Value Relevance of Disaggregated Information: An Examination of the Rate and Volume Analysis of Bank Net Interest Income

2019 ◽  
Vol 34 (1) ◽  
pp. 19-43
Author(s):  
Qing L. Burke ◽  
Terry D. Warfield ◽  
Matthew M. Wieland
Keyword(s):  
Stock Returns ◽  
Value Relevance ◽  
Comprehensive Analysis ◽  
Funding Sources ◽  
Rate Analysis ◽  
Interest Income ◽  
Performance Drivers ◽  
Income Measure ◽  
Important Form ◽  
Is Value

SYNOPSIS A potentially important form of financial information disaggregation is to segregate the change in an income measure into its underlying performance drivers. In this study, we perform a comprehensive analysis of the usefulness of such disaggregation to investors. We utilize the volume and rate analysis in banks' 10-K filings, in which banks disaggregate annual changes in net interest income into changes in the balances (“volume variance”) and changes in the rates (“rate variance”) of assets and liabilities. We document that volume and rate variances are associated with bank characteristics, including market power, funding sources, and credit risk. We find volume and rate variances are predictive of future net interest income and are positively associated with stock returns and prices, suggesting the disaggregated information is value relevant. Our study informs regulators and users by showing that disaggregated information along volume and rate dimensions has predictive and confirmatory value.

The value relevance of capital expenditures and the business cycle

2018 ◽  
Vol 35 (3) ◽  
pp. 386-406 ◽  
Author(s):  
Sungsoo Kim ◽  
Brandon byunghwan Lee
Keyword(s):  
Business Cycles ◽  
Stock Returns ◽  
Value Relevance ◽  
Financial Data ◽  
Capital Expenditures ◽  
Capital Investments ◽  
Content Type ◽  
Market Participants ◽  
Business Conditions

Purpose This paper aims to clarify the relationship between corporate capital investments and business cycles. Specifically, a major purpose of this paper is to investigate whether there are inherent differences in corporate investment patterns and whether the stock market exhibits different reactions to the value relevance of capital expenditures across different business conditions. Design/methodology/approach The authors use pooled ordinary least square regressions with archival stock price data and financial data from CRSP and Compustat. The authors regress buy and hold returns on the main test variables and control variables that are identified to be related to the investment literature. Findings This paper provides empirical evidence that US firms’ capital expenditures are more value relevant to capital market participants during expansionary business cycles and, conversely, less value relevant during contractionary business cycles. This evidence validates previous literature that has found the information content of capital expenditures to be uncertain and cyclical in nature. Research limitations/implications The main limitation of this paper, as with other work dealing with stock returns and archived financial data, is that the authors try to match stock returns with contemporaneous financial data in an association study context. The precise mapping in this methodology is always challenging and has been questioned in the literature. Practical implications This paper has various implications for capital market participants. Capital expenditures are good news for investors, but they will make a better investment when firms make capital investments during an expansionary period. Creditors deciding whether to extend credit to firms would benefit from more accurate information on the viability of long-term investment. The results also suggest to creditors that an excessive number of loans during the contractionary period may be suboptimal because firms’ returns on capital investment are smaller in that period than in the expansionary period. Social implications Given the valuation of implications of long-term capital investments across different business conditions, this paper sheds light on asset allocations for mutual funds, institutional investors who are entrusted with investors’ investments including retirement funds. Originality/value This paper fulfils an identified need to study how capital investments are valued differently across different business conditions.

scholarly journals Do consistent CSR activities matter for firm value?

2016 ◽  
Vol 14 (1) ◽  
pp. 340-350 ◽  
Author(s):  
Loai Alsaid
Keyword(s):  
Stock Returns ◽  
Firm Value ◽  
Value Relevance ◽  
Explanatory Variables ◽  
Earnings Response Coefficient ◽  
Unexpected Earnings ◽  
Valuation Effect ◽  
Interaction Variables ◽  
Earnings Response ◽  
Corporate Social

