Do Strong Cash Flows Mean Stronger Bank Stocks in Nigeria?

Abstract

The study examined the effect of cash flow on share prices of listed deposit money banks in Nigeria. Specifically, it assessed the effect of operating cash flow, investing cash flow, and financing cash flow on bank share prices. An ex-post facto research design was adopted, and the population consisted of thirteen listed deposit money banks in Nigeria, out of which twelve were purposively selected due to data availability constraints. Secondary data were obtained from the audited annual reports of the selected banks covering the period 2015 to 2024. The study employed descriptive statistics and fixed effect regression analysis after conducting diagnostic tests including heteroskedasticity and cross-sectional dependence, with the Hausman test guiding the choice of estimator. The findings revealed that: operating cash flow had a positive and significant effect on share prices (β = 35.95389, p = 0.0000); investing cash flow had a positive and significant effect on share prices (β = 48.68247, p = 0.0000); financing cash flow had a negative and significant effect on share prices (β = -65.21824, p = 0.0000). Thus, this pattern highlights the importance of internally generated funds in influencing investor confidence and market valuation within the banking sector. The study recommended that financial managers and boards of directors of listed deposit money banks in Nigeria should carefully review financing decisions, particularly those involving debt and external funding, and adopt financing structures that reduce excessive reliance on costly obligations in order to manage investor perception and support favourable market valuation.