Earnings persistence and stock prices: empirical evidence from an emerging market

Purpose – This study aims to investigate the persistence ability of accounting variables, namely, abnormal earnings, book value, accruals and cash flows over a period of time and their valuation relevance in Indian scenario. Design/methodology/approach – The study utilizes the generalized version of the Ohlson model which links market prices with abnormal earnings, book value and earning components (accruals and cash flows). Fixed-effect panel data regression is used to analyze six years of data on the sample units to determine the persistence and valuation relevance. Findings – The findings provide evidence on the construct of persistence and value relevance of earnings and book value of equity in the Indian context. The findings further confirm that investors in India are fixated on earnings and fail to attend separately to the cash flow and accrual components of earnings while undertaking their investment decisions. Practical implications – The empirical findings of the study will enable the analysts and investors to understand the relevance and persistence of accounting variables in case of an emerging market like India. Originality/value – The study extends the extant literature on value relevance studies in developed markets to an emerging market like India and enriches it in several ways.

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The value relevance of earnings, cash flows and book values in Egypt

Management Research Review ◽

10.1108/mrr-02-2016-0031 ◽

2016 ◽

Vol 39 (12) ◽

pp. 1752-1778 ◽

Cited By ~ 4

Author(s):

Wael Mostafa

Keyword(s):

Capital Market ◽

Stock Prices ◽

Value Relevance ◽

Emerging Market ◽

Accounting Information ◽

Cash Flows ◽

Apparent Lack ◽

Content Type ◽

Market Values ◽

Book Values

Purpose Motivated by the lack of research on the value relevance of accounting information in the emerging markets of Middle Eastern countries, and the unique institutional and accounting setting in Egypt, this paper aims to investigate the relation between capital market and accounting information in the emerging market of Egypt. Specifically, based on Egyptian data, this study examines the value relevance of earnings, cash flows from operations and book values. Design/methodology/approach To examine the value relevance of the above accounting measures, this study uses statistical associations between accounting information and capital market values: the association between earnings and annual returns; the association between cash flows and accruals, and annual returns; and the association between earnings and book values of equity, and stock prices. Findings The results show that, first, earnings have value relevance. However, earnings changes are significantly more successful than earnings levels in explaining security returns. These results suggest that changes in earnings are largely permanent; hence, earnings follow (close to) a random walk model. Second, contrary to what is stated in the literature, cash flows from operations are not successful in explaining stock returns. This result suggests that cash flows are less important and not value relevant in Egypt compared to the USA or the UK. A possible explanation is that cash flows in Egypt are very volatile (high variance) and not persistent, so the market does not rely on them. Third, individually, both earnings and book values significantly explain stock prices; however, jointly, earnings have incremental explanatory power beyond book values for stock prices whereas book values do not. These results suggest that in Egypt the income statement is much more important than the balance sheet for valuation purposes. Overall, these results are interesting because they do not completely replicate the results from other countries. Practical implications The existence of value relevance for earnings despite the apparent lack of value relevance for cash flows can be interpreted as indicating that accruals are designed to offset and smooth cash flows’ volatility and low value relevance, so that earnings are relatively more persistent and relevant. These results show that earnings potentially are a much more important and informative measure of a firm’s value than cash flows from operations in Egypt. However, we certainly need the cash flows information as an ex-post validation of the prior earnings. Overall, it appears that the investors in Egypt are looking at the accounting data when evaluating the value of the firm, which is a good sign. However, the empirical findings of this paper are discussed. Originality/value This study contributes to the limited research on value relevance of accounting information in the emerging market of Egypt.

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The effect of internal control on earnings quality in Iran

International Journal of Law and Management ◽

10.1108/ijlma-02-2016-0012 ◽

2017 ◽

Vol 59 (4) ◽

pp. 534-546 ◽

Cited By ~ 1

Author(s):

Mahdi Salehi ◽

Mostafa Bahrami

Keyword(s):

Internal Control ◽

Value Relevance ◽

Stock Exchange ◽

Earnings Quality ◽

Pearson Correlation ◽

Systematic Sampling ◽

Content Type ◽

Listed Firms ◽

Panel Data Regression ◽

Data Regression

PurposeThe purpose of the present research is to examine the effect of internal control and risk management on earnings quality of companies listed on the Tehran Stock Exchange (TSE). Design/methodology/approachData were collected from 560 listed firms on TSE, which were selected using systematic sampling. Descriptive statistics, Pearson correlation and panel data regression were used for data analysis during 2009-2014. FindingsThe results showed that earnings management reduces earnings relevance and book value relevance through short-term and long-term discretionary accruals. Originality/valueThe outcomes of the current study are quite interesting to academia and practitioners.