This paper investigates how investments in corporate social responsibility (CSR) activities affect firm value. We categorise firms’ CSR activities as strategic or opportunistic based on consistency, and analyse the differential value relevance effect. We use the Egyptian Economic Justice Index (EEJI) as the most representative measure for firms’ CSR activities in Egypt. To measure valuation effect, we adopt an earnings response coefficient (ERC) model. Our main explanatory variables are interaction variables with unexpected earnings and two dummy variables; one indicating CSR activities, and one indicating their consistency. We document these variables as positively and negatively significant. Our findings show that investing in CSR activities consistently and strategically may increase firm’s profitability and firm value. However, firms that sporadically invest in CSR activities show a smaller relationship between unexpected earnings and stock returns than firms that consistently invest in CSR activities.

scholarly journals Value Relevance of Corporate Environmental Performance: A Comprehensive Analysis of Performance Indicators Using Korean Data

2020 ◽  
Vol 12 (17) ◽  
pp. 7209 ◽  
Author(s):  
Hyunwoo Choi ◽  
Ingoo Han ◽  
Jaywon Lee
Keyword(s):  
Performance Indicators ◽  
Environmental Performance ◽  
Firm Value ◽  
Performance Indicator ◽  
Value Relevance ◽  
Comprehensive Analysis ◽  
Corporate Environmental Performance ◽  
Main Research ◽  
Prior Literature ◽  
Environmental Performance Indicators

This paper examines the value relevance of corporate environmental performance (CEP) using individual environmental performance indicators and multidimensional constructs derived from Trumpp et al. (2015). Accounting information can be described as ‘value-relevant’ when the information in financial statements has the ability to explain firm value. In recent years, stakeholders such as governments, public institutions, firms, customers, and local communities have recognized the importance of corporate environmental performance. Thus, one of the main research questions is whether corporate environmental performance is value relevant. The empirical results in this paper indicate that only a few individual environmental performance indicator variables are value relevant, while most environmental performance constructs have a significant impact on firm value. Our findings suggest that firm value significantly increases with improved environmental management or operational performance. In addition, environmental performance indicators and environmental performance constructs have a significant impact on firms in environmentally sensitive industries, confirming the notion of higher value relevance of environmental information for firms in these industries. This study contributes to prior literature by carrying out a comprehensive analysis on the multidimensional nature of corporate environmental performance and its impact on value relevance. This paper also reconciles extant literature on the construct validity of environmental performance indicators and environmental performance constructs by formulating standardized composite measures of CEP following Larker et al. (2007).

Value Relevance of DuPont Identity

2017 ◽  
Vol 7 (2) ◽  
pp. 48
Author(s):  
Pradeep Kumar Gupta
Keyword(s):  
Stock Returns ◽  
Value Relevance ◽  
Stock Exchange ◽  
Accounting Information ◽  
Empirical Support ◽  
Operating Efficiency ◽  
Valuation Theory ◽  
Financial Leverage ◽  
Return On Equity ◽  
Use Efficiency

This study provides an empirical support to the relevance of very prevalent and well-established almost a century ago the DuPont Identity in the context of India, one of big 10 emerging markets (Garten, 1997). The DuPont Identity, a familiar form of financial statement analysis (Soliman, 2008) for use in equity valuation (Nissim and Penman, 2001), decomposes the return on equity (ROE) into three multiplicative components: net profit margin (operating efficiency), assets turnover ratio (asset use efficiency) and equity multiplier (financial leverage). The present study is based on the valuation theory which considers the viewpoint of equity investors to empirical investigate the value relevance of accounting information (Beisland, 2009). In this study, value relevance of three measures of accounting information used in the DuPont Identity is investigated for 228 manufacturing firms listed in National Stock Exchange (NSE) of India over a period of ten years from 2006-07 to 2015-2016. The findings indicate that the firms should focus on asset use efficiency and financial leverage components of DuPont Identity since a statistically significant impact of these two components on the stock returns is found. The strategic use of asset efficiency and financial leverage inevitably ensures the operating efficiency of the firms. This empirical investigation is an addition to the value relevance literature with an important insight to the firms and the participants of stock market about the usefulness of DuPont Identity in the context of India.

