Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Stock prices and accounting information: evidence from Malaysia

Stock prices and accounting information: evidence from Malaysia Purpose – As one of the main purposes of financial statements is to provide relevant information for investors, relationships between share prices and accounting variables have been widely researched. Early studies focus mainly on earnings, but attention has turned in recent years to valuation models that include the book value of the equity. Many of these studies cite the residual income model as their theoretical base and, with the growing emphasis on shareholder value, residual income measures are more commonly used in the business community to track financial performance. Given such trends, the purpose of this paper is to review the theoretical background of the residual income model and discuss results of empirical studies that use it. Design/methodology/approach – The study seeks an understanding of how published accounting information relates to share prices in the developed market in Asia, outside Japan. More specifically, the study aims to extend the international literature in market based accounting research by examining empirical evidence on relationships between share prices and the two summary accounting variables of equity book value and earnings for firms listed on the stock exchange in Malaysia. Findings – The findings imply that, the two accounting variables summarising the balance sheet and the income statement, respectively, are significant factors in the valuation process, and that managers are justified in using the accounting system as a primary source of information for monitoring financial performance. Originality/value – These findings should be of interest to other researchers, and to managers and investors who currently use or are planning to use residual income to monitor business performance. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Asian Review of Accounting Emerald Publishing

Stock prices and accounting information: evidence from Malaysia

Scott Pirie; Malcolm Smith
Asian Review of Accounting , Volume 16 (2): 25 – Jul 18, 2008
Download PDF
25 pages

Loading next page...
 
/lp/emerald-publishing/stock-prices-and-accounting-information-evidence-from-malaysia-Aahvh0PTta
Publisher
Emerald Publishing
Copyright
Copyright © 2008 Emerald Group Publishing Limited. All rights reserved.
ISSN
1321-7348
DOI
10.1108/13217340810889924
Publisher site
See Article on Publisher Site

Abstract

Purpose – As one of the main purposes of financial statements is to provide relevant information for investors, relationships between share prices and accounting variables have been widely researched. Early studies focus mainly on earnings, but attention has turned in recent years to valuation models that include the book value of the equity. Many of these studies cite the residual income model as their theoretical base and, with the growing emphasis on shareholder value, residual income measures are more commonly used in the business community to track financial performance. Given such trends, the purpose of this paper is to review the theoretical background of the residual income model and discuss results of empirical studies that use it. Design/methodology/approach – The study seeks an understanding of how published accounting information relates to share prices in the developed market in Asia, outside Japan. More specifically, the study aims to extend the international literature in market based accounting research by examining empirical evidence on relationships between share prices and the two summary accounting variables of equity book value and earnings for firms listed on the stock exchange in Malaysia. Findings – The findings imply that, the two accounting variables summarising the balance sheet and the income statement, respectively, are significant factors in the valuation process, and that managers are justified in using the accounting system as a primary source of information for monitoring financial performance. Originality/value – These findings should be of interest to other researchers, and to managers and investors who currently use or are planning to use residual income to monitor business performance.

Journal

Asian Review of Accounting – Emerald Publishing

Published: Jul 18, 2008

Keywords: Stock prices; Accounting information; Malaysia

References

  • The effect of international institutional factors on properties of accounting earnings
    Ball, R.; Kothari, S.P.; Robin, A.
  • Relative valuation roles of equity book value and net income as a function of financial health
    Barth, M.E.; Beaver, W.H.; Landsman, W.R.
  • Changes in the value‐relevance of earnings and book values over the past forty years
    Collins, D.W.; Maydew, E.L.; Weiss, I.S.