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Banz (1981) empirically examined the relationship between the total market value of NYSE common stocks and their returns. All common stocks listed on the NYSE for at least five years i.e. between 1926 and 1975 were included in the sample. Based on the linear relationship of generalized asset pricing model, study indicated that on average, higher risk adjusted returns were associated with smaller firms. The size impact is not direct in the business sector esteem; the principle impact happens for little firms while there is little contrast in exchange between normal estimated and substantial firms. It is not known whether size fundamentally is in charge of the impact or whether size is simply an intermediary for one or all the more genuine obscure variables related with size.
The experimental relationship between income's yield, firm size and profits for the regular stock of NYSE firms was inspected by BASU (1983). The outcomes affirm that, on average, high risk-adjusted returns were associated with those portfolios which had high earnings yield and vice versa and that effect was statistically significant regardless of the possibility that trial control is practiced over contrasts in firm size. Then again, while the small NYSE firms seemed to have earned generously higher returns than the large NYSE firms, the size impact essentially vanished when returns were controlled for contrasts in risk and E/P ratios.
Glezakos et al., (2012) investigated the impact of accounting information on share prices. Sample of 38 listed companies of Athens Stock Exchange was taken for the period 1996 – 2008. Earnings per share (Eit) and Book value per share (BVit) are used as proxy variables for accounting information and are taken as independent variables, whereas, Stock price (Pit) is used as dependent variable in their study. They applied regression on logarithmic values of all variables of the study for each year. They find that jointly the two parameters are value relevant i.e. the explanatory power of the two parameters increases with time. However, earnings per share has less impact on stock prices as compared to book value per share.
Vijitha and Nimalathasan (2014) investigated the value relevance of accounting information and share prices. Sample of 20 manufacturing companies listed in Colombo Stock Exchange (CSE) are considered for this study for the period of 5 years i.e. from 2008 – 2012. Proxy variables used in this study to measure the accounting information include Earning per Share (EPS), Net Assets Value Per Share (NAVPS), Return On Equity (ROE) and Price Earnings Ratio (P/R) whereas Share Price (SP) is taken as dependent variable. By applying regression analysis technique they find that overall accounting information is significantly related to share prices at 1% significance level but individually EPS and NAVPS have significant whereas, ROE and P/E ratio have insignificant impact on share price.
Keener (2011) examined the relative value relevance of earnings and book value across industries. Data for many industries consisting of 98,284 companies is collected for the time period of 20 years i.e. from 1982 – 2001. Independent variables used in this study are Earnings per share (EPS) and Book value per share (BV) and Price per share (P) is used as dependent variable. Through pooled regression analysis he found that jointly EPS and BV are significant while individually book value is more relevant than earnings per share.
Elisa et al., (2013) studied the impact of accounting information on stock prices. Sample of 46 firms listed at OMX large Cap has been taken for this study. In this study, Book value per share (BVPS) and Earnings per share (EPS) are used as proxy variables for accounting information. By applying OLX regression on the data collected for the time period 2007 – 2010, they find that BVPS is more value relevant to share prices as compared to EPS.
Sibel KarÄŸÄ±n (2013) examined “the Impact of IFRS on the Value Relevance of Accounting Information”. Data is collected for the period 1998 to 2011 from the listed companies of Istanbul Stock Exchange (ISE). In this study, market value per share (MVPS) or stock prices is taken as dependent, whereas, book value per share (BVPS) and accounting earnings per share (EPS) are used as independent variables. Through OLS cross-sectional regression analysis, it is found that the value relevance of book value has increased as compared to the value relevance of earnings per share.
Sami and Zhou (2004) investigated the value relevance of accounting information for A-share and B-share investors in Chinese Stock Market. The two main variables used as proxy for accounting information are Book value per share (BV) and Earnings per share (E). Data for 401 A-shared and 401 B-shared companies is collected. Applying GLS and Pearson Correlation co-efficient technique, results of this study indicate that accounting information is value relevant for both A-share and B-share investors but investors mostly rely on BV.
Shehzad et al., (2014) studied the impact of accounting information on stock prices. This study includes the sample of 19 private banks listed on Karachi Stock Exchange (KSE). Data is collected for the period 2008 – 2012. Share price is taken as dependent variable whereas EPS and BVPS are used as independent variables in this study. Applying pooled regression technique, it is found that EPS is more related to stock prices as compared to book value.
Azeem and Kouser (2011) studied the impact of International Accounting Standards on the value relevance of accounting information. They took sample of 52 non-financial public limited companies which are listed on Karachi Stock Exchange and are largest by market capitalization. They applied regression analysis on the financial data of selected companies for the years 2002 – 2009. Empirical analysis of this study indicates that International Accounting Standards have impact on the value relevance of accounting information i.e. by adopting International Accounting Standards, value relevance of accounting information has improved.
Ghayoumi et al., conducted research on the factors that have impact on the value relevance of accounting information. They took final sample of 106 companies listed on Tehran Stock Exchange for the period 2001 - 2007. Variables of this study include, being profitable or loss generating, company size, earnings stability and company growth. Ohlson Model and cumulative regression analysis is used in this study to examine those factors. Findings of this study indicate that above mentioned factors are value relevant to accounting information.
Chen et al., empirically examined whether accounting information is value relevant in emerging Chinese stock market. They took sample of all listed firms in Shanghai and Shenzhen Stock Exchanges with available data for the time period 1991 – 1998. Based on return and price model, results of this study indicate that accounting information has relevance to investors in Chinese Stock Market.
