Dr.D.Rajagopal
ABSTRACT
INTRODUCTION:
Value relevance studies aim to explain the relationship between accounting informationandstockpricesorstockreturnsfromMishari,A.(2011).Research on capital market-based value relevance. An accounting study described by Beisland (2009). Its originality is attributed to Beaver (1968) and Kugel and Braun(1968).InthecontextofIndia,previousstudieshaveexaminedtherelationshipbetweenaccountinginformationShareswereobtainedfromSrivastava (1968),Zahir&Khanna(1982),Krishan(1984),Chawla&Khanna.
Srinivasan(1987).Relevanceismeasuredwhenthereisastatisticalrelationship betweenaccountinginformationStockpricesorstockreturnsfromFranscieand Schipper(1999).
Vishnani and Shah (2008) found that most studies accounting information and stockpricesoflistedcompaniesmotivatedbyaccountinginformationUsedby existingshareholdersandlistedcompaniesasthemostimportantmeansofcommunicationbetweenthem.Accountinginformationdefinedasquantitativewritteninformation,inwholeorinpartquarterlyorannualfinancialstatementcover pageasshownbyOyerinde(2009).
Vijitha P and Nimalathasan B (2014) distinguish accounting and nonaccounting information the two categories of financial information that appear onfinancialstatements.
Themainpurposeoffinancialstatementsistoprovideinformationaboutacompany'sperformancefinancialsituationandtohelpourusers,especiallyJermon and Meek investors, make better decisions (2001). Therefore, the study of the value relevance of accounting information is one of the most frequently discussedtopics.
Itisstilldebatedinfinancialaccountingstudies.Motivatedbytheneedtoprovide empirical evidence whether accounting information is reported more to usersofaccountinginformation,especiallyinvestorsrelevanttostockvaluation. ResearchonvaluerelevancehasbeendonebyvariousresearchersinIndia.
Thestudyfillthegapinliteraturebyexaminevaluerelevanceofaccountingearningspershare,bookvaluepershareandotheraccountinginformationincluding return on equity on the share price of 12 public sector banks listed in National stockexchange(NSE)from2018to2022.
The remaining part of this paper structured as follows: Section 2 explain the reviewofliteratureonthevaluerelevanceofaccountinginformation,section3 discussedmethodologyusedinthestudy,section4focusesonthedatapresentationandanalysis,summaryandconclusionandpresentedinsection5.
REVIEWOFLITERATURE:
The term value relevance was defined by the different researchers, discussion based on the previous studies related to the value of relevance of accounting informationinIndiancontextandmeaningofaccountinginformationusedinthe studyandtheirempiricalresultsfromdifferentstudies.
Valuerelevancedefinition:
Differentresearchersfromdifferentcountriesdefinedthewordvaluerelevance in their previous studies including Beisland (2009), Ohlson (1999), Barth et al (2000)andAmiretal(1993).
Priorstudyin1993byAmiretalusedtheterm“valuerelevance”anddefinedas therelationshipbetweenaccountingfiguresandmarketvalueofequity ThedefinitionofvaluerelevancegivenoutbyAmiretal(1993)closelyrelatedwithdefinitiongivenoutbyotherresearchersincludingBarthetal(2009)andBarthetal (1998).
AccordingtoBeisland(2009)valuerelevanceusedinmeasuringstatisticaland significant relationship between accounting information and stock returns or stockpriceanddefinedvaluerelevanceastheabilityofaccountinginformation in capturing and summarizing share price. The same definition given out by Oyerinde(2009)inNigeria.
Oyerinde(2009)definevaluerelevanceastheabilityandinfluenceofaccountingofaccountingnumbersincapturingequitysharepriceoflistedcompaniesat Nigeriastockexchange.Mostofthecommonlyusedaccountinginformationin examines value relevance in the previous studies including earnings per share and book value per share commonly used in measuring its value relevant in equityvaluationasstatedby Oyerinde(2009).
Valuerelevanceresearchaimedinfindingoutwhetheraccountinginformation publishedinthefinancialstatementsprovideusefulandvaluableinformationfor the users of accounting information especial investors as stated by Negakis (2005)ascitedfromMisharyA.(2011).
WhileBarthel(2001)arguethatresearchonthevaluerelevanceveryimportant totheuserssuchasinvestors,accountingstandardsettersandotherusersbecause aimedinextendingknowledgeregardingvalueandusefulofaccountinginformationasreflectingequityvalueascitedfromMishary,A.(2011).
Fromthereviewofliteraturerelatedtothevaluerelevancedefinition,thisstudy defined the term value relevance the same way as it was stated by previous researcherincludingBeisland(2009)andOyerinde(2006).