The value relevance of accounting information in the MENA region

2019 ◽  
Vol 17 (3) ◽  
pp. 519-536 ◽  
Author(s):  
Doaa El-Diftar ◽  
Tarek Elkalla
Keyword(s):  
Regression Model ◽  
Developing Economies ◽  
Negative Impact ◽  
Value Relevance ◽  
Accounting Information ◽  
Mena Region ◽  
Content Type ◽  
Ifrs Adoption ◽  
The Impact ◽  
Is Value

Purpose The purpose of this paper is to examine the value relevance of accounting information in the Middle East and North Africa region (MENA) region with an emphasis on the potential impact of IFRS adoption. This paper aims to not only examine the value relevance of accounting information in the MENA region but also draw comparisons between Gulf countries (GCC) and non-GCC country firms to determine whether there are distinct differences across the two regions. Design/methodology/approach To investigate the value relevance of accounting information in the MENA region, two pooled regression models are used based on the Ohlson (1995) model. The first regression model is conducted for the GCC and non-GCC regions separately. A second regression model is conducted using a pooled sample of the MENA region collectively with dummy and interaction variables to further explore the potential differences between the two regions in terms of the value relevance of accounting information. Findings The empirical results show that the measures of accounting information have a highly significant positive relationship with the market value per share for firms in the MENA region, thereby indicating that accounting information in the MENA region is value relevant. Although book value per share and earnings per share are significant determinants of value relevance in both GCC and non-GCC country firms, operating cash flows per share is only a significant determinant of value relevance in non-GCC country firms. The research findings of the study also show a significant negative impact of IFRS adoption on the value relevance of accounting information in the MENA region. Practical implications This research paper provides important insights for investors and regulators by providing evidence that accounting information is value relevant in the MENA region, and that IFRS adoption does not necessarily lead to a greater degree of value relevance. In fact, investors and regulators should be aware that the adoption of IFRS in MENA country firms results in diminished value relevance of accounting information. This finding is of particular significance to policymakers attempting to improve accounting disclosure. Originality/value The paper expands the value relevance of accounting information literature in the context of developing economies, in general, and the MENA region, in particular. There is a paucity of research into the value relevance of accounting information for MENA country firms, particularly in the case of the impact of IFRS adoption. Thus, this paper provides an important contribution in terms of expanding the value relevance literature in relation to IFRS adoption in the MENA region.

scholarly journals A Reexamination of Earnings Persistence on the Incremental Value Relevance of Earnings Levels and Earnings Changes

2018 ◽  
Vol 8 (2) ◽  
pp. 126
Author(s):  
Simon Yang
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Value Relevance ◽  
Relevant Information ◽  
Earnings Persistence ◽  
Incremental Value ◽  
Complementary Value ◽  
The U.S

This study reexaminesthe role of earnings persistence as to understand the incremental value relevance of earnings levels and earnings changes in explaining stock returns in the stock market of U.S. The results show that earnings levels and earnings changes together provide the higher value relevant information than each earnings variable alone in explaining stock returns. An increase in earnings persistence, approximated by different time-serial and firm-specific measures, puts more (less) value relevant weight on earning changes (levels). However, the complementary value relevance between earnings levels and earnings changes is somehow weak, implying that a possibly deteriorating valuation role for earnings levels and earnings changes may occur in the recent years for the U.S. stock market.

scholarly journals RELEVANSI DAN RELIABILITAS GOODWILL (Sesudah Penerapan ED PSAK 22 Revisi 2010)

2017 ◽  
Vol 7 (1) ◽  
Author(s):  
Theresia Hesti Bwarleling
Keyword(s):  
Value Relevance ◽  
Is Value ◽  
Relevance And Reliability

<p><em>The purpose of this study is to examine the value relevance and reliability of reported goodwill under PSAK in 2011; a period characterised by accounting treatment for goodwill which was showing the value relevance and reliability of reported goodwill after the adoption of IFRS  (ED PSAK 22 revision 2010). By using an adaptation of Feltham and Ohlson (1995), this study found that for the average Indonesian company the information presented with respect to goodwill is value relevant but not reliable. In particular, goodwill tends to be reported conservatively</em></p><p><em> </em></p><p><strong>Keyword : </strong><em>relevance, reliability, goodwill, ED PSAK 22 revision 2010</em></p>

scholarly journals Relevância da informação contábil para o mercado brasileiro de capitais: uma análise comparativa entre lucro líquido, lucro abrangente e fluxo de caixa operacional

2017 ◽  
Vol 16 (1) ◽  
pp. 381-408
Author(s):  
Tayná Cruz Batista ◽  
Juliana Ferreira de Oliveira ◽  
Marcelo Alvaro da Silva Macedo
Keyword(s):  
Organizational Performance ◽  
Stock Returns ◽  
Cash Flow ◽  
Value Relevance ◽  
Accounting Information ◽  
Sao Paulo ◽  
Share Price ◽  
São Paulo ◽  
Comprehensive Income ◽  
Operating Cash Flow