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Do non-staggered board elections matter to earnings quality and the value relevance of earnings and book value?

Review of Accounting and Finance ◽

10.1108/raf-01-2015-0006 ◽

2017 ◽

Vol 16 (1) ◽

pp. 46-66 ◽

Cited By ~ 2

Author(s):

Shuling Chiang ◽

Gary Kleinman ◽

Picheng Lee

Keyword(s):

Corporate Governance ◽

Board Of Directors ◽

Stock Prices ◽

Positive Relationship ◽

Value Relevance ◽

Earnings Quality ◽

Discretionary Accruals ◽

Content Type ◽

Book Value ◽

The Impact

Purpose The purpose of this paper is to examine the impact of non-staggered voting for members of the board of directors on earnings quality and the value relevance of earnings and book value. Design/methodology/approach The authors used a sample of Taiwanese firms whose board was elected as a whole every three years from 2003 to 2013. The authors used multiple regression analysis to test whether board of directors elections and corporate governance affected earnings quality and the value relevance of earnings and book value. Findings The authors found that elections led to lower earnings quality, but better corporate governance led to greater earnings quality. In the presence of board elections, earnings have reduced value relevance but book value had increased value relevance. Finally, given board elections, the relative value relevance of earnings and book value on stock price was not fully moderated by strong corporate governance. Research limitations/implications The results presented here indicate the importance of better corporate governance in diffusing suspicions of management occasioned by the use of discretionary accruals in years in which board elections take place. Better corporate governance regimes led to a more positive relationship of discretionary accruals to earnings persistence, even in the presence of directorial elections. Similarly, better corporate governance regimes led to a more positive relationship between earnings per share and stock prices. Limitations include the restriction of the testing locale to Taiwan. That said, many companies around the globe use non-staggered board elections. Accordingly, these results suggest issues of importance to corporate governance advocates beyond Taiwan as well. Originality/value This study deepens the field’s understanding of the impact of corporate governance arrangements and schedules for electing board of directors’ members on issues of interest to stockholders.

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ANALISIS PERBEDAAN RELEVANSI NILAI DARI NILAI BUKU EKUITAS DAN LABA PER LEMBAR SAHAM TERHADAP HARGA SAHAM PADA PERIODE SEBELUM DAN SESUDAH PENERAPAN SAK BERBASIS IFRS

Equity ◽

10.34209/.v19i1.476 ◽

2016 ◽

Vol 19 (1) ◽

pp. 53

Author(s):

Panubut Simorangkir

Keyword(s):

Regression Analysis ◽

Stock Exchange ◽

Market Price ◽

Market Prices ◽

Random Effects Models ◽

Book Value ◽

Panel Data Regression ◽

Data Regression ◽

Before And After ◽

Independent Variable

This study was conducted to examine whether the implementation of GAAP-IFRS based results of any difference relevance of equity book value and share earnings, using the market price of the stock as the dependent variable, the equity book value and share earnings as an independent variable, and the periods before and after the application of GAAP-based IFRS. The analysis uses panel data regression analysis with random effects models. This research was conducted on 51 manufacturer companies listed on the Stock Exchange the period prior to the application of IFRS-based IFRSs 2008-2010 and after the application of GAAP-IFRS based in 2012-2014. The study found that in the period of after the implementation of GAAPIFRS based the relevance of equity book value increased against the market price of the shares, while the relevance of share earnings experienced a significant decrease in stock market prices

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Relevansi Nilai Informasi Akuntansi Pada Laba, Nilai Buku, dan Arus Kas Operasi: Kasus di Perbankan Indonesia

AKTSAR Jurnal Akuntansi Syariah ◽

10.21043/aktsar.v3i2.7846 ◽

2020 ◽

Vol 3 (2) ◽

pp. 119

Author(s):

