Journal of Accounting & Organizational Change

Value relevance of accounting information: an emerging country perspective

Bismark Badu, Kingsley Opoku Appiah,
Article information:
To cite this document:
Bismark Badu, Kingsley Opoku Appiah, (2018) "Value relevance of accounting information:
an emerging country perspective", Journal of Accounting & Organizational Change, https://
doi.org/10.1108/JAOC-07-2017-0064
Permanent link to this document:
https://doi.org/10.1108/JAOC-07-2017-0064
Downloaded on: 09 November 2018, At: 22:36 (PT)
Downloaded by INSEAD At 22:36 09 November 2018 (PT)

References: this document contains references to 65 other documents.

To copy this document: permissions@emeraldinsight.com
The fulltext of this document has been downloaded 4 times since 2018*
Access to this document was granted through an Emerald subscription provided by emerald-
srm:178665 []
For Authors
If you would like to write for this, or any other Emerald publication, then please use our Emerald
for Authors service information about how to choose which publication to write for and submission
guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information.
About Emerald www.emeraldinsight.com
Emerald is a global publisher linking research and practice to the benefit of society. The company
manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as
well as providing an extensive range of online products and additional customer resources and
services.
Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the
Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for
digital archive preservation.

*Related content and download information correct at time of download.

 The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1832-5912.htm

Value
Value relevance of accounting relevance of
information: an emerging accounting

country perspective
Bismark Badu
Faculty of Economics and Business Administration,
Catholic University College, Sunyani, Ghana, and
Kingsley Opoku Appiah
Department of Accounting and Finance,
Kwame Nkrumah University of Science and Technology, Kumasi, Ghana
Downloaded by INSEAD At 22:36 09 November 2018 (PT)

Abstract
Purpose – This paper aims to examine the value relevance of accounting information from an emerging
country perspective.
Design/methodology/approach – The study adopts Ohlson (1995) Price model to examine the extent to
which accounting information explain variation in stock prices of listed firms on the Ghana Stock Exchange.
Findings – The study reveals that earnings and book value of equity exhibit a positive and significant
relationship in stock prices. Earnings explain higher variation in stock market values on the Ghana Stock
Exchange compared to book value of equity. The study however finds that despite the introduction of the
International Financial Reporting Standards in Ghana, the value relevance of book value and earnings have
declined significantly over the period 2005-2014.
Research limitations/implications – A key implication is that regulators of capital markets,
standards setters and accounting practitioners need to consistently improve upon the quality of financial
reporting disclosures which will boost the confidence of users in their reliance on financial statements as the
basis for choosing among alternative use of scarce resources. The authors adopted only the price model in
testing the hypotheses. However, to provide comprehensive understanding of value relevance of accounting
information, future studies can combine both the price and the return models.
Originality/value – The authors extend prior literature in the Ghanaian context with recent data. Finally,
the study adds to the efficient market hypothesis by showing how share prices reflect accounting information
produced by Ghanaian firms.
Keywords Ghana stock exchange, Emerging markets, Value relevance, Accounting information
Paper type Research paper

1. Introduction
The objective of general purpose financial reporting is to provide financial information about
the business that is useful to present and potential equity investors, lenders and creditors in
making decisions in their capacity as capital providers (IASB, 2010). This implies that, financial
reporting is not an end in itself. Rather financial reporting must provide the basis in assisting
investors of accounting information to choose among alternative use of scarce resources. As a
result, accounting information must be useful by making difference in investment decisions.
Therefore, value relevance refers to the usefulness of accounting information, and it is defined
as the ability of financial statements information to influence stock prices (Francis and Journal of Accounting &
Organizational Change
Schipper, 1999). According to Bowerman and Sharma (2016), value relevance studies examine © Emerald Publishing Limited
1832-5912
the relationship between accounting information and stock market values. DOI 10.1108/JAOC-07-2017-0064
 JAOC Value relevance research is predominantly significant to investors, accounting
practitioners, regulators and other interested parties who make use of accounting
information for investment decisions. Moreover, the development of effective capital
markets, partly through good accounting, is an important way of promoting growth in the
emerging economies (Reddy and Sharma, 2014).
As the seminal works of Ball and Brown (1968), value relevance of accounting
information has become an extensive study area for most accounting researchers
particularly in the developed capital markets (Omokhudu and Ibadin, 2015). A number of
researchers (Bepari, 2015; Collins et al., 1997; Khanagha, 2011; Alfaraih and Alanezi, 2011)
have tested the statistical relationship between accounting measures and stock market
values or returns focusing particularly on its strength and significance. As a consequence,
literature has produced mixed results. Some researchers argue that the usefulness of
accounting information has increased overtime (Bepari, 2015; Filip and Raffournier, 2010;
Gjerde et al., 2005; Landsman and Maydew, 2002; Collins et al., 1997), while others argue the
usefulness of accounting information has declined (Chandrapala, 2013; Khanagha, 2011;
Kwon, 2009; Shamki and Abdul Rahman, 2013).
Downloaded by INSEAD At 22:36 09 November 2018 (PT)

The decline in the usefulness of accounting information has been attributed to shift from
traditional capital-intensive economy into a high technology, service-oriented economy
(Dontoh et al., 2007; Alfaraih, 2009; Francis and Schipper, 1999). Furthermore, other
researchers also contend that the mixed results in value relevance studies are somewhat
attributable to econometric problems found in these studies (Brown et al., 1999). It is
therefore obvious that these studies contain certain limitations that require further studies
(Holthausen and Watts, 2001).
Regardless of the copious literature on the usefulness of accounting information in
developed markets, emerging markets on the other hand, have received limited attention
regarding value relevance research (Dosamantes, 2013; Aggarwal and Gupta, 2009). In
Africa, the available literature on the informativeness of accounting information appears
insufficient and inconclusive. The Ghana Stock Exchange has experienced significant
growth and development in recent times. For instance, an increase in market participants,
analysts’ forecasts, high level of press coverage and more importantly the adoption of the
International Financial Reporting Standards (IFRS). The factors above have the potential to
affect the information environment of the capital market (Alfaraih and Alanezi, 2011).
However, relatively little study has been undertaken regarding the impact of these factors
on the value relevance of accounting information in Ghana.
Our motivation is to extend the literature on the value relevance of accounting
information in one of the most important emerging markets in Africa, the Ghana Stock
Market. A key contribution of the paper is to demonstrate the relevance of accounting
information to investors in an emerging market. Aside the paper’s contribution to existing
literature, the findings of this paper give support to investors in making optimal investment
decisions through the use of accounting data.

