Journal of Commerce and Accounting Research

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Role of the Net Assets in Assessing the Relevance of Earnings


Affiliations
1 Department of Management, FCM, Eastern University., Sri Lanka
2 Coca Cola in Puttalam, Sri Lanka.
     

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This study considers that in Sri Lankan share market, the accounting variables would significantly explain the contemporaneous price, provided that Ohlson (1995) model implicate market efficiency. The study also attempts to explore the benchmarking role of net assets in assessing the value relevance of earnings and dividends. The results indicate positive significant relevance of net assets, earnings, and dividends for explaining the price, independently. Pooled and fixed-year effect results of the model imply incremental relevance of accounting variables. However, this is not consistent with year-wise analysis, thus implying that Sri Lankan share market might be of weak form efficiency. The findings are repeatedly confirmed with the fixed-sector results, which are almost similar to fixed-year effect results. The benchmarking role of net assets in exploring the incremental relevance of earnings becomes meaningful only with the pooled analysis. Differently, the relevance of dividends is explored with the proxy role for future earnings, beyond current earnings.

Keywords

Accounting Variable, Value Relevance, Net Assets, Earnings, Dividends, Ohlson
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  • Role of the Net Assets in Assessing the Relevance of Earnings

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Authors

Samithamby Senthilnathan
Department of Management, FCM, Eastern University., Sri Lanka
Hakeem Kajoon
Coca Cola in Puttalam, Sri Lanka.

Abstract


This study considers that in Sri Lankan share market, the accounting variables would significantly explain the contemporaneous price, provided that Ohlson (1995) model implicate market efficiency. The study also attempts to explore the benchmarking role of net assets in assessing the value relevance of earnings and dividends. The results indicate positive significant relevance of net assets, earnings, and dividends for explaining the price, independently. Pooled and fixed-year effect results of the model imply incremental relevance of accounting variables. However, this is not consistent with year-wise analysis, thus implying that Sri Lankan share market might be of weak form efficiency. The findings are repeatedly confirmed with the fixed-sector results, which are almost similar to fixed-year effect results. The benchmarking role of net assets in exploring the incremental relevance of earnings becomes meaningful only with the pooled analysis. Differently, the relevance of dividends is explored with the proxy role for future earnings, beyond current earnings.

Keywords


Accounting Variable, Value Relevance, Net Assets, Earnings, Dividends, Ohlson

References