Predictive view of the value relevance of earnings in India

Hajam Abid Bashir, Manish Bansal and Dilip Kumar

Journal of Financial Reporting and Accounting, 2021, vol. 21, issue 5, 937-957

Abstract: Purpose - This study aims to examine the value relevance of earnings in terms of predicting the value variables such as cash flow, capital investment (CI), dividend and stock return under the Indian institutional settings. Design/methodology/approach - The study used panel Granger causality tests to examine causality relationships among variables and panel data regression models to check the statistical associations between earnings and value variables. Findings - Based on a data set of 7,280 Bombay Stock Exchange-listed firm-years spanning over ten years from March 2009 to March 2018, the results show higher sensitivity of earnings toward cash flows, CI, divided and stock return and vice-versa. Further, the findings deduced from the empirical results demonstrate that earnings are positively related to value variables. Overall, the results established that earnings are value-relevant and have predictive ability to forecast the value variables that facilitate investors in portfolio valuation. The results are consistent with the predictive view of the value relevance of earnings. Several robustness checks confirm these results. Originality/value - This study brings new empirical evidence from a distinct capital market, India, and provides a new facet to the value relevance debate in terms of its prediction view. The study is among earlier attempts that jointly measure the ability of earnings in forecasting different value variables by taking a uniform sample of firms at the same period. Hence, the study provides a comprehensive view of the predictive ability of reported earnings.

Keywords: Earnings; Stock returns; Cash flows; Value relevance; Value relevance of earnings; Capital investment; Dividend (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:jfrapp:jfra-08-2021-0219

DOI: 10.1108/JFRA-08-2021-0219

Access Statistics for this article

Journal of Financial Reporting and Accounting is currently edited by Prof. Aziz Jaafar and Prof Khaled Hussainey

More articles in Journal of Financial Reporting and Accounting from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().