1.1 Background of the Ghana Stock Exchange

The Ghana Stock Exchange commenced trading on November 12, 1990. The Exchange has
developed from three stockbrokers, 11 listed companies, few investors and manual
operations to a more developed exchange. Currently, the exchange can boost of twenty-one
brokerage firms, thirty-nine listed companies, four listed corporate bonds and over ninety-
five government bonds. The listed companies are categorised into eight industrial sectors,
namely: Finance, Distribution, Manufacturing, Food and Beverage, Mining, ICT, Insurance
and Agriculture. Ghana Stock Exchange (GSE) has created three markets: Main market
 (for equities), Ghana Alternative Market (mainly for SMEs) and the Ghana Fixed Income Value
Market (for debt securities). Moreover, GSE has created wealth for investors, recording good relevance of
returns on their investments over the years. GSE has also facilitated the raising of long term
accounting
capital for expansion and growth. Over Ghc2.18bn in capital has been raised since 1990. The
market capitalisation of the exchange increased from Ghc3.05m in 1990 to Ghc64,352.42m as
at November 2014 (GSE, 2015). Development in the regulatory environment is expected to
increase the value relevance of accounting information (Alfaraih, 2009).
Ghana mandatorily adopted the IFRS in 2007 after the recommendation by the World
Bank in 2006. The Ghana National Accounting Standards (GNAS) was assessed to be
outdated and differed significantly from the IFRS (World Bank, 2004). It has been argued,
however, that emerging economies had little choice but to proceed with IFRS upon pressures
from external forces (Sharma and Davey, 2013; Chand and White, 2007). Therefore, the IFRS
is increasingly being adopted by emerging economies without due regards to the relevance
of IFRS to those economies.
The remainder of this paper proceeds as follows. Section 2 discusses the literature review
Downloaded by INSEAD At 22:36 09 November 2018 (PT)

and development of hypotheses. Section 3 describes the research methodology and the
sample selection. Section 4 reports the empirical findings. The paper concludes in Section 5.

2. Literature review
Value relevance studies test to see whether accounting information explains cross-sectional
variation in share prices (Bowerman and Sharma, 2016). Information used by investors is
said to be impounded into the stock price of a firm, thus reflecting the present value of a
firm’s future economic benefits. The value relevance studies have been carried out in diverse
perspectives. Kargin (2013) asserts that market value is related to book value and earnings
per share (EPS) by using the Ohlson (1995) model. Overall, book value is relevant in
determining market value or stock prices of Turkish listed firms from 1998 to 2011.
Collins et al. (1997) examine the usefulness of both earnings and book value for
companies in the USA between 1953 and 1993. The researchers establish that the joint
predictive power of book value and earnings seemed to have increased marginally over time.
Second, for the 40-year period under review, the researchers observed that, the decline in the
incremental value relevance of earnings has been replaced by the increasing value relevance
of book value. This implies that the accounting informativeness has shifted from earnings to
book value over the study period 1953-1993. Factors such as changes in the economy, the
institutional environment and the operation of firms affect the relative importance of
accounting information (Hail, 2013).
Keener (2011) amplifies the study by Collins et al. (1997) by analysing efficient
fluctuations in the usefulness of earnings and book value over a 20 years period. In the first
place, the study endorses the assertions by Collins et al. (1997) that the joint usefulness of
earnings and book value has not declined. Second, the paper admits that the incremental
informativeness of earnings has increased while the incremental informativeness of book
value has remained consistently stable.
Similar to Collins et al. (1997), Gjerde et al. (2005) find that the financial reporting has
been very useful to the market participants trading on the Oslo Stock Exchange over a
40-year period. Moreover, Beisland (2009) finds that book value of equity and earnings are
generally associated with stock prices and stock returns. In particular, book value appears
to be highly associated with stock prices.
In a more recent study, Chandrapala (2013) attempts to measure the informativeness of
earnings and book value in the Colombo Securities exchange over the 2005-2009 period. The
 JAOC outcome demonstrates that the joint predictive power of the two variables is below
expectation, and this is akin to the past finding of the researcher.
Fiador (2013) examines corporate governance and the usefulness of financial information
in the Ghana Stock Exchange. The author establishes that book value is substantial in
explaining share prices. According to the author, the results is not startling, given that all
things being equal, an increase in book value implies an increase in the size of the returns
that goes to the shareholder. Conversely, the usefulness of earnings in explaining share
prices has declined significantly mainly as a result of earnings management aimed at
achieving higher market values.

2.1 Development of hypotheses

2.1.1 Value relevance of earnings and book value. The efficient market hypothesis posits
that stock market values quickly and instantaneously reflect relevant available information
(Fama, 1970). Financial statements provide useful information to investors on which
investments decisions are made. Therefore, share prices are likely to change upon the
publication of firm’s financial statements. A number of studies have examined the value
Downloaded by INSEAD At 22:36 09 November 2018 (PT)

relevance of accounting information in various capital markets (Gjerde et al., 2005;

Khanagha, 2011; Kargin, 2013; Bepari, 2015; Alfaraih and Alanezi, 2011).
Collins et al. (1997) contended that the joint predictive power of book value and earnings
seemed to have increased marginally over time. Moreover, Alfaraih and Alanezi (2011) find
evidence that financial statements information as in book value and earnings produced by
the accounting system of Kuwaiti are value relevant. Earnings and book value therefore
play key roles in firm valuation (Ohlson, 1995).
However, Bowerman and Sharma (2016) find that non-financial information does not seem
to provide incremental value relevance to investors, over and above book values and earnings.
From the foregoing, the study hypothesizes that:

H1. Earnings and book value are value relevant to GSE investors.
2.1.2 Changes in value relevance of earnings and book value. The formulation and
promulgation of IFRSs is to improve the relevance of accounting information (Chand
and White, 2007; Gjerde et al., 2005). Literature has produced contrasting findings on
the relevance of accounting information. Studies in different countries’ results show
that adopted IFRS significantly increase the value relevance of accounting information
(García et al., 2017; Bolibok, 2014; Iatridis, 2010; Kargin, 2013). Iatridis (2010) focuses on
the effects of switching UK generally accepted accounting principles to IFRS in the UK.
The results show that implementations of IFRS generally reinforce accounting quality
and lead to more value relevant accounting measures. Similarly, García et al. (2017) are
of the view that that changes from local accounting regulations to internationally
approved standards increase the value relevance of accounting information. The
improvement in GSE regulatory and informational environment particularly in 2007
following the adoption of IFRS suggests transparent, comparable and consistent
financial information to guide investors in making “optimal investment decisions”
(Jacob and Madu, 2004). The provision of quality accounting disclosures tends to
enhance the efficiency of the stock market (Baiman and Verrecchia, 1996).
Hypothetically, the value relevance of accounting information in the GSE should
improve. Consequently, the study hypothesizes that:

H2. The value relevance of earnings and book value has increased following the
implementation of the IFRS.
 2.1.3 Negative earnings and value relevance of earnings and book value. The value Value
relevance of accounting earnings differs between loss firms and profit firms (Kwon, relevance of
2009). Book value serves as a value relevance proxy for expected future normal
earnings and also as an abandonment option for firms which are most likely to cease
accounting
operations and liquidate (Papadaki and Siougle, 2007; Kwon, 2009; Khurana and Kim,
2003; Collins et al., 1999). Collins et al. (1999) find that, earnings are the value-relevant
factor in profit firms, while book value of equity is relevant in loss firms. Moreover,
Papadaki and Siougle (2007) established a verified negative relation between price and
earnings for loss firms and a positive relation between price and earnings for profit
firms. As a result, negative earnings bring about the shift in focus from earnings to
book value and thus serve as a proxy for liquidation option. On this basis the study
hypothesizes that:

H3. Book value is more value relevant than earnings in the presence of negative
earnings.
Downloaded by INSEAD At 22:36 09 November 2018 (PT)

2.1.4 Firm size and value relevance of accounting information. Collins et al. (1997) maintain
that firm size is identified with the usefulness of earnings and book value. Companies
that are large and have complicated structures will be able to adopt more sophisticated
governance structures and disclose more information compared to small size companies
(Reddy and Sharma, 2014; Sharma and Davey, 2013; Bokpin, 2013; Hayn, 1995). As a
result, large firms have higher predictive power than small firms (Chandrapala, 2013).
Furthermore, Dontoh et al. (2007) document that the decline in the information content
of stock prices over time is more pronounced for small-sized firms than for large-sized
firms.
On the contrary, Lam et al. (2013) and Chen et al. (1999) argue that value relevance
improvements are more pronounced for smaller firms in China.
The study therefore hypothesizes that:

H4. Larger firms explain higher variation in stock prices than smaller firms.

