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The IUP Journal of Accounting Research and Audit Practices:
An Empirical Study of Value Relevance of Financial Reporting in Indian Corporate Sector
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The aim of the present study is to examine the value relevance of accounting information in the Indian corporate sector based on financial information on share price, book value, earnings and dividend in 125 companies selected from BSE 500 companies for the period between 2000 and 2012 using Ohlson model (1995). The results indicate that accounting information has high value relevance in Indian corporate sector with dividend, book value and earnings with their respective adjusted R2 values of 40%, 34% and 21% for the period of study. The value relevance of dividend is found to increase over time as against decreases in book value and earnings. The combined influence of book value and dividend on share prices is the highest at 55% during the period of study. Finally, it was found that there is a significant association between share price and the three accounting variables used in the study at the significance level of 0.05. The study also indicates that accounting variables influence share prices and hence there exists financial reporting quality in Indian corporate sector. The present research has strong implication on the role of accounting information in developing rational investor behavior in the stock markets.

 
 
 

The interest in value relevance research is essentially based on the fact that financial statements act as the most important medium of communication with shareholders and other relevant users, and this reality leads to the conclusion that financial statements serve as the sinews of decision making by the users of financial statement information. Such usefulness is judged by two important qualities of financial statements: relevance and reliability (Barth et al., 2000 and 2001). Relevance refers to “the ability of the [accounting] item to make a difference to decisions of financial statement users”. Reliability refers to “to the ability of the [accounting] measure to represent what it purports to represent” (Barth et al., 2000). It is important to note that both relevance and reliability are interrelated. Relevance is tested through reliability and reliability is tested through relevance. The juxtaposition of relevance and reliability in financial statements lands in a new accounting paradigm called ‘value relevance’, which is the operational form of accounting information relevance and reliability criteria (Nayeri et al., 2012).

 
 
 

International Financial Reporting Standards (IFRS), Earnings,Combined Influence,Value Relevance Models, Value Relevance Analysis Value Relevance of Mono-Variable, Value Relevance of Multi-Variables.