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The Separate Valuation Relevance of Earnings, Book Value and their Components in Profit and Loss Making Firms: UK Evidence

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  • Akbar, S

Abstract

This study examines the separate value relevance of earnings, book value and their components in profit and loss-making firms. The investigation take place in a context that both profit and loss-making firms have different features that might affect conclusions concerning the value relevance of earnings and book value partitions. Thus, we are establishing relationships between disaggregated accounting data and the market value of firms in the profit and loss-making firms in cross-sectional valuation models. These results suggest that for loss-making firms, earnings and book value partitions are not generally valuation relevant. However, for profit-making firms, the earnings partition into working capital from operations and non-current accruals is valuation relevant in almost all cross-sections. Book value partitions have also some valuation relevance for profit-making firms, in the presence of earnings partitions.

Suggested Citation

  • Akbar, S, 2007. "The Separate Valuation Relevance of Earnings, Book Value and their Components in Profit and Loss Making Firms: UK Evidence," MPRA Paper 5665, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:5665
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    References listed on IDEAS

    as
    1. Easton, Pd & Harris, Ts, 1991. "Earnings As An Explanatory Variable For Returns," Journal of Accounting Research, Wiley Blackwell, vol. 29(1), pages 19-36.
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    3. Andrew W. Stark, 1997. "Linear Information Dynamics, Dividend Irrelevance, Corporate Valuation and the Clean Surplus Relationship," Accounting and Business Research, Taylor & Francis Journals, vol. 27(3), pages 219-228, February.
    4. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    earnings; book value; loss making firms; value relevance;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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