Altahtmoni and Alslehat (2014) investigated the impact of Accounting Indicators and Growth on the Market Value. This study was conducted on the Jordanian banks for ten years’ time horizon i.e. 2002 to 2011. Return on Assets (ROA), Return on Equity (ROE), Earnings per share (EPS) and Growth were used as independent variables whereas, impact of these variables was tested against three dependent variables. Dependent variables of this study were, Market Price per share, Stock returns and Market to book value. By applying pooled regression technique they found that all the explanatory variables have positive impact on Market price per share and Market to Book value but have no effect on Stock Returns. Study also indicates that Earnings per share the most relevant explanatory variable.
Nisa and Nishat (2011) empirically examined the relationship between the stock prices, financial indicators and macroeconomic variables. They took the sample of 221 firms listed in Karachi Stock Exchange (KSE) for the time period 1995 – 2006. Stock prices were taken as dependent variable. Results of this study indicate that financial indicators like stock prices, Market capitalization (Size) and earnings per share are the most relevant. Furthermore, some macroeconomic variables for example GDP growth and interest rate are significantly related to stock prices.
Tahir et al., (2013) studied the impact of firms’ characteristics on stock returns. They took sample of 307 firms listed in Karachi Stock Exchange for the period of 13 years i.e. 2000 to 2012. Explanatory variables used in this study are Market capitalization, Earnings per share, Sales Growth and Book to Market value whereas, stock returns are used as dependent variable. By applying Regression analysis, Unit root and Granger Causality test, results of this study revealed that all the explanatory variables have significant impact on stock returns except Sales Growth.
Pervan and Bartulovic (2014) conducted a study on the capital markets of South Eastern European Countries to analyze the value relevance of accounting information. Sample of 97 companies, listed on the capital markets of South Eastern European Countries was selected for this study for the time period 2005-2010. Based on the Ohlson Model, results of this study indicate that accounting information is value relevant for all South Eastern European Capital markets.
Tamimi et al., (2011) in their study of the financial markets of UAE analyzed the factors that have impact on stock prices of UAE financial sector. Sample of study consisted of 17 financial sector companies which was divided into two sub groups i.e. banks and non-banks for the time period 1990 to 2005. Explanatory variables of study include Earnings per share, Gross domestic product, Consumer price index, Interest rate and Money Supply whereas, dependent variable was Stock prices. Based on the regression analysis, results indicated that EPS had statistically positive and significant impact on stock prices. Effect of money supply and GDP on stock prices was positive but statistically insignificant whereas, CPI and interest rate had negative impact on stock prices of which CPI was significant at 1% while interest rate was insignificant.
Haque and Faruqee (2013) empirically examined the basic influencing factors that have impact on stock prices. 14 pharmaceutical companies listed in Dhaka Stock Exchange were studied considered as sample of the study for the time period 2005 to 2011. This study was divided into two segments; firstly, relationship between the stock prices and the companies’ performance measures was examined where Earnings per share, Dividend per share, Return on Equity, Return on Assets and ratio of fixed assets to total assets were used as independent variables and their impact on stock prices was examined empirically; secondly, the market price of sample stocks was compared to the intrinsic value of stock where Net Assets value was considered as the proxy for ideal price. Applying the multiple regression analysis, study depicted that there was no significant correlation between the fundamentals factors and the stock prices. Furthermore, it was concluded that mostly the stocks were overvalued.
Penman et al., (2007) decomposed book-to-price (B/P) into two: an enterprise book-to-price which is related to the operations of an enterprise representing operating risk and other one is a leverage component that represents financing risk. The factual analysis indicated that there was positive relationship between operating component of book-to-price ratio and the succeeding stock returns but negative relationship was seen between the leverage component of book-to-price ratio and succeeding stock returns. Also, both parts of book-to-value clarified returns over those connected with Fama and French assigned components including the book-to-value component though contrarily so for influence The apparently unreasonable finding as for the leverage segment of B/P gets by under controls for size, evaluated beta, return instability, momentum, and default risk.
Datar et al (1998) empirically investigated the impact of liquidity on stock returns using a substitute test Amihud and Mendelson (1986). They used turnover rate as proxy for liquidity calculated as the number of shares traded divided by the number of shares outstanding. The dataset consisted of all non-financial firms listed in NYSE from July 31, 1962 to December 31, 1991. By applying generalized least square methodology, they concluded that liquidity and stock returns have negative but significant association. They explained that negative sign indicates that illiquid stocks provide more average returns than liquid stocks. Generally, there is statistically significant relationship between liquidity and returns. Also the relationship is steady covering all sub-periods and over all models.
Chan et al (1991) conducted a study on the manufacturing and non-manufacturing firms listed in Tokyo Stock Exchange to analyze the impact of few basic variables affecting returns of Japanese stocks. Based on the monthly data from January 1971 to December 1988, portfolio was formulate and analysis was conducted of portfolio level. Explanatory variables considered for the study include: book-to-market ratio, earnings yield, cash flow yield and size. Results of study indicated that stock returns are significantly related to the underlying variables. Cash flow yield and book-to-market ratio was positively and significantly related to stock returns of Japan.
Value relevance of earnings per share and book value was investigated by Collins et al (1997). They analyzed whether the value relevance has changed during the past forty years or it remains the same. Based on the Ohlson model, applying cross-sectional regression analysis, study revealed three findings; Firstly they concluded that unlike few of the previous studies, the joint value relevance of both explanatory variables has increased over the time. Secondly, while the incremental significance of bottom line profit has declined, it has been changed by the growing significance of book values. Eventually, increasing prevalence and intensity of one-time items, the expanding intensity of negative earnings and change in firm size and intangible strength over the time explained significant portion of the shift in value relevance from earnings to book value.
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