PreviousstudyonvaluerelevanceofaccountinginformationinIndia. Previousstudyonthevaluerelevanceofaccountinginformationofbookvalue, earnings and dividend on the share price of public and private sector listed in Indian stock market has been done by Sharma, M. (2014).Twenty companies each selected from public and private sector used as a sample in the study and resultsreporteddividendandbookvaluetobemorerelevantinprivatesectorbut in public sector only dividend found to be more relevant while book value and earningsreportedtodeclineitsvaluerelevance.Theresultsfoundtobeinconsistent compared to another comparative study done in Nigeria by Oshodin and Chijoke(2014)usedasampleof10companieseachfrompetroleumandbanking sector listed in Nigeria stock exchange.They reported earnings per share to be morerelevantonsharepriceofpetroleumandbankingsectors.
OntheotherhandCharumathiandSuraj(July–September)examinevaluerelevanceofearningsandbookvalueonthesharepriceof14banks(6banksfromprivatebankssectorand8banksfrompublicbankssector)listedinBombaystock exchangefrom2001to2010.Theyemployedregressionanalysiswiththeoretical frameworkofOhlsonvaluationmodel(1995)andreportedaccountinginformation of book value and earnings per share to have positive and significant relationshipwithsharepriceof14banksstock.TheresultfoundtobeconsistentcomparedtotherecentstudydonebyKhanna,M(2014)inBombaystockexchange.
ButbookvaluepersharefoundtobemorerelevantthanearningsforequityvaluationofbanksstockbyCharumathiandSuraj(July–September).Ontheother handSharma,SinghandKumar(2012)usedasampleof71non-financialcompanieslistedinNationalstockexchangeandreportedaccountinginformationof returnonequitytobemorerelevantforequityvaluationinIndianmarket. The resultsfoundtobenotsimilarcomparedtothepreviousstudydonebyGermon and Meek (2000).They reported return on equity to have low relationship with sharepriceof30companieslistedinNigeriastockexchange.
OBJECTIVES:
TheMainobjectiveofthestudyistoidentifytheimpactofthevaluerelevanceof accountingInformationonShareMarketVulnerabilityoflistedmanufacturing companies in India. To achieve above objective the following sub objectives wereformulated.
1. To find out the value relevance variables among the financial related variablessuchasEarningperShare[EPS],BookValueperShare[BVPS]and Return on Equity [ROE] of public sector banks listed in National Stock Exchange[NSE].
2. TostudytheassociationbetweenthevaluerelevanceofaccountinginformationandMarketVulnerability
Analysis of accounting information as independent variables and market share priceasdependentvariable.
Accountinginformationsuchasearningspershare,bookvaluepershare,return onequityusedasindependentvariablesinexplainingmarketsharepriceofpublicbankssectorlistedinNationalstockexchange(NSE)andthevariablestaken onannualbasisbasedontheperiodofthestudyfrom2018to2022.
Dependentvariable:
Marketshareprice:
Oyerinde,D.T definedmarketsharepriceasthevaluethemarketallocatestothe company's stocks (2009).Anita andYadav (2014) used the closing price at the endofthefinancialyearasastand-inforthemarketshareprice,whileShobhana and Karpagavalli (2011), Sharma, S. (2011), and Karpagavalli and Nirmala (2014)usedmarketsharepricecalculatedbytakingintoaccounttheaverageof the highest market price and the lowest market price of the shares during the financialyear.Marketsharepricewascomputedforthestudy'spurposesusing the same formula employed by Indian researchers Shobhana and Karpagavalli (2011),Sharma,S.(2011),andKarpagavalliandNirmala(2014).
Independentvariables: Earningspershare:
ThestudyconductedbyBhattandSumangaladeemedearningspersharetobe the most frequently utilised accounting information in value relevance studies usedtoanalyseitssubstantialassociationwithshare,priceexample(2012).By utilisingthemethodtheyprovided,earningspershareiscomputedbydividing grossincomebytheentirenumberofoutstandingshares.Thisincludesincome beforetaxes,interest,anddepreciation.Themajorityofresearchlookingatthe impactofearningspershareonstockpricereportedresultsthatweresignificant andinfavourofthestockprice,whichwasbackedbyPathirawasam,C.'sfindings(2010)inSri-Lankaobservedearningspersharetohavepositivevaluerelevanceonthemarketsharepriceof129companiesselectedfrom6majorsectors listedatColombostockexchangeandotherstudydonebydifferentresearchers includingTharmila,K.(2013)andVijitha,andNamalathan(2014)inSri-Lanka, by Ragab,A.A.(2006) in Egyptian market, Miah,M.S.(2012) in Bangladesh, Thompson,S.andAdah,A.(2012)andOlugbengaandOyerinde(2014)inNigeriaandShamkiandRahman(2012)inJordanreportedthesameresults.
