; and Managers compensation should be structured based on stock return expectations, to enable the synchronization of financial ratios and stock returns