2.1.5 Industry category and value relevance of earnings and book value. According to Hayn
(1995), current earnings may not be an indicative of the future prospects of firms in
emerging, high-tech and developed industries. According to Collins et al. (1997), financial
statements information are less relevant in assessing the stock prices of service-oriented
companies, which are by nature high-technology driven. The implication is that, the shift
from manufacturing economy to high-tech service-oriented economy has resulted in a
decline in the value relevance of earnings and has increased the value relevance of book
value.
Francis and Schipper (1999) examine the value relevance of accounting information
across high-technology and low-technology firms. The study did not establish any evidence
of consistent difference in the relevance of earnings or over-time changes in the relevance of
earnings between the high- and low-technology firms. Although they find some evidence
that balance sheet information explains a significantly higher portion of the variability in
prices for low technology firms than for high-technology firms, the researchers found no
significant increase over time in the explained variability of this relation for both samples of
firms. In accordance with Francis and Schipper (1999), Keener (2011) demonstrates that
there is no significant variation in the incremental value relevance of earnings and book
values across industries.
 JAOC H5a. Book value is more value relevant than earnings in the services sector

H5b. Earnings is more value relevant than book value in the industrial sector.

3. Research methods
The model we use follows Ohlson (1995) and has been used extensively in most previous
studies (Bowerman and Sharma, 2016; Alfaraih and Alanezi, 2011; Collins et al., 1999). The
model expresses a firm’s value as a linear relationship between book value of equity and
earnings (Ohlson, 1995). Book value per share (BVS) refers to a firm’s total assets less total
liabilities divided by the number of ordinary shares. EPS is calculated by dividing earnings
after interest and taxes of a firm by its weighted average number of ordinary shares. The
price model has various appealing features and thus offers a suitable point of reference for
conceptualising how share prices relate to accounting variables (Ohlson, 1995).
Alternatively, the return model can equally be adopted in testing the hypotheses stated. The
Downloaded by INSEAD At 22:36 09 November 2018 (PT)

returns model investigates the statistical relationship between return on shares and changes
in accounting earnings as per Easton and Harris (1991). Comparatively, the price model has
advantages over the return model. Kothari and Zimmerman (1995) contend that the price
model is better specified economically because the estimated slope coefficients of the price
model are less biased than those of the returns model. However, Bowerman and Sharma
(2016) are of the view that the model adopted should be driven by the research question,
hypotheses developed and econometric considerations. The Ohlson (1995) price model is
stated as follows:

Pit ¼ a0 þ a1 EPSit þ a2 BVSit þ « it (1)

To examine the individual or relative predictive power of book value and earnings, two
separate models was developed from the above model. This technique was theoretically
originated by Theil (1971) subsequently adopted by value relevance studies (Brimble and
Hodgson, 2007; Gjerde et al., 2005; El Shamy and Kayed, 2005; Chen et al., 1999; Collins et al.,
1997). The decomposition of the model is as follows:

Pit ¼ b0 þ b1 EPSit þ « it (2)

Pit ¼ c0 þ c2 BVSit þ « it (3)

where:
Pit = market price per share for firm i at time t, three months after the end of the
accounting year of time t;
EPSit = the earnings per share of firm i at time t;
BVSit = the book value per share of firm i at time t; and
« it = other value relevant data.

3.1 Sample selection

The study period spans from 2005 to 2014. The study period was chosen because it covers
the mandatory adoption of IFRS in 2007. Data required for the study includes share prices,
earnings, book value of equity and weighted average number of shares. The data were
extracted manually from the selected companies’ financial statements available on the
 website of Annual Reports Ghana. The sample consists of 224 firm-year observations for the Value
10-year period 2005-2014. The R-squared is used as the key metric for measuring the value relevance of
relevance of accounting information (Bowerman and Sharma, 2016). Consistent with Kothari
and Zimmerman (1995) and Alfaraih and Alanezi (2011) heteroscedasticity in the yearly
accounting
regression was reduced using White’s (1980) heteroscedasticity-consistent autocorrelation
covariance matrix. Moreover, in accordance with Hill, Griffiths and Lim (2008) and Alfaraih
and Alanezi (2011) the heteroscedasticity in the pooled regression was minimized using the
Newey–West heteroscedasticity and autocorrelation consistent covariance matrix. The main
purpose of the heteroscedasticity test is to ensure that the data are homogenous and we
don’t have heterogeneity problem.

4. Results
4.1 Descriptive statistics
Table I presents the market summary of the Ghana Stock Exchange from 2005 to 2014.
Table II presents the descriptive statistics of the dependent variable and the independent
Downloaded by INSEAD At 22:36 09 November 2018 (PT)

variables. The mean share price for the 10-year period is approximately Ghc2.68 with the
corresponding median of Ghc0.40, and ranges from a minimum of Ghc0.02 to a maximum of
Ghc52.21. The mean of Ghc2.68 represents the average price per share of listed equities over
the study period 2005-2014. The standard deviation in respect of share price is
approximately 7 per cent. EPS recorded an overall mean of Ghc0.22 and a median of

Volume traded Value traded No. of listed Market capitalisation- End of year
Period (000) (GHC m.) companies equities (GHcm.) index value

2005 81,400.00 46.44 29.00 9,185.73 4,769.02

2006 98,286.00 47.60 32.00 11,249.60 5,006.02
2007 287,221.70 140.71 32.00 12,368.60 6,599.77
2008 531,660.00 365.51 35.00 17,895.12 10,431.64
2009 96,767.39 74.19 35.00 15,941.92 5,572.34
2010 330,616.75 151.29 35.00 20,116.70 6,886.31
2011 419,791.08 446.56 34.00 47,347.23 969.03
2012 218,134.34 102.20 34.00 57,264.22 1,199.72
2013 313,024.31 456.14 34.00 61,158.29 2,255.52
2014 207,496.13 345.96 35.00 64,352.42 2,261.02
Total 2,584,397.70 2,176.60 Table I.
Market summary
Source: GSE 25th Anniversary Handbook, 2015 2005-2014

Variable N Mean SD Median Minimum Maximum Skewness Kurtosis

Pit 224 2.68 7.11 0.4 0.02 52.21 4.56 23.63

EPSit 224 0.22 0.6 0.03 0.68 3.97 4.01 19.32
BVSit 224 0.78 1.62 0.26 0.75 12.1 3.79 17.6

