This study examined the effect of inflation illusion on price-to-book value of quoted companies in Nigeria. Using panel data of 35 quoted firms and the Statistical Bulletin of the Central Bank of Nigeria from 2012 to 2021. The dependent factor was price-to-book value and the explanatory variables were real inflation rate, core inflation rate, nominal yield, real cash flow, nominal interest rate and money supply. Methods: Panel data techniques were applied, with a fixed-effects model being estimated at the 5% level of significance. Detailed information on pooled, fixed-effects, and random effects estimations were calculated in the first place and a Hausman specification test was performed to obtain the best-suited model. Model One results found inflation illusion differences explained 90% of the variation in quoted firms’ price value. Moreover, nominal yield created a positive impact on price value in the study period while real inflation rate and core inflation rate reflected negative effects. The results of Model Two illustrated that 89.7% of the variation in the price value of the sampled firms was explained by those inflation-illusion variables contained within the regression model. In this model nominal interest rate and money supply had positive effects all through the period examined, while real cash flow followed suit as price value decreasing. Based on the analysis, it was therefore concluded among others that inflation illusion is a major factor influencing market value of quoted firms in Nigeria. Managerial implications Given these findings, the results suggest management policies for proper management of the misleading unfavourable implications of inflation illusion in order to control the lump sum overvaluation of quoted firms.

Keywords: Inflation Illusion, Price to Book Value, Core Inflation Rate, Nominal Yield, Real Cash Flow, Normal Interest Rate, Money Supply Manufacturing Firms.