Bookvaluepershare:
ValuerelevanceofaccountinginformationbeforeandafterthereformsofInternationalreportingstandard(IFRS).
Karn,S.(2013)examinedthevaluerelevanceofaccountinginformationbefore andaftertheIFRSreformsandfoundanimprovementinthevaluerelevanceof bookvalueoverthepost-IFRSperiod(2005-2011).Theoutcomesweresimilar with the research conducted by Bilgic and Ibis (2013).Asample of 113 businesses listed on the Istanbul Stock Exchange were used by Bilgic and Ibis to reportonthevaluesignificanceofagrowthinbookvaluefollowingtheadoption ofnewaccountingrules.However,Khanaga,J.B.(2011)observedthatafterBahrainandtheUnitedArabEmirateschangedtheiraccountingstandards,thevalue relevanceofbookvaluepersharedecreasedusingaportfolioandregressiontechnique.
Ontheotherhand,OlugbengaandOyerinde(2014)reportedthatthevaluerelevanceofaccountinginformationwasweakduringtheperiodoftheglobaleconomic crisis (2005-2009) and the political crisis due to military dictatorship (1992).-1998)NigerianStockMarketCrisisThompson,S.andAdah,S.(2012) foundthatthebookvaluepersharewassignificantlyhigherthantheshareprice of a cement manufacturing company listed on the Nigerian Stock Exchange reportedbeinginarelationship.Ontheotherhandduringpostrecessionperiod book value per share reported to have positive relationship and insignificant
impactonthestockpricesofBSE200companiesbySukhija,S.(2014).
ReturnonEquity:
Return on equity defined as the profitability ratio which measure amount of profitearnedbythecompanyfromtheamountofmoneyinvestedbytheshareholders in the company, The same definition given by Malik and Ali (2013).Mathematically the ratio calculated by taking net income divided by shareholder`sequityasstatedbyMalikandAli(2013),butbyusingtheformula givenbyWang,FuandLuo(2013)returnonequitycalculatedbytakingnetprofit dividedbyaveragenetassets.Theratioreportedtohavepositiveandsignificant relationship with share price of commercial banks listed in Colombo stock exchange(CSE)inSri-Lankafrom2006to2009inthestudydonebyPereraand Thrikawala(2010)onthesharepricecommercialbankslistedinCSEfrom2006 to2009.Inexaminevaluerelevanceofaccountinginformationtheyusedother accountinginformationsuchasearningspershareandearningyieldandreported to have positive and significant relationship with share price of commercial bankslistedinCSE.
OntheotherhandVijithaandNimalathasan(2014)examinevaluerelevanceof returnonequity,bookvaluepershare,earningspershareandpriceearningsratio on the share price of 20 manufacturing companies listed in CSE from 2008 to 2012.Theyreportedaccountinginformationofreturnonequitytohavepositive andstrongsignificantrelationshipwithsharepriceof20manufacturingcompanieslistedinCSEbutdoesnothavesignificantimpactontheshareprice.Other accounting information such as earnings per share and book value per share reportedthesameresults,exceptpriceearningsratioreportedtohaveweakand negativerelationshipwithshareprice.Asampleof129companiesselectedfrom 6majorsectorslistedinCSEusedbyPathirawasam,C.(2010)asasampleand examinevaluerelevanceofreturnonequity,earningspershareandbookvalue pershare.Allthreefinancialinformationshowedapositiveandsignificantrelationship with the stock prices of the selected companies sampled in the study AlsoinPakistan,MalikandAli(2013)reportedthatreturnonequitywaspositivelyandsignificantlyrelatedtosharepricesoflistedcompaniesinthefueland energysectorlistedontheKarachiStockExchange.
Hypothesesdevelopment:
Based on the reviews of the value relevance literature found in Utami and Noraya,(2010)studiestheimpactoffinancialstatementinformationoncapital marketsindicatorsreferredtoasthevaluerelevancestudiesanditispartofthe market-based accounting stream. Information is considered 'Value Relevant' if stock price movements are associated with the release of such information (2010).AndGjerde,KnivsflaandSættem,(2007)studiedthevaluerelevanceof accounting information in Norway's Capital Market within 1965-2004. They claimedthatthevaluerelevanceofaccountinginformationduringthisperiodhas not decreased and changing from European-Continental model to AmericanBritishhadpositiveimpactonvaluerelevanceoffinancialreportsinformation.
whichwerepublishedbyNSEinIndia.