Notes: All numbers are in Ghana Cedis (GHC). The definition of the variables are as: N is the number of
observations; Pit is the stock price per share for firm i at time t; BVSit is the book value per share of firm i at
time t, EPSit is the earnings per share of firm i at time t; and t = 2005. . . 2014, corresponding to the years
2005-2014 Table II.
Source: Secondary data, Compiled by self Descriptive statistics
 JAOC Ghc0.03, stretching from Ghc0.68 to Ghc3.97 with a standard deviation of about 0.6 per cent.
Moreover, the Table II shows that the average BVS for the 10-year period was Ghc0.78, a
median of Ghc0.26 with a standard deviation of 1.6 per cent. Book value ranges from
Ghc0.75 to Ghc12.1. The descriptive analysis in Table II also indicates that the variables are
skewed to the right (positively skewed) since the mean appears to be greater than the
median.
4.1.1 Test for multicollinearity. The extent of multicollinearity among the explanatory
variables is examined in this section. Table III presents the results of the Pearson
correlations between the variables. From Table III, noticeable correlation was anticipated in
advance. The explanatory variables, that is book value and earnings positively and
significantly correlates with each other and with share prices leading to high incidence of
multicollinearity. However, the fact that literature permits the decomposition of the Price
model, we avoid the problem of multicollinearity by focusing on the results of the split
models.
Downloaded by INSEAD At 22:36 09 November 2018 (PT)

5. Empirical findings
The R-squared was primarily used as the key metric for measuring value relevance of
accounting information primarily book value and earnings in accordance with previous
studies. In addition, the regression coefficients and their p-values are used to explain the
relationship (Bowerman and Sharma, 2016).

5.1 Value relevance of earnings and book value (H1)

Under this section, H1 and H2 are tested using the Price model developed by Ohlson (1995).
It is expected that book value and earnings jointly and individually are useful to GSE
investors.
The regression results of the pooled cross-sectional and time series sample are presented
in Table IV. Value relevance of financial statement information is measured by the R-
squared metric. In Model 2, the adjusted R-squared suggests that accounting information as
in earnings explain 66.2 per cent variation in stock prices of listed firms. The yearly cross
sectional results reveals that the adjusted R-squared ranges from approximately 91.2 per

Variables Pit EPSit BVSit

Pit
Pearson correlation 1 0.815** 0.775**
Sig. (2-tailed) 0.000 0.000
N 224 224 224
EPSit
Pearson correlation 0.815** 1 0.893**
Sig. (2-tailed) 0.000 0.000
N 224 224 224
BVSit
Pearson correlation 0.775** 0.893** 1
Sig. (2-tailed) 0.000 0.000
N 224 224 224
Table III. Notes: Correlation is *significant at the 0.05 level; **significant at the 0.01 level (2-tailed)
Pearson correlation Source: Secondary data, Stata 13
 Models
Value
Pit ¼ b0 þ b1 EPSit þ « it (2) relevance of
Pit ¼ c0 þ c1 BVSit þ « it (3) accounting
(2) (3)
Pit ¼ b0 þ b1 EPSit þ « it Pit ¼ c0 þ c1 BVSit þ « it
Year N b0 b1 R2EPS c0 c1 R2BVS

2005-2006 37 0.44*** (3.96) 8.84*** (6.13) 0.912 0.23 (1.72) 2.66*** (4.46) 0.799
2007-2008 44 0.02 (0.09) 10.90*** (6.07) 0.887 0.16 (0.70) 3.19*** (3.71) 0.745
2009-2010 47 0.31 (0.30) 9.53*** (7.62) 0.897 0.20 (0.83) 3.38*** (7.06) 0.877
2011-2012 48 0.11 (0.20) 12.99*** (8.39) 0.689 0.23 (0.39) 3.96*** (8.09) 0.578
2013-2014 48 1.58** (2.02) 6.34*** (3.31) 0.210 1.31 (1.63) 2.26** (2.78) 0.183
Pooled 224 0.39 (1.30) 10.38*** (11.14) 0.662 0.03 (0.10) 3.39*** (10.40) 0.598
Fama–MacBeth average 0.39 (1.73) 10.25*** (9.25) 0.772 0.09 (0.38) 3.29*** (10.37) 0.692

Notes: *, ** and ***represent significance levels of 0.05, 0.01 and 0.001, respectively. Heteroscedasticity in
the yearly OLS was corrected by using White’s (1980) heteroscedastic-consistent standard errors with
Downloaded by INSEAD At 22:36 09 November 2018 (PT)

corresponding t-statistics in parentheses; Heteroscedasticity and autocorrelation in the pooled OLS was Table IV.
corrected using Newey and West (1987) heteroscedasticity and autocorrelation consistent standard errors Pooled and yearly
with corresponding t-statistics in parentheses; Pit is the stock price per share for firm i at time t; EPSit is the cross-sectional
earnings per share of firm i at time t; BVSit is the book value per share of firm i at time t, and t = 2005, . . . ,
2014, corresponding to the years 2005-2014. R2T is the adjusted R2 for both earning and book value: R2EPS regressions on
is the adjusted R2 for earnings and R2BVS is the adjusted R2 for book value earnings and book
Source: Secondary data, Stata 16 value 2005-2014

cent in 2005-2006 to 21 per cent in 2013-2014. This is an indication of a decline in the

usefulness of book value and earnings within the 10-year study period 2005-2014. In
Model 3, the adjusted R-squared suggests that book value explain 59.8 per cent variation in
stock prices of listed firms. The annual cross-sectional results reveal that the adjusted R-
squared ranges from approximately 79.9 per cent in 2005-2006 to 18.3 per cent in 2013-2014.
This also provides indication of a decline in the usefulness of book during the period 2005-
2014. This implies that investors are discovering other sources of investment information in
addition to accounting information overtime.
P-values are used to assess the significance of the variables’ coefficients (Bowerman and
Sharma, 2016). In Models 2 and 3, the pooled regression results indicate that the coefficients
for earnings and book value are positive and significant (p-value 0.000) in explaining
variation in stock prices. Again Models 2 and 3 indicate that the coefficient of earnings is
significant and positive for all years. The results emphasize that the income statement and
the statement of financial position provide more useful information to market participants of
the Ghanaian capital market. The results in Models 2 and 3 however suggest that earnings
play a higher role in equity valuation relative to book value.
Overall, the Fama and MacBeth’s (1973) averaging technique was carried out to further
test the robustness of the price model. The average coefficients and the t-statistics for book
value and earnings were significant and positive for all the models (p < 0.01). Moreover, the
mean R-squared suggests earnings and book value explain 77.2 and 69.2 per cent variation
in stock price. The results across the two models support and validate each other and thus
confirm H1 that book value and earnings were useful to shareholders of GSE during the
2005-2014 period.
These findings from the GSE are in harmony with the findings from the advanced stock
markets (Francis and Schipper, 1999; Collins et al., 1997). Moreover, earnings and book value
coefficients estimates are quite larger for the listed Ghanaian companies compared with the
 JAOC results stated by Collins et al. (1997) in the USA. In absolute terms, companies listed on the
GSE report coefficients on earnings and book value of 7.79 and 1.02 correspondingly, as
against the 3.41 and 0.54 found by Collins et al. (1997). This demonstrates that financial
statements in general are very useful to investors in the Ghanaian stock exchange.
Similarly, the findings of the study are comparable with the findings of previous studies
carried out in other developing economies reported by Alfaraih and Alanezi (2011) in the
Kuwait market, Oyerinde (2011) in the Nigeria capital market, Ragab and Omran (2006) in
the Egypt market and Chen et al. (1999) in the Chinese market. The implication may be that
non-financial information does not appear to provide incremental value relevance to
investors in the Ghanaian stock market.
In a nutshell, the findings of the study on the basis of the price model offer considerable
evidence that the earnings and book value are very useful in the Ghanaian Capital Market
over the study period 2005-2014. However, earnings were found to be more useful to
investors in the GSE than book value of equity. This suggests that though financial
statements in general are useful, the income statement provides more valuable information
to GSE participants compared with the statement of financial position.
Downloaded by INSEAD At 22:36 09 November 2018 (PT)

