Determinants of Earning Response Coefficients (ERC) in Listed Deposit Money Banks in Nigeria

Abstract

This paper is set to examine the determinants of earnings response coefficients in Nigerian deposit money banks. Specifically, it examined how a bank’s level of non-performing loans, beta as a measure of market risk, earnings persistence, banks’ growth, and size influence shareholders, investors, and other market participants' investment decisions. An ex-post facto research design was adopted for the study, with secondary data collected from ten deposit money listed on the Nigerian Exchange Group from 2010-2022. Panel Least Square, Breusch Pagan, and LM and Pesaran Cross-Sectional Dependence tests were conducted to enhance the robustness of the analysis. Findings from the analysis revealed that market beta, non-performing loans, banks’ growth, and size were the major determinants of the earning response coefficient in selected listed deposit money banks in Nigeria. Consequently, the study recommends that the management of banks should focus on actively managing market risk, optimising bank size, and addressing non-performing loans to enhance market confidence and positively influence earnings response. Additionally, attention should be given to strategies promoting sustainable growth that can contribute to favourable market perceptions of earnings declared by banks.