Reliabilityandvalidity:
The secondary data collected from the audited financial reports [i.e., Comprehensive income statement and financial position] of the concerned banks as fairlyaccurateandreliable.Itisconsideredtobereliable.Thenecessarycheckingandcrosscheckingweredonewhilescanninginformationanddatafromthe secondarysources.Allthesemadeinordertogeneratevalidityofthedataforthe study
Mode
ofanalysis:
Aftercollectingthedata,thestatisticaltoolswereappliedfortheanalysis.Inthis studycorrelationandregressiontechniqueswereused.
Thefollowingregressionmodeldevelopedforthepurposeofexaminetherelationshipbetweenearningspershare,bookvaluepershare,returnonequityand sharepriceThestatisticalmodelisasspecifiedbelow:
MSPit=β0+β1EPSit+β2BVPSit+β3ROEit+μ.
Where: β0,β1,β2,andβ3areregressioncoefficientofaccountingvariables;
MSP, EPS, BVPS, ROE are named as market share price, earnings per share, bookvaluepershare,returnonequityrespectivelyandμisthestochasticerror correctionaltermandiandtrepresentsfirmandtime(year).
Datapresentationandanalysis: Table2:Descriptivestatisticsofaccountinginformationandshareprice
Variables MEAN MIN MAX STD
MVPS 91.5075 10.7 531.15 112.9433 EPS -4.4145 -5.34 39.64 22.163 BVPS 139.442 230.23 414.75 127.262 ROE -5.8167 -2.21 11.71 16.1386
Msp=Marketshareprice;Eps=Earningspershare;Bvps=Bookvaluepershare; Roe=ReturnonEquity
Descriptive statistics of EPS, BVPS, ROE and share price of 12 public sector bankslistedinNationalStockExchange[NSE]presentedintableno2.Thehighest value of standard deviation perceived in MVPS is 127.262 and the lowest recorded at 22.163. The ROE recorded minimum of -2.21 and maximum at 531.15.
Table3:Correlationanalysisresultbetweenvariables
Variables MVPS EPS BVPS ROE
MVPS
0.35328
0.35328 0.76474 0.35141
0.76474 0.30618
0.35141 0.59816
0.59816 0.35956
**Correlationissignificantatthe0.01level.
0.35956
The description about the relationships between accounting information and sharepriceispresentedinTable3.FromtheresultspresentedthecorrelationcoefficientbetweenEPSandsharepricefoundtobe0.35328at1%levelofsignificance.BasedonthatconclusioncanbemadethatthereisastrongpositivecorrelationbetweenEPSandsharepriceat1%significancelevel.Thecorrelationcoefficient between BVPS and share price is 0.76474 which is significance at 1% level.ItindicatedastrongpositivecorrelationbetweenBVPSandsharepriceat 1% significance level. On the other hand the correlation coefficient between ROEandsharepriceis0.35141whichissignificanceat1%level.
Table4:Regressionanalysis
Table5:ANOVA
From the results presented in the regression among selected variables. The R square value is 0.1248,Adj R square value is 0.109, with 60 observations.The regression F value is 8.2711. The variation of market share price has been explainedbyaccountinginformation.
SUMMARYANDCONCLUSION:
Thestudyexaminevaluerelevanceofearningspershare,bookvaluepershare, return on equity on the share price of 12 public sector banks listed in National stock exchange (NSE). Particularly the study attempt to determine the most valuerelevantaccountinginformationusedforequityvaluationinpublicsector banks in NSE and finding out if there is significant relationship exist between accounting information used in the study and share price. Correlation analysis wereusedtoexaminethevaluerelevanceofaccountinginformationandfinding outthesignificantrelationshipbetweensharepriceandaccountinginformation. Thestudyprovidesempiricalevidencethatanearningspershareisthemostrelevantaccountinginformationforequityvaluationinpublicsectorbanks.
TheresultsareconsistentwiththoseofthestudiesconductedRagabofEgypt,A (2006),HisVijithaP andNimalathasanBofSriLanka(2014),Pathirawasam,C. (2010) Olugbenga and Oyerinde (2014) from Nigeria, which contradicts the workbyKhanna,M.(2014).Bookvaluepersharedeterminedtoadverselyaffect share price, earnings determined Charumathi and Suraj (July-September), Sukhija, S. (2014), contradicts studies by Tharmila. K and Nimalasasan. B (2013), Thompson, S. and Adah, S. (2012) and Mishary, A. (2011) and other accounting information have a negative and immaterial impact on the stock price,suchasreturnonequityorcapitalturnover;thisresultalsodiffersfroma studybyM.F MalikandAli,B.(2013)andSharma,KumarandShin(2012).On theotherhand,accountinginformationsuchasearningspershareandbookvalue pershare.
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