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Stock prices and accounting information: evidence from Malaysia

Author

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  • Scott Pirie
  • Malcolm Smith

Abstract

Purpose - As one of the main purposes of financial statements is to provide relevant information for investors, relationships between share prices and accounting variables have been widely researched. Early studies focus mainly on earnings, but attention has turned in recent years to valuation models that include the book value of the equity. Many of these studies cite the residual income model as their theoretical base and, with the growing emphasis on shareholder value, residual income measures are more commonly used in the business community to track financial performance. Given such trends, the purpose of this paper is to review the theoretical background of the residual income model and discuss results of empirical studies that use it. Design/methodology/approach - The study seeks an understanding of how published accounting information relates to share prices in the developed market in Asia, outside Japan. More specifically, the study aims to extend the international literature in market based accounting research by examining empirical evidence on relationships between share prices and the two summary accounting variables of equity book value and earnings for firms listed on the stock exchange in Malaysia. Findings - The findings imply that, the two accounting variables summarising the balance sheet and the income statement, respectively, are significant factors in the valuation process, and that managers are justified in using the accounting system as a primary source of information for monitoring financial performance. Originality/value - These findings should be of interest to other researchers, and to managers and investors who currently use or are planning to use residual income to monitor business performance.

Suggested Citation

  • Scott Pirie & Malcolm Smith, 2008. "Stock prices and accounting information: evidence from Malaysia," Asian Review of Accounting, Emerald Group Publishing Limited, vol. 16(2), pages 109-133, July.
  • Handle: RePEc:eme:arapps:v:16:y:2008:i:2:p:109-133
    DOI: 10.1108/13217340810889924
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    Citations

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    Cited by:

    1. M. Jayasree & C. S. Pavana Jyothi & P. Ramya, 2018. "Benford’s Law and Stock Market—The Implications for Investors: The Evidence from India Nifty Fifty," Jindal Journal of Business Research, , vol. 7(2), pages 103-121, December.
    2. Nazmul Hassan, & Hasan Md. Mahmood Ul Haque, 2017. "Role of Accounting Information in Assessing Stock Prices in Bangladesh," International Journal of Business and Social Research, LAR Center Press, vol. 7(10), pages 18-25, October.
    3. Nazmul Hassan, & Hasan Md. Mahmood Ul Haque, 2017. "Role of Accounting Information in Assessing Stock Prices in Bangladesh," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 7(10), pages 18-25, October.
    4. Jasman Tuyon & Zamri Ahmad, 2021. "Dynamic risk attributes in Malaysia stock markets: Behavioural finance insights," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5793-5814, October.
    5. M. Jayasree, 2017. "Stock Trading and Stock Returns: Understanding the Distributional Properties of the Numbers—The Evidence from India Nifty Fifty," Jindal Journal of Business Research, , vol. 6(2), pages 171-185, December.
    6. Yuni Pristiwati Noer Widianingsih & Doddy Setiawan, 2023. "The tenure of directors and value relevance of accounting information," SN Business & Economics, Springer, vol. 3(6), pages 1-18, June.
    7. Pascual-Ezama, David & Paredes, Mercedes Rodríguez & Sanchez-Martín, María-del-Pilar & de Liaño, Beatriz Gil-Gómez, 2018. "Shorter and easier is more useful: A longitudinal analysis of how financial report enforcement affects individual investors," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 74(C), pages 29-37.
    8. Renata Legenzova & Otilija Jurakovaite & Agne Galinskaite, 2017. "The Analysis of Dividend Announcement Impact on Stock Prices of Baltic Companies," Central European Business Review, Prague University of Economics and Business, vol. 2017(1), pages 61-76.
    9. Jasman Tuyon & Zamri Ahmad, 2018. "Behavioural Asset Pricing Determinants in a Factor and Style Investing Framework," Capital Markets Review, Malaysian Finance Association, vol. 26(2), pages 32-52.

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