Para que as informações contábeis sejam úteis às partes interessadas é necessário, entre outros aspectos, que elas sejam relevantes na revelação do desempenho organizacional. Os estudos sobre a relevância da informação contábil buscam analisar, de maneira geral, se as variações nos preços/retornos das ações guardam relação com as informações contábeis. Ou seja, verificam a relevância das informações contábeis sob a ótica dos investidores (mercado de capitais). Nesse sentido, neste trabalho buscou-se analisar se as informações contábeis são capazes de explicar as variações ocorridas no preço da ação das empresas listadas na Bolsa de Valores de São Paulo (BM&FBovespa), utilizando o Lucro Líquido (LL), o Lucro Abrangente (LA) e o Fluxo de Caixa Operacional (FCO). A partir da base de dados Economática®, foram coletadas as informações referentes ao LL, ao FCO e a Outros Resultados Abrangentes (ORAs) de 2010 a 2013. Os resultados revelam que, de maneira geral, para o mercado brasileiro de capitais, o LL se mostrou mais relevante. Em seguida, observou-se que o LA foi o mais relevante. Por outro lado, constatou-se que o FCO apresentou menor relevância; isso pode estar associado ao fato de que o lucro atende a diversas demandas, o que pode justificar maior interesse dos usuários (investidores) por essa medida de desempenho em comparação com as demais informações analisadas.Palavras-chave: Relevância da informação contábil. Lucro Líquido. Fluxo de Caixa Operacional. Lucro Abrangente. Abstract For the accounting information to be useful to stakeholders, it is required, among other things, that they are relevant in the development of organizational performance. Studies on value relevance seek to analyze, in general, if the changes in prices/stock returns are related to the accounting information. So, they check the value relevance from the perspective of investors (capital markets). In this sense, this study sought to examine if the accounting information is able to explain the variations in the share price of companies listed on the São Paulo Stock Exchange (BM&FBovespa), using Net Income (NI), Comprehensive Income (CI) and Operating Cash Flow (OCF). The information for the NI, OCF and Other Comprehensive Income (OCI) of the years 2010 to 2013 were collected from the Economática® database. The results show that, in general, for the Brazilian capital market, the NI proved to be more relevant. Then it was observed that CI is the most relevant. Moreover, it was found that the OCF showed less relevance; this may be associated with the fact that profit meets various demands, what could justify greater interest of users (investors) by that measure performance in comparison to other information analyzed.Keywords: Value relevance. Net Profit. Operating Cash Flow. Comprehensive Income.

scholarly journals Relevance of earnings and book value: Evidence from listed pharmaceutical companies

2020 ◽  
Vol 18 (1) ◽  
pp. 196-206
Author(s):  
Mwila Mulenga ◽  
Meena Bhatia
Keyword(s):  
Decision Making ◽  
Stock Returns ◽  
Stock Prices ◽  
Value Relevance ◽  
Accounting Information ◽  
Least Square ◽  
Sufficient Evidence ◽  
Pharmaceutical Companies ◽  
Book Value ◽  
The Impact

For accounting information to be useful for decision making it is essential that it is relevant for decision-making and should have a significant relation with stock prices or stock returns. Value relevance research aims to explain the impact of accounting information on stock prices or stock returns. This study examines the value relevance of earnings and book values on listed Indian pharmaceutical companies’ stock prices by using the Ohlson price model. The study gathered a series of panel data from 2006 to 2015 from the Nifty Pharma index. Ordinary least square and panel regression estimation were done using EViews. The findings provide sufficient evidence of those earnings per share (EPS) and book value per share (BVPS) jointly and individually for the Nifty Pharma index sample played an essential role in influencing stock prices. However, there is an insignificant decline in the combined value relevance of EPS and BVPS. The findings reveal that the EPS and BVPS played an important role in influencing stock prices. However, explanatory powers of EPS and BVPS in all years are significantly lower than that of developed countries. Overall findings show mixed results on the considerable influence of firm size on the value relevance of accounting information. This study’s findings have implications for analysts, investors, and other market participants; they should use EPS and BVPS in the equity valuation of pharmaceutical companies for better allocation of resources in capital markets.

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