The change in the value-relevance of earnings and book values in equity valuation over the past 20 years and the impact of the adoption of IASs: the case of Kuwait

Mostafa A. El Shamy and Rashid Al-Qenae

International Journal of Accounting, Auditing and Performance Evaluation, 2005, vol. 2, issue 1/2, 153-167

Abstract: This study investigates the change in the value-relevance of earnings and book values in equity valuation over the last 20 years in Kuwait. Following Collins et al. (1997) and Lev and Zarowin (1999), the study uses statistical association between stock prices and accounting data (earnings and book values) and a decomposition technique used in previous studies to assess: whether there is a systematic change in the value-relevance to investors of accounting data over the past 20 years; whether there is a systematic change in the relative importance of earnings and book values in explaining the changes in stock prices over time; whether the value-relevance of earnings and book values and the relative importance of them have changed since the adoption of the International Accounting Standards (IASs) in 1990 by all Kuwaiti corporations. The study reports four primary findings. First, earnings and book values, jointly and individually, have significant explanatory power for securities prices over the last 20 years. Second, the combined value-relevance of earnings and book values has increased over time. Third, the incremental value-relevance of earnings has increased over time while that of book values has declined. Fourth, the combined value-relevance of earnings and book values has improved and the incremental explanatory power of earnings (book values) has increased (decreased) since the adoption of IASs in 1990.

Keywords: international accounting standards; IASs; capital markets; financial reporting; equity valuation; value-relevance; Kuwait; earnings; stock prices; book values. (search for similar items in EconPapers)
Date: 2005
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.inderscience.com/link.php?id=6897 (text/html)
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:ids:ijaape:v:2:y:2005:i:1/2:p:153-167

Access Statistics for this article

More articles in International Journal of Accounting, Auditing and Performance Evaluation from Inderscience Enterprises Ltd
Bibliographic data for series maintained by Sarah Parker ().