Sofyan Hadinata

Keyword(s):

Stock Prices ◽

Value Relevance ◽

Stock Exchange ◽

Accounting Information ◽

Cash Flows ◽

Least Square ◽

Panel Data Regression ◽

Statistical Effect ◽

Variable Sampling ◽

Regression Techniques

<p class="bdabstract">This study aims to examine the relationship between capital markets and accounting information in Indonesian banking. Specifically, this study examines the value relevance of earnings, book values, and operating cash flows. Using a sample of banks listed on the Indonesia Stock Exchange from 2014 to 2018, this study accommodates the documented accounting information in the context of developing markets using stock prices of four months after year-end as a dependent variable. Sampling using a purposive sampling method. This research obtained 35 companies used in this study sample. This study uses panel data regression techniques with the Generalized Least Square (GLS) analysis approach. This study indicates that earnings and book value statistically have a positive effect on stock prices. Meanwhile, operating cash flow has no statistical effect on stock prices. This study also shows that earnings more value-relevant than other variables.</p>

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Valuations of electricity distribution and retail companies in an emerging market

International Journal of Energy Sector Management ◽

10.1108/ijesm-02-2016-0009 ◽

2017 ◽

Vol 11 (2) ◽

pp. 329-349

Author(s):

Hasan Alma ◽

Mehmet Baha Karan

Keyword(s):

Emerging Market ◽

Empirical Studies ◽

Cash Flows ◽

Electricity Distribution ◽

Main Hypothesis ◽

Market Prices ◽

Content Type ◽

Distribution Company ◽

Energy Companies ◽

Extreme Scenario

Purpose This paper is aimed to evaluate recently privatized 18 electricity distribution and retail companies, using the data and conditions at the time they were privatized. The main hypothesis of the study is that most of the privatized companies in this research are underpriced similar to previous experiences in developed and emerging economies. Design/methodology/approach Values of the companies are calculated considering the formal procedures of Turkish energy authorities. These companies are valued under the base, moderate and extreme scenarios created from different sets of assumptions considering conditions and existing data at the time they were privatized. Discounted cash flows (DCF) methodology is used in the estimations. The market prices obtained in their privatization tenders are compared with those theoretically calculated values (intrinsic prices). Findings The findings reject the hypothesis and indicate an overpricing in general in the privatizations of Turkey. Even the extreme scenario which gives the highest intrinsic values supports the findings. Research limitations/implications Research is limited with 18 regional electricity distribution company in Turkey. Originality/value The paper is one of the initial empirical studies on the valuation of energy companies using DCF methodology in an emerging market.

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RELEVANCE OF ACCOUNTING INFORMATION TOWARDS SHARE PRICES OF JAKARTA ISLAMIC INDEX (JII) LISTED COMPANIES

Imara JURNAL RISET EKONOMI ISLAM ◽

10.31958/imara.v5i1.2710 ◽

2021 ◽

Vol 5 (1) ◽

Author(s):

Fitri Utami ◽

Slamet Haryono ◽

Abdurrahman Niarman

Keyword(s):

No Value ◽

Stock Prices ◽

Value Relevance ◽

Accounting Information ◽

Share Price ◽

Return On Equity ◽

Share Prices ◽

Panel Data Regression ◽

Data Regression ◽

And Performance

Accounting information has an important role in describing the condition and performance of a company. However, some investors have not fully used accounting information in sorting out share purchases. This study examines the relevance of accounting information to share prices in companies listed on the Jakarta Islamic Index (JII) for the period 2015 to 2020. The accounting information used is Earnings per Share (EPS), Book Value (BV), Return On Equity (ROE), Net Profit Margin (NPM), and Current Ratio (CR). With the panel data regression analysis method, the researcher found that collectively all accounting information (EPS, BV, ROE, NPM and CR) were stated to have relevance value in explaining their effect on stock prices. Individually, only BV and ROE have relevance value in influencing stock prices. As for EPS, NPM and CR have no value relevance to the share price of companies listed on the Jakarta Islamic Index (JII) for the period 2015 to 2019

