The Usefulness Of Earnings And Book Value For Equity Valuation To Kuwait Stock Exchange Participants

Abstract

Motivated by the lack of research on the value relevance of accounting information in emerging markets and the unique institutional setting in Kuwait, the objective of this study is to examine the value relevance of accounting earnings and book value information produced by Kuwait Stock Exchange (KSE)-listed firms during the 1995-2006 period empirically by using two valuation models - price and returns models. The results of both models show that earnings and book value were, jointly and individually, positively and significantly related to stock price and stock returns. Interestingly, the value relevance of earnings and book value of KSE-listed firms were found to be higher than the findings observed in some developed and emerging countries. This finding could be attributed partially to the fairly limited sources of credible and useful competing information available to market participants and the lack of alternative sources of information about prospects. An important implication of this finding is that the KSE needs to develop its information environment further to become more efficient in offering a free exchange of information about companies listed on its exchange.

The Value Relevance of the Financial Statements’ Bottom Lines in the Emerging Egyptian Capital Market

“…The adjusted R 2 for all models is high compared to similar studies in the emerging markets (Bae andJeong, 2007 andVazquez et al, 2007). The R 2 is similar to those found in studies conducted in the developed countries (see for example Collins et al, 1997); and higher than those conducted in emerging markets (Ragab and Omran, 2006;and Alfaraih and Alanezi, 2011). Book value in all models is in insignificant in 2007 and in the pool.…”

Empirical Study of the Current Views of Corporate Voluntary Disclosures and Firm Value

“…Alfaraih and Alanezi (2011) argued that value relevance of accounting information depends on level of voluntary disclosures of the company. Corporate regulations and company managers may recognize that increased voluntary disclosures have effect on the value relevance of accounting information in financial statements (Alfaraih and Alanezi, 2011). Further, they argued that quality and value relevance of accounting information could be improved through increased level of voluntary disclosure.…”

“…If the additional information is not available for investors, they rely on other sources of information and that would be more costly for them. As a result of that, firm's stock may be undervalued (Alfaraih and Alanezi, 2011). Therefore, the firms are motivated to disclose all the information to minimize the undervaluation.…”

“…Many scholars decided that size is one of important variable, which determined many conditions and situations. Most of the researchers used total assets as proxy for the firm size in voluntary disclosure studies (Qu et al 2013;Ismail and El-Shaib, 2012;Alfaraih and Alanezi, 2011;Barako, 2007). These researchers used the natural logarithm of total assets to reduce the impact of skewed data in the statistical analysis.…”

“…In this sample the higher disclosure companies belong to different sector categories such as diversifying holdings, food beverage and tobacco, telecommunication and hotel and travel. Alfaraih and Alanezi (2011) argued that quality and value relevance of accounting information could be improved through increased level of voluntary disclosure. If the additional information is not available for investors, they rely on other sources of information and that would be more costly for them.…”