Does institutional ownership affect the value relevance of accounting information?

Abstract

Purpose Drawing upon agency theory, this study aims to assess the value relevance (VR) of accounting information released by non-financial firms listed on the Kuwait stock exchange for the period of 2015-2018. Also, the influence of institutional ownership level and other explanatory variables, namely, book value per share, earnings per share, growth in assets and changes in financial leverage on share prices is examined. Design/methodology/approach To test the hypotheses, the Ohlson (1995) model is extended. This study uses panel data analysis and applies appropriate statistical techniques to measure empirical relationships. Findings The results show that the VR of accounting information released by the Kuwaiti non-financial listed firms varies over the period of 2015-2018. Book value and earnings have significant and positive effects on share prices. In recent years, the VR of book value information has been growing, while that of earnings information has been declining. Institutional ownership level has a significant and positive influence on the VR of accounting information released by the Kuwaiti non-financial listed firms. The findings confirm a positive power, signalling growth in assets regarding the share prices. However, no significant relationship between changes in financial leverage and share prices is found. Practical implications The findings of the study provide evidence of the linkage between VR and institutional ownership level, which promotes the understanding of the influence of institutional investors on a firm’s market value. Empirical evidence from Kuwait will have international implications and can serve as a guide for accounting researchers studying other emerging markets. Capital market regulators can provide guidelines in the form of information characteristics and elements of financial statements that need improvement. Finally, the findings assist non-financial listed firms to enhance the quality of accounting information by identifying the strengths and weaknesses in their financial reports. Originality/value This study extends the previous literature by investigating a relatively new set of data in more depth than that has been examined by prior research, which focusses on the relationship between accounting information and the firm’s market value.

Corporate governance and earnings quality: the behavioral theory of corporate governance (evidence from Iran)

“…Almujamed and Alfraih (2020) reveal that board size is significantly associated company value and that Kuwait firms with large boards increased the value relevance of earnings and book value. Omran and Tahat (2020) show that there is a positive association between institutional ownership and the value relevance of earnings in Kuwait firms. In contrast, Omokhudu and Amake (2018) show that CG practices in Nigeria do not lead to increase in the value relevance of accounting information.…”

“…This means, on average, better governed corporations tend to engage significantly less in earnings smoothness than their poorly governed firms (Xie et al , 2001; Klein, 2002; Cornett et al , 2008; Krishnan and Parsons, 2008; García‐Meca and Sánchez‐Ballesta, 2009; Wang, 2014; Yasser and Mamun, 2015; Abbadi et al , 2016; Wan Mohammad et al , 2016; Dou et al , 2016; Du et al , 2017; Bajra and Cadez, 2017; Elghuweel et al , 2017; Al-Haddad and Whittington, 2019; Priscilla and Siregar, 2020). These firms have earnings that are more predictable, more persistent and higher levels of value relevance than their poorly governed counterparts (Calegari and Maretno, 2005; Habib and Azim, 2008; Cho and Rui, 2009; García Lara et al , 2010; Prencipe and Bar-Yosef, 2011; Ahmed and Ismail, 2013; Ogeh Fiador, 2013; Mollah et al , 2019; Almujamed and Alfraih, 2020; Asogwa et al , 2020; Omran and Tahat, 2020; Agustina et al , 2021). Also, better-governed firms have more timeliness earnings and engage in higher levels of earnings conservatism (Broedel Lopes and Walker, 2008; Xia and Zhu, 2009; García Lara et al , 2010; Lim, 2011; Leventis et al , 2013; Ebimobowei and Yadirichukwu, 2013; Lim et al , 2014; Huang et al , 2014; Mathuva et al , 2019; Syofyan et al , 2021; Sharma and Kaur, 2021).…”

The value-relevance of social media activity of Finnish listed companies

“…Further, incorporating social media variables into more traditional studies, for example concerning earnings management (Salem et al , 2021) or value-relevance of information in different types of firms (e.g. with high institutional ownership, see Omran and Tahat, 2020), could be useful for both scholars and practitioners in their analyses, revealing new value-relevant aspects of current business contexts. Studying the value-relevance of social media tools over a longer term (considering the possible time lag in effects) might also deserve more attention.…”

“…Value-relevance, in a corporate context, signals that something affects the share prices of the corporation and can be used for predicting future share prices (Amir, 1993; Barth et al , 2001; Lev, 2019). Barth et al (2001) note that “an accounting amount is defined as value relevant if it has a predicted association with equity market values.” Traditionally, value-relevance discussions focus on accounting earnings (Isaboke and Chen, 2019) and other financial statement figures (Omran and Tahat, 2020), but currently, there is a wide range of other corporate disclosure and voluntary information available. But assessing the value-relevance of using social media is not necessarily straightforward, as there is not necessarily disclosure of social media available in the financial statements and the activities can relate to marketing, administration or information technology and only gradually affect organizational performance or stock prices (Canel and Luoma-aho, 2019; Gilfoil and Jobs, 2012; Laroche et al , 2013; Lev, 2019; Luo et al , 2013; Xun and Guo, 2017).…”

“…Many corporate or accounting features have been considered as potentially value-relevant, e.g. the use of IFRS, conservatism and institutional ownership (Isaboke and Chen, 2019; Omran and Tahat, 2020). For example, IFRS adoption has been seen as improving value-relevance (Isaboke and Chen, 2019), and accounting conservatism may also help to maintain the value-relevance of accounting (Kousenidis et al , 2009).…”