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ANALISIS PERBEDAAN RELEVANSI NILAI DARI NILAI BUKU EKUITAS DAN LABA PER LEMBAR SAHAM TERHADAP HARGA SAHAM PADA PERIODE SEBELUM DAN SESUDAH PENERAPAN SAK BERBASIS IFRS

Equity ◽

10.34209/equ.v19i1.476 ◽

2016 ◽

Vol 19 (1) ◽

pp. 53

Author(s):

Panubut Simorangkir

Keyword(s):

Regression Analysis ◽

Stock Exchange ◽

Market Price ◽

Market Prices ◽

Random Effects Models ◽

Book Value ◽

Panel Data Regression ◽

Data Regression ◽

Before And After ◽

Independent Variable

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Value relevance of accounting information: an emerging country perspective

Journal of Accounting & Organizational Change ◽

10.1108/jaoc-07-2017-0064 ◽

2018 ◽

Vol 14 (4) ◽

pp. 473-491 ◽

Cited By ~ 3

Author(s):

Bismark Badu ◽

Kingsley Opoku Appiah

Keyword(s):

Financial Reporting ◽

Stock Prices ◽

Value Relevance ◽

Stock Exchange ◽

Accounting Information ◽

Price Model ◽

Content Type ◽

Book Value ◽

Emerging Country ◽

Ghana Stock Exchange

Purpose This paper aims to examine the value relevance of accounting information from an emerging country perspective. Design/methodology/approach The study adopts Ohlson (1995) Price model to examine the extent to which accounting information explain variation in stock prices of listed firms on the Ghana Stock Exchange. Findings The study reveals that earnings and book value of equity exhibit a positive and significant relationship in stock prices. Earnings explain higher variation in stock market values on the Ghana Stock Exchange compared to book value of equity. The study however finds that despite the introduction of the International Financial Reporting Standards in Ghana, the value relevance of book value and earnings have declined significantly over the period 2005-2014. Research limitations/implications A key implication is that regulators of capital markets, standards setters and accounting practitioners need to consistently improve upon the quality of financial reporting disclosures which will boost the confidence of users in their reliance on financial statements as the basis for choosing among alternative use of scarce resources. The authors adopted only the price model in testing the hypotheses. However, to provide comprehensive understanding of value relevance of accounting information, future studies can combine both the price and the return models. Originality/value The authors extend prior literature in the Ghanaian context with recent data. Finally, the study adds to the efficient market hypothesis by showing how share prices reflect accounting information produced by Ghanaian firms.

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DETERMINATION OF DIVIDEND POLICY OF MANUFACTURING COMPANIES IN INDONESIA

International Journal of Economic, Business, Accounting, Agriculture Management and Sharia Administration (IJEBAS) ◽

10.54443/ijebas.v1i2.84 ◽

2021 ◽

Vol 1 (2) ◽

pp. 337-346

Author(s):

Husaini Husaini ◽

Marzuki Marzuki ◽

Nurhasanah Nurhasanah

Keyword(s):

Capital Market ◽

Dividend Policy ◽

Emerging Market ◽

Cash Flows ◽

Manufacturing Companies ◽

Law System ◽

Panel Data Regression ◽

Data Regression ◽

Free Cash Flows ◽

The Capital Market

This study examines the factors that determine (determination) dividend policy in manufacturing companies in Indonesia. In general, economic conditions in Indonesia are still in the emerging market category. As a developing country, Indonesia's capital market is relatively large and has its own characteristics which are reflected in investor behavior and government regulations in the capital market. Indonesia, in its behavior in the capital market adheres to a civil law system, meaning that investors are given the widest freedom to conduct transactions in the capital market, especially in the wrong amount owned by investors. The variables used to analyze dividend policy are profitability, free cash flows, firm size and leverage. This study only focuses on manufacturing companies that distribute dividends with an observation period from 2015-2019. The sampling method used purposive sampling and obtained 145 companies that distribute dividends. The data was processed using panel data regression analysis with analysis tools using E-Views software. From the research, it is found that the ROA and F_SIZE variables have a positive and significant effect on the DPR. FCF and Leverage variables measured by (TDTE) have a negative and significant effect on dividend policy as measured by the DPR in manufacturing companies in Indonesia.

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