A comparison of the value relevance of interim and annual financial statements

Zulu, Mbalenhle; Klerk, Marna De; Oberholster, J.G.I.

doi:10.4102/sajems.v20i1.1498

Cited by 11 publications

(9 citation statements)

References 49 publications

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“…In Malaysia, Mirza, Malik and Abdul-Hamid (2018) concluded that book value (BV) has value relevance whilst earnings do not have any usefulness in explaining share prices. This conforms with conclusions by Zulu, De Klerk and Oberholster (2017) who studied usefulness of interim financial statements by using a data set of JSE-listed firms.…”

Section: Related Literaturesupporting

confidence: 90%

“…On the contrary, evidence from the same market (JSE) provided by Sixpence and Adeyeye (2019) shows that operating income has value relevance, whilst BV is not relevant, based on a dynamic panel of JSE-listed firms. However, these two studies used different variables; Zulu et al (2017) used market capitalisation as the response variable, whilst Sixpence and Adeyeye (2019) used share prices. Furthermore, the earnings measure used is different; whilst Sixpence and Adeyeye (2019) used operating income, Zulu et al (2017) used net profit after tax.…”

Section: Related Literaturementioning

confidence: 99%

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Impact of tangible book value and operating earnings on firm value variants in South Africa

Sixpence

Adeyeye

Rajaram

2021

Journal of Economic and Financial Sciences

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Empirical knowledge regarding which financial statement variables are linked to firm value is critical for profitable equity investment. Research purpose:The study examines the impact of earnings before interest and taxes from continuing operations (EBITCOs) and tangible book value (TBV) on firm value variants (enterprise value and market capitalisation) in South Africa.Motivation for the study: The need to determine the impact of book value and operating income on firm value post-global financial crisis motivated this study. Furthermore, conflicting empirical results motivated this investigation to determine if value relevance depends on the measure of firm value used by employing two variants of firm value.Research approach/design and method: A dynamic panel of 50 firms was used, employing an autoregressive distributed lag model in two-step system generalised method of moments (GMM).Main findings: Results showed that EBITCO is value relevant regardless of the firm value variant used. Tangible book value lacks value relevance irrespective of the firm value measure used.Practical/managerial implications: During a takeover bid, investors should use EBITCO in valuing target firms and disregard TBV. New owners in an acquisition are guaranteed value for their money because of the link between EBITCO and enterprise value. Accounting standards setters should maintain the requirement that mandates companies to produce comprehensive financial statements. Company executives should implement strategies that boost EBITCO as a way of maximising shareholder value.Contribution/value-add: Conservative measures of variables were adopted, something rarely done by scholars. Thus, the study contributes to the scant body of knowledge on value relevance that utilises conservative financial statement variable measures.

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Section: Related Literaturesupporting

confidence: 90%

Section: Related Literaturementioning

confidence: 99%

Impact of tangible book value and operating earnings on firm value variants in South Africa

Sixpence

Adeyeye

Rajaram

2021

Journal of Economic and Financial Sciences

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“…A section of literature documents that negative earnings barely have an association with share price movements (Joos & Plesko, 2005;Darrough & Ye, 2007;Venter et al, 2014;Zulu et al, 2017). Zulu et al (2017) tested the value relevance of losses and found that negative earnings affect value relevance of financial statements on the Johannesburg Stock Exchange (JSE). Further evidence to this was provided by Collins et al (1997), Filip and Raffournier (2010) as well as Venter et al (2014).…”

Section: Discussion Of Findingsmentioning

confidence: 99%

“…This is not a guarantee of value relevance of financial statement information, but it certainly increases that probability as compared to the shunned loss-makers. This, coupled with previous research (Collins, Maydew, & Weiss, 1997;Filip & Raffournier, 2010;Venter, Emanuel, & Cahan, 2014;Zulu, De Klerk, & Oberholster, 2017), motivated the researchers to investigate the impact of profit or loss on value relevance of EBIT and book value on the Zimbabwe Stock Exchange (ZSE). The ZSE was chosen because it is one of the alternatives to equity investors in Southern Africa who would want to diversify their equity portfolios across territorial boundaries.…”

Section: Introductionmentioning

confidence: 99%

Perception of negative earnings persistence and value relevance: Evidence from Zimbabwe

Sixpence

Adeyeye

2018

Cogent Economics & Finance

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This paper investigates the impact of negative earnings persistence on the value relevance of earnings before interest and taxes (EBIT) and book values for 27 non-financial firms listed on the Zimbabwe Stock Exchange (ZSE). Negative earnings are perceived to be persistent where firms reported losses in at least 25% of the time over the eight-year study period. Two-step System GMM was used, with the average debt-equity ratio and net asset value per share being additional regression instruments. The regressions were primarily done on the ZSE full sample, and then on a profit-reporting firms' sample. The loss-reporting firms' sample was too small for meaningful regressions. It was found that when loss-firms were removed from the sample, value relevance of EBIT and book value declined. This means that investors are very meticulous with firms they perceive to be persistent loss-makers but tend to be complacent with profit-firms.

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“…A recent comparison of indicators from interim and annual financial statements against the background of verification of the Ohlson model was performed focusing on the RSA market [29]. In spite of the fact that these indicators comprise only the basic parameters offered by Ohlson, it should be noted that the relevant specifications indirectly measure the level of investors' confidence in the audited annual reports.…”

Section: Literature Reviewmentioning

confidence: 99%

The Impact of Corporate Governance on the Cost of Equity for Russian Companies in the Ohlson Model

Khassanov¹

2021

КФ

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The purpose of this paper is to identify key indicators of corporate governance that affect the market value of Russian companies. To this end, we examine the possibility of modifying the Ohlson model of evaluating stock price dynamics in public companies, by adding corporate governance variables that may affect market value. The study consists of the following stages: the key points of the Ohlson economic model are described, empirical works that demonstrate corporate governance as a factor in assessing the value of companies are presented, and the significance of the modified Ohlson model for the Russian market is evaluated. The novelty of our methodology is represented in the prioritisation of our “other information” parameter, which is a combination of forecast analytical data and corporate governance indicators. Through analysis of panel data, we estimate differences in the predicted net profit indicator, calculated as the average of analyst forecasts for an individual company for a financial year, and the actual net profit. Corporate governance is represented by the percentage of board members holding professional certificates and licenses, the average term of board of directors members, the share of independent members on the board of directors, the share of independent members in the audit committee, the proportion of women on the board of directors, and the size of the board of directors. Our results indicate dependence of share prices on the dynamics of the book value of equity, abnormal profits, the share of board members holding professional qualifications, the difference between the actual net profit and the forecast net profit of companies, and the level of gender diversification in the board of directors. The results of our analysis of deviations in average stock prices are comparable to the findings of existing literature examining the markets of Europe, Latin America and Africa.

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A comparison of the value relevance of interim and annual financial statements

Cited by 11 publications

References 49 publications

Impact of tangible book value and operating earnings on firm value variants in South Africa

Impact of tangible book value and operating earnings on firm value variants in South Africa

Perception of negative earnings persistence and value relevance: Evidence from Zimbabwe

The Impact of Corporate Governance on the Cost of Equity for Russian Companies in the Ohlson Model

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