5.2 Changes in the value relevance of book value and earnings (H2)
Following the introduction of the IFRS in 2007, the value of financial information was
expected to improve and investors were expected to exhibit much more confidence in
the financial statements (Baiman and Verrecchia, 1996). Change in value relevance of
accounting information was thus examined by regressing the yearly adjusted R-
squares on a time trend variable (time, 2005-2014). The result thereof is presented in
Table V.
The time coefficient from the Models 4 and 5 is negative and significant (p < 0.05).
From the foregoing, it is obvious that the explanatory powers of book value and
earnings have declined significantly during the 10-year period 2005-2014. From Model
4, time coefficient is negative and significant indicating a decline in the value relevance
of earnings. Likewise, the time coefficient was negative and significant in the book
value model (R2BVS) indicating a decline in the significance of book value in firm
valuation.
Figure 1 provides more evidence of a substantial decline in relation to the usefulness
of book value and earnings. The decline was triggered by both book value and earnings
and thus suggesting that the usefulness of financial statements has declined during the
study period 2005 to 2014 notwithstanding the introduction of the IFRS in Ghana. Other
reasons for the decline in value relevance of accounting information may be due to the

R2 EPS ¼ b0 þ b1 TIMEt þ « t . . . . . . . . . . . . . . . . . .(4)

R2 BVS ¼ c0 þ c1 TIMEt þ « t . . . . . . . . . . . . . . . . . .(5)
R2 EPS ¼ b0 þ b1 TIMEt þ « t R2 BVS ¼ c0 þ c1 TIMEt þ « t
b0 TIME b 1 R2
b0 TIME b 1 R2

1.20** (7.02) –0.16* (–2.62) 0.625 1.06** (6.42) –0.14* (–4.51) 0.522
Table V.
Notes: *, ** and ***represent significance levels of 0.05, 0.01 and 0.001, respectively; t-statistics are in
Regression of R2s on parentheses; t-statistics are based on Newey and West (1987) heteroscedasticity and autocorrelation
time trend variable consistent errors. Time corresponds with year 1, year 2. . .year 10
2005-2014 Source: Secondary data, Stata 16
 Value
relevance of
accounting

Figure 1.
Change in value
relevance of
accounting
information over
2005-2014
Downloaded by INSEAD At 22:36 09 November 2018 (PT)

declined timelines of financial reporting, frequency reporting of losses by firms and the
listing of small sized firms on the Ghana Stock Market. Moreover, large press coverage
in recent times which may have increased the number of non-financial sources of
information in the GSE and could account for the decline in the value relevance of
accounting information.

6. Factors affecting value relevance of accounting information

6.1 Profitability (H3)
To test the influence of positive or negative earnings on value relevance of book value and
earnings and in accordance with previous studies, we split the sample into two on the basis
of the earnings signs, that is profit firms comprising 171 observations and loss firms
comprising 49 observations. Table VI displays the results of the positive versus negative
earnings data, the analysis to which we turn to.
The profit sample model is significant and indicates that earnings and book value
account for about 68 and 63 per cent variation in share prices, respectively. The results
suggest that book value and earnings are statistically related with stock market values as
reinforced by the coefficients (EPS = 10.62, BVS = 3.53). However, the results suggest that

Positive Negative
Earnings Book value Earnings Book value

10.62*** (11.32) 3.53*** (11.32) 3.18 (0.65) 0.28 (1.13)

Constant 0.13 (0.53) 0.39 (1.07) 0.68 (1.30) 0.49 (1.47)
Number 171 171 49 49
R-squared 0.6803 0.6312 0.024 0.0061
Adj. R-squared 0.6785 0.629 0.0189 0.015

Notes: *, ** and ***represent significance levels of 0.05, 0.01 and 0.001, respectively; t-statistics are in
parentheses; t-statistics are based on Newey and West (1987) heteroscedasticity and autocorrelation Table VI.
consistent errors Positive vs negative
Source: Secondary data, Stata 16 earnings
 JAOC earnings in particular account for a higher variation in stock prices relative to book value
and this is consistent with the original results.
Conversely, the loss sample model is not significant. The coefficient of earnings and book
are much lower than those reported in the profit model. The loss sample model suggests that
both earnings and book value are insignificantly related to stock prices.
In literature book value of equity is more prevalent when firms are faced with negative
earnings that are transitory in nature. However, a puzzling result contrary to literature was
obtained in respect of book value of equity. While investors appear to attach much
importance to book value of equity in the event of losses as in literature, contrary to
expectation, book value was not relevant to investors in the Ghanaian context. This
suggests that book value of equity cannot be an alternative whenever firms are making
losses. The results hereby lead to a rejection of H3 that book value explains higher variation
in stock prices when firms are making losses. However, the results reinforce the notion that
earnings are highly sensitive and explain higher variation in stock prices compared with
book value in the Ghanaian capital market.
6.1.1 Firm size (H4). To study the effect of firm size on the value relevance of accounting
Downloaded by INSEAD At 22:36 09 November 2018 (PT)

information, we partition the sample into large and small firms (Bae and Jeong, 2007;
Brimble and Hodgson, 2007; Collins et al., 1997; Chandrapala, 2013; Chen et al., 1999).
Consistent with Bae and Jeong (2007) and Brimble and Hodgson (2007) total asset is used as
the benchmark for the classification of firms as either large or small. Firms whose total
assets are below the median (Gh¢411,000,000) of the total assets are considered as small
firms. On the other hand, firms with total assets above the total the median are considered as
large firms. Table VII contains the results of small versus large firms, the analysis of which
we turn to.
The results suggest that both earnings and book value are positive and significant in
explaining variation in stock prices of both small and large firms. The adjusted R-squared
implies that earnings and book value of equity explain approximately 35 per cent and 27
variations in share prices of small firms respectively. In larger firms, the adjusted R-squared
indicate that earnings and book value of equity account for 73 per cent variation in stock
prices. The results however, confirm the H4 that larger firms explain higher variation in
stock prices than smaller firms. The difference in explanatory powers between the two
categories of firms could be due to factors such as few analysts following small firms
compared to large firms, higher levels of disclosure by large firms, greater numbers of start-
up firms in the small firm category and the greater propensity of small firms to report losses
(Hayn, 1995).

