Stock prices and accounting information: evidence from Malaysia

Document Type

Journal Article

Publisher

Emerald Group Publishing Limited

Place of Publication

UK

Faculty

Faculty of Business and Law

School

School of Accounting, Finance and Economics

RAS ID

6254

Comments

Pirie, S., & Smith, M. (2008). Stock prices and accounting information: evidence from Malaysia. Asian Review of Accounting, 16(2), 109-133.

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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.

DOI

10.1108/13217340810889924

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Link to publisher version (DOI)

10.1108/13217340810889924