South Asian Journal of Management

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Value Relevance of Financial Reporting and Its Impact on Stock Prices:Evidence from India


Affiliations
1 Department of Management Studies, Indian Institute of Technology, Roorkee 247667, Uttarakhand, India
2 School of Business and Design, Swinburne University of Technology, Sarawak Campus, Malaysia
3 Akal School of Business Administration, Eternal University, Baru Sahib, Himachal Pardesh, India
     

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The main aim of this paper is to examine the value relevance of financial statements. To achieve this, various models that include specific indicators, which have proved to be important indicators of financial statements analysis in the Indian capital market, are developed. The value relevance of each variable is measured in both, annually and pooled for each model. The data were collected from a sample of 71 non-financial CNX 100 firms listed at the National Stock Exchange (NSE). The time frame spans from 2000 to 2008 and the methodology used was Ordinary Least Square (OLS) multiple regression models. The result reveals that value relevance of financial statements, per se, is negligible in Indian markets. However, some ratios based on these financial statements show significant association with stock market indicators. Our results depart from studies conducted in other markets. The results further indicate that the value relevance of Return On Net Worth (RONW) is statistically significant and is a useful measure for investment decision.
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  • Value Relevance of Financial Reporting and Its Impact on Stock Prices:Evidence from India

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Authors

Anil K. Sharma
Department of Management Studies, Indian Institute of Technology, Roorkee 247667, Uttarakhand, India
Satish Kumar
School of Business and Design, Swinburne University of Technology, Sarawak Campus, Malaysia
Ramanjeet Singh
Akal School of Business Administration, Eternal University, Baru Sahib, Himachal Pardesh, India

Abstract


The main aim of this paper is to examine the value relevance of financial statements. To achieve this, various models that include specific indicators, which have proved to be important indicators of financial statements analysis in the Indian capital market, are developed. The value relevance of each variable is measured in both, annually and pooled for each model. The data were collected from a sample of 71 non-financial CNX 100 firms listed at the National Stock Exchange (NSE). The time frame spans from 2000 to 2008 and the methodology used was Ordinary Least Square (OLS) multiple regression models. The result reveals that value relevance of financial statements, per se, is negligible in Indian markets. However, some ratios based on these financial statements show significant association with stock market indicators. Our results depart from studies conducted in other markets. The results further indicate that the value relevance of Return On Net Worth (RONW) is statistically significant and is a useful measure for investment decision.