Small Large
Earnings Book value Earnings Book value

7.68*** (4.32) 1.87*** (3.58) 11.44*** (11.16) 4.16*** (14.09)

Constant 0.72** (3.39) 0.58** (2.46) 0.49 (0.77) 0.619 (0.89)
Number 173 173 51 51
R-squared 0.357 0.275 0.7377 0.738
Adj. R-squared 0.353 0.271 0.7323 0.7327

Notes: *, ** and ***represent significance levels of 0.05, 0.01 and 0.001, respectively; t-statistics are in
Table VII. parentheses; t-statistics are based on Newey and West (1987) heteroscedasticity and autocorrelation
Small firms vs large consistent errors
firms Source: Secondary data, Stata 16
 As a result, share prices of large firms either integrate more open information about the Value
future position of a firm or impound such information more swiftly than smaller firms. relevance of
Generally, the result on firm size is consistent with prior studies (Bae and Jeong, 2007;
Collins et al., 1999; Chen et al., 1999). In summary, accounting measures are value relevant
accounting
for different firm sizes in the Ghanaian market; the financial statements in larger firms are
also more relevant to investors.
6.1.2 Difference across industry [H5 (a) and (b)]. Following El Shamy and Kayed
(2005), we partitioned the sample into two main sectors: service and industrial. The
rationale is to investigate whether sectorial differences of listed entities affect the value
relevance of book value and earnings. The service sector produces intangible goods,
more precisely services instead of goods. For instance, the banking, insurance, ICT and
distribution industries were amalgamated into one sector named Service sector
(El Shamy and Kayed, 2005). The rationale for this combination is due to small number
of firms in each industry and particularly, the similarities among the services they
render. Likewise, food and beverage sector, agriculture and manufacturing sectors were
Downloaded by INSEAD At 22:36 09 November 2018 (PT)

combined into one sector named as industrial sector. The industrial sector produces
goods. The rationale behind this combination is by reason of small number of firms in
some sectors and the similarities among the industrial firms (El Shamy and Kayed,
2005).
Table VIII reports the estimated regression results of stock prices on book value and
earnings on the basis of underlying economic differences.
The results in Table VIII indicate obvious variances among the two major sectors in
relation to the comparative explanatory powers of earnings and book value. In the service
sector, the adjusted R-squared implies that earnings and book value of equity account for
about 72 and 61 per cent variation in stock prices, respectively. In the industrial sector,
earnings and book value explain about 3 per cent and 20 per cent differences in share prices.
The results suggest that whereas earnings play a higher role in the service sector, book
value of equity is also play a higher role in the industrial sector. Overall, earnings and book
value account for higher variation in the service sector relative to the industrial sector in the
Ghanaian context. The result is similar to the findings of El Shamy and Kayed (2005).
Moreover, in accordance with Francis and Schipper (1999), the results reveal that book value
explain a significantly higher proportion of the variability in prices for industrial
(low-technology) firms than for service (high-technology) firms. Nonetheless, earnings
explain a significantly higher proportion of the variability in prices for service firms than for
industrial firms (El Shamy and Kayed, 2005). The results therefore lead to the rejection of

Service Industrial
Earnings Book value Earnings Book value

10.98*** (12.10) 3.47*** (10.78) 2.77 (1.42) 3.62*** (4.12)

Constant 0.005 (0.02) 0.39 (1.07) 1.02*** (4.07) 0.40** (2.62)
Number 125 125 99 99
R-squared 0.7178 0.6145 0.044 0.2063
Adj. R-squared 0.7155 0.6114 0.0341 0.1981

Notes: *, ** and ***represent significance levels of 0.05, 0.01 and 0.001, respectively; t-statistics are in
parentheses; t-statistics are based on Newey and West (1987) heteroscedasticity and autocorrelation Table VIII.
consistent errors Service sector vs
Source: Secondary data, Stata 16 industrial sector
 JAOC H5a and H5b. The results therefore suggest important differences in value relevance across
the sectors of Ghanaian listed firms on account of differences in fundamental economic
activities.

7. Discussion of findings
The study adopted the Ohlson (1995) Price model to examine the study’s hypotheses. The
pooled regression coefficients indicate that book values and earnings are statistically
significant in explaining variation in share prices across all the three specified models. The
study discovers that book values and earnings jointly account for 68 per cent variation in
stock prices of Ghanaian listed firms over the study period 2005 to 2014. On the other hand,
earnings and book values individually explain 66 and 60 per cent variation in share prices,
respectively. The yearly cross-sectional results were also consistent with the pooled results.
It can therefore be inferred that even though accounting information in general are useful on
the GSE, however, participants of the GSE attached more importance to earnings than book
values in equity valuation. Hence, the Ohlson (1995) price model provides evidence that is
Downloaded by INSEAD At 22:36 09 November 2018 (PT)

consistent with hypotheses H1 and H2. The high explanatory power implies that earnings
and book value of equity are strongly related to share prices (Bowerman and Sharma, 2016;
Alfaraih and Alanezi, 2011; Lo and Lys, 2000; Kargin, 2013; Keener, 2011).
Furthermore, owing to the development within GSE’s regulatory environment, the study
analysed the change in the usefulness of accounting information. We discovered that book
values and earnings individually and jointly have declined significantly during the 10-year
study period 2005-2014. Evidence from the present study indicates that the implementation
of IFRS did not have a significant improvement on the value relevance of fundamental
accounting information announced by the Firms listed on the Ghana Stock Exchange and
this evidence is supported by prior studies in other markets (Khanagha, 2011; Bolibok, 2014;
Brown et al., 1999; Shamki and Abdul Rahman, 2013; Kwon, 2009).
We further examine three key factors that affect the value relevance of book values and
earnings. These factors include earnings sign, firm size and industry. In relation to the
earnings sign, the model for negative earnings sampled firms was not significant. However,
the best fit was obtained for the positive sampled firms’ model. This implies that in the
presence of negative earnings, financial statements are entirely not relevant to investors.
The results for the positive earnings sample however are consistent and validate the theory
that earnings and book values jointly affect stock prices. The result for the book value of
equity is puzzling and contrary to literature given the role book value of equity plays in the
event of losses.
Similarly, to examine the significance of firm size on the informativeness of accounting
information, we find that larger firms have higher explanatory power than smaller firms. As
a consequence, accounting information produced by smaller firms is less value relevant. The
result is consistent with the H3. The high explanatory power for large firms could be due to
stricter disclosure regulations, sophisticated governance structures, media attention and
other forms of public attention larger firms receive (Alfaraih, 2009; Hayn, 1995; Reddy and
Sharma, 2014). The result is similar to the findings of previous studies (Bae and Jeong, 2007;
Chandrapala, 2013; Sharma and Davey, 2013; Bokpin, 2013; Dontoh et al., 2007). With
regards to industry, the best fit was obtained for the service sector model with earnings and
book value of equity explaining 71 per cent change in share prices. The least fit was the
industrial sector model which account for only 19 per cent change in share prices of
Ghanaian listed firms. The results therefore suggest significant differences in value
relevance across the various sectors of Ghanaian listed firms. Generally, the findings are
consistent with El Shamy and Kayed (2005) and Francis and Schipper (1999).
 8. Conclusion Value
Motivated by lack of value relevance studies in the Ghanaian capital market, the present relevance of
paper aims at examining the extent to which accounting information particularly earnings
and book value of equity explain variation in stock market value in the Ghanaian capital
accounting
market. We used the Ohlson (1995) Price model to examine the hypotheses stated.
The pooled regression results reveal that book value and earnings are significant and
positive in explaining variation in share prices of listed firms. It was discovered that book
value and earnings account for significant variation in the stock prices. The results also
suggest that even though accounting information in general is value relevant, earnings in
particular is highly significant in explaining variation in stock prices compared with its
counterpart book value. It can therefore be inferred that even though financial statements
are generally useful on the GSE; however, participants of the GSE attached more importance
to the income statement than the statement of financial position.
The findings were consistent with previous studies both in advanced economies as well
as emerging markets (Francis and Schipper, 1999; Khanagha, 2011; Bolibok, 2014; Collins
Downloaded by INSEAD At 22:36 09 November 2018 (PT)

