Financial indicators, informational environment of emerging markets and stock returns

Renata Turola Takamatsu and Luiz Paulo Lopes Fávero

RAUSP Management Journal, 2019, vol. 54, issue 3, 253-268

Abstract: Purpose - The purpose of this paper is to evaluate the influence of the informational environment on the relevance of accounting information in companies traded in stock exchanges of emerging markets. Design/methodology/approach - For this purpose, the authors calculated indicators based on figures derived from the financial statements and variables that sought to capture the influence of the economic and institutional environment. The sample consisted of publicly traded companies from 20 countries classified as emerging by Standard & Poors. Macroeconomic information was obtained through the International Country Risk Guide database. The analysis period ranged from 2004 to 2013, excluding missing data, variables considered as outliers, besides the exclusion of data from companies that presented negative equity. Findings - It was observed that the financial variables presented signs consistent with the literature, except for the price-to-book variable and the asset change variable. The inclusion of variables related to the accounting informational environment offered evidence that the more opaque the accounting environment in the country, the lesser the ability of the profits to portray the variations of stock returns. The variable that captured the adoption of international standards was consistent with expectations, i.e. the adoption of international standards would increase the quality of accounting information, showing a positive signal. Moreover, the variable aggressiveness of the earnings was statistically significant and negative, consistent with the literature. Research limitations/implications - The variables earnings smoothing and aversion to losses did not show the expected behaviour though, highlighting the possible limitations of these proxies used to capture the opacity of the earnings. Originality/value - When institutional moderators were included, it was observed that the adoption of the IFRS standards positively affected the relationship, which is more relevant when the accounting figures were under its aegis. Recently, countless nations’ transition to international accounting standards has been justified by the need to use high-quality reporting standards. The research sought to contribute to strengthen this dimension, presenting evidence that the dummy variable included to capture the adoption of international standards had a positive effect on the relationship.

Keywords: Emerging; markets (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eme:rauspp:rausp-10-2018-0102

DOI: 10.1108/RAUSP-10-2018-0102

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