et al., 1997; Alfaraih and Alanezi, 2011; Oyerinde, 2011; Ragab and Omran, 2006). It was
discovered that book value and earnings have declined significantly during the 10-year
study period 2005 to 2014. The recent increased publicity received by the Ghanaian capital
market could affect the information environment and subsequently account for the
weakening usefulness of earnings and book value during the study period 2005 to 2014.
The study finds that the results for both positive sample and negative sample entities are
not homogenous. In the negative earnings sample model, the study implies that investors do
not attach significant weight to book value in the period of losses. The results for the
positive earnings sample however are consistent and validate the theory that earnings and
book value are statistically related to share prices (Chen et al., 1999; Kargin, 2013;
Chandrapala, 2013; Khanagha, 2011; Shamki and Abdul Rahman, 2013).
Similarly, it was discovered that book value and earnings together explain higher
variation in share prices of large firms than in smaller firms. The high explanatory power
for large firms could be due to stricter disclosure regulations, sophisticated governance
structures as well as the media attention large firms receive. Though the findings on firm
size are varied in literature, our result is comparable to the findings of previous studies
(Alfaraih and Alanezi, 2011; Bae and Jeong, 2007; Collins et al., 1999; Chen et al., 1999).
The model for the service sector obtained the best fitness with earnings together with
book value whiles the industrial sector model obtained the least fitness. In the service sector,
the findings indicate that, the statement of profit or loss and other comprehensive income is
much more informative than the statement of financial position information. On the other
hand, balance sheet information is much more informative compared with income statement
information in the industrial sector. Therefore, the results suggest significant differences in
value relevance across the various sectors of Ghanaian listed firms. Generally, the findings
are consistent with previous studies (El Shamy and Kayed, 2005; Francis and Schipper,
1999).
The study provides useful conclusion and important implication for both investors and
standard-setters. The findings of the usefulness of earnings and book value disclose that
investors depend profoundly on earnings in equity valuation. These findings also suggest
that market participants in the Ghanaian Capital market depend on earnings figures much
higher relative to shareholders in the developed stock markets. As accounting information is
value relevant to market participants, the study has implication on standard-setters and
accounting practitioners. Standard setters must constantly review financial reporting
standards to sustain the relevance of accounting information. Stricter compliance with
 JAOC accounting standards will improve the value relevance of accounting information required
for the purpose of investment decisions.
Our study suffers from several limitations. We adopted only the price model in testing
our hypotheses, as the model produces impartial earnings coefficients and thus has
appealing features. However, to provide comprehensive understanding of value relevance of
accounting information (Alfaraih and Alanezi, 2011; Chen et al., 1999) future studies can
combine both the price and the return model models to analyse the value relevance of
accounting information. Moreover, due to a limited study period, it is difficult to draw any
firm conclusion about the impact of IFRS and the value-relevance of earnings and book
value of equity. Although we acknowledge these limitations, our findings however
contribute to value relevance studies from emerging countries perspective.

References
Alfaraih, M. and Alanezi, F. (2011), “The usefulness of earnings and book value for equity valuation to
Kuwait Stock Exchange participants”, International Business and Economics Research Journal,
Downloaded by INSEAD At 22:36 09 November 2018 (PT)

Vol. 10 No. 1, pp. 73-90.

Alfaraih, M. (2009), “Compliance with international financial reporting standards (IFRS) and the value
relevance of accounting information in emerging stock markets: evidence from Kuwait”,
Doctoral dissertation, Queensland University of Technology.
Aggarwal, N. and Gupta, M. (2009), “Do high book-to-market stocks offer returns to fundamental
analysis in India?”, Decision (0304-0941), Vol. 36 No. 2.
Bae, K.H. and Jeong, S.W. (2007), “The value-relevance of earnings and book value, ownership
structure, and business group affiliation: evidence from Korean business groups”, Journal of
Business Finance and Accounting, Vol. 34 Nos 5/6, pp. 740-766.
Ball, R. and Brown, P. (1968), “An empirical evaluation of accounting income numbers”, Journal of
Accounting Research, Vol. 6 (Autumn), pp. 169-178.
Baiman, S. and Verrecchia, R.E. (1996), “The relation among capital markets, financial disclosure,
production efficiency, and insider trading”, Journal of Accounting Research, Vol. 34 No. 1,
pp. 1-22.
Beisland, A.E. (2009), “Essays on the value relevance of accounting information”, Working Paper of
Norwegian school of Economics and Business Administration.
Bepari, M.K. (2015), “Relative and incremental value relevance of book value and earnings during the
global financial crisis”, International Journal of Commerce and Management, Vol. 25 No. 4,
pp. 531-556.
Bokpin, G.A. (2013), “Determinants and value relevance of corporate disclosure: evidence from the
emerging capital market of Ghana”, Journal of Applied Accounting Research, Vol. 14 No. 2,
pp. 127-146.
Bolibok, P. (2014), “The impact of IFRS on the value relevance of accounting data of banks listed on the
Warsaw Stock Exchange”, Copernican Journal of Finance and Accounting, Vol. 3 No. 1, pp. 33-43.
Bowerman, S. and Sharma, U.P. (2016), “The effect of corporate social responsibility disclosures on
share prices in Japan and the UK”.
Brown, S., Lo, K. and Lys, T. (1999), “Use of R2 in accounting research: measuring changes in
value relevance over the last four decades”, Journal of Accounting and Economics, Vol. 28
No. 2, pp. 83-115.
Brimble, M. and Hodgson, A. (2007), “On the intertemporal value relevance of conventional financial
accounting in Australia”, Accounting and Finance, Vol. 47 No. 4, pp. 599-622.
Chand, P. and White, M. (2007), “A critique of the influence of globalization and convergence of
accounting standards in Fiji”, Critical Perspectives on Accounting, Vol. 18 No. 5, pp. 605-622.
 Chandrapala, P. (2013), “The value relevance of earnings and book value: the importance of ownership Value
concentration and firm size”, Journal of Competitiveness, Vol. 5 No. 2, pp. 98-107.
relevance of
Chen, C., Chen, S. and Su, X. (1999), “Is accounting information value-relevant in the emerging
Chinese stock market?”, Journal of International Accounting Auditing and Taxation, Vol. 10 accounting
No. 1, pp. 1-22.
Collins, D., Maydew, E. and Weiss, I. (1997), “Changes in the value-relevance of earnings and book
values over the past forty years”, Journal of Accounting and Economics, Vol. 24 No. 1, pp. 39-68.
Collins, D., Pincus, M. and Xie, H. (1999), “Equity valuation and negative earnings: the role of book
value of equity”, The Accounting Review, Vol. 74 No. 1, pp. 29-61.
Dontoh, A., Radhakrishnan, S. and Ronen, J. (2007), “Is stock price a good measure for assessing value-
relevance of earnings? An empirical test”, Review of Managerial Science, Vol. 1 No. 1, pp. 3-45.
Dosamantes, C.A.D. (2013), “The relevance of using accounting fundamentals in the Mexican stock
market”, Journal of Economics Finance and Administrative Science, Vol. 18, pp. 2-10.
Easton, P. and Harris, T. (1991), “Earnings as an explanatory variable for returns”, Journal of
Accounting Research, Vol. 29 No. 1, pp. 19-36.
Downloaded by INSEAD At 22:36 09 November 2018 (PT)

El Shamy, M. and Kayed, M. (2005), “The value relevance of earnings and book values in equity
valuation: An international perspective – the case of Kuwait”, International Journal of
Commerce and Management, Vol. 15 No. 1, pp. 68-79.
Fama, E. (1970), “Efficient Capital markets: a review of theory and empirical work”, Journal of Finance,
Vol. 25 No. 2, pp. 383-417.
Fama, E. and Macbeth, J. (1973), “Risk, return and equilibrium – empirical tests”, The Journal of
Political Economy, Vol. 81 No. 3, pp. 607-636.
Fiador, O.V. (2013), “Corporate governance and value relevance of financial information: evidence from
the Ghana stock exchange”, Corporate Governance, Vol. 13 No. 2, pp. 208-217.
Filip, A. and Raffournier, B. (2010), “The value relevance of earnings in a transition economy: the case
of Romania”, The International Journal of Accounting, Vol. 45 No. 1, pp. 77-103.
Francis, J. and Schipper, K. (1999), “Have financial statements lost their relevance?”, Journal of
Accounting Research, Vol. 37 No. 2, pp. 319-352.
Ghana Stock Exchange (2015), Celebrating 25 Years of Stock Market Operations in Ghana: Building a
Resilient Market for a Developing Economy, Ghana Stock Exchange, Accra.
García, M.D.P.R., Alejandro, K.A.C., Sáenz, A.B.M. and Sánchez, H.H.G. (2017), “Does an IFRS adoption
increase value relevance and earnings timeliness in latin america?”, Emerging Markets Review,
Vol. 30, pp. 155-168.
Gjerde, O., Knivsfla, K. and and Sættem, F. (2005), “The value-relevance of financial reporting on the
Oslo stock exchange over the period 1964-2003”, Discussion Papers 2005/23, Department of
Finance and Management Science, Norwegian School of Economics and Business
Administration.
Hail, L. (2013), “Financial reporting and firm valuation: relevance lost or relevance regained?”,
Accounting and Business Research, Vol. 43 No. 4, pp. 329-358.
Hayn, C. (1995), “The information content of losses”, Journal of Accounting and Economics, Vol. 20
No. 2, pp. 125-153.
Hill, R., Griffiths, W. and Lim, G. (2008), Principles of Econometrics, 3rd ed., John Wiley and Sons,
New York, NY.
Holthausen, R. and Watts, R. (2001), “The relevance of the value relevance literature for financial
accounting standard setting”, Journal Accounting and Economics, Vol. 31 Nos 1/3, pp. 3-75.
IASB, C.F. (2010), The Conceptual Framework for Financial Reporting, as in September 2010,
International Accounting Standards Board, London, UK.
Iatridis, G. (2010), “IFRS adoption and financial statement effects: the UK case”.
 JAOC Jacob, R.A. and Madu, C.N. (2004), “Are we approaching a universal accounting language in five
years?”, foresight, Vol. 6 No. 6, pp. 356-363.
Kargin, S. (2013), “The impact of IFRS on the value relevance of accounting information: evidence from
turkish firms”, International Journal of Economics and Finance, Vol. 5 No. 4, pp. 71.
Keener, M.H. (2011), “The relative value relevance of earnings and book value across industries”,
Journal of Finance and Accountancy, Vol. 6, pp. 1.
Khanagha, J.B. (2011), “Value relevance of accounting information in the United Arab Emirates”,
International Journal of Economics and Financial Issues, Vol. 1 No. 2, pp. 33.
Khurana, I.K. and Kim, M.S. (2003), “Relative value relevance of historical cost vs. fair value:
evidence from bank holding companies”, Journal of Accounting and Public Policy, Vol. 22
No. 1, pp. 19-42.
Kothari, S. and Zimmerman, J. (1995), “Price and return models”, Journal of Accounting and Economics,
Vol. 20 No. 2, pp. 155-192.
Kwon, G.J. (2009), “The value relevance of book values, earnings and cash flows: evidence from South
Korea”, International Journal of Business and Management, Vol. 4 No. 10, p. 28.
Downloaded by INSEAD At 22:36 09 November 2018 (PT)

Landsman, W.R. and Maydew, E.L. (2002), “Has the information content of quarterly earnings
announcements declined in the past three decades?”, Journal of Accounting Research, Vol. 40
No. 3, pp. 797-808.
Lam, K.C., Sami, H. and Zhou, H. (2013), “Changes in the value relevance of accounting information over
time: Evidence from the emerging market of China”, Journal of Contemporary Accounting and
Economics, Vol. 9 No. 2, pp. 123-135.
Lo, K. and Lys, T. (2000), “The ohlson model: contribution to valuation theory, limitations, and
empirical applications”, Journal of Accounting, Auditing and Finance, Vol. 15 No. 3,
pp. 337-367.
Newey, W. and West, K. (1987), “A simple, positive semi-definite, heteroscedasticity and
autocorrelation consistent covariance matrix”, Econometrica (1986-1998), Vol. 55 No. 3,
pp. 703-708.
Ohlson, J. (1995), “Earnings, book-values, and dividends in equity valuation”, Contemporary
Accounting Research, Vol. 11 No. 2, pp. 661-687.
Omokhudu, O.O. and Ibadin, P.O. (2015), “The value relevance of accounting information: Evidence
from Nigeria”, Accounting and Finance Research, Vol. 4 No. 3, pp. 20-30.
Oyerinde, D.T. (2011), Value-Relevance of Accounting Information in the Nigerian Stock Market, Vol. 1
No. 2, pp. 220.
Papadaki, A. and Siougle, G. (2007), “Value relevance of price, earnings and book values in the athens
stock exchange”, Managerial Finance, Vol. 33 No. 5, pp. 309-320.
Ragab, A.A. and Omran, M.M. (2006), “Accounting information, value relevance, and investors’ behavior
in the egyptian equity market”, Review of Accounting and Finance, Vol. 5 No. 3, pp. 279-297.
Reddy, K. and Sharma, U. (2014), “Institutional antecedents of principle-based corporate governance
practices: a case study of publicly listed companies in Fiji”, Journal of Accounting and
Organizational Change, Vol. 10 No. 1, pp. 49-82.
Shamki, D. and Abdul Rahman, A. (2013), “Does financial disclosure influence the value relevance of
accounting information?”, Education, Business and Society: Contemporary Middle Eastern
Issues, Vol. 6 Nos 3/4, pp. 216-232.
Sharma, U. and Davey, H. (2013), “Voluntary disclosure in the annual reports of fijian companies”,
International Journal of Economics and Accounting, Vol. 4 No. 2, pp. 184-208.
Theil, H. (1971), Principles of Econometrics, 1st ed. Wiley, New York, NY.
White, H. (1980), “A heteroskedastic-consistent covariance matrix and a direct test for
heteroskedasticity”, Econometrica, Vol. 48, pp. 421-448.
 World Bank (2004), Report on Observance of Standards and Codes, World Bank, Ghana. (2008), Value
available at: www.imf.org/external/NP/rosc/rosc.aspx?
relevance of
Further reading accounting
Barth, M. and Clinch, G. (1996), “International accounting differences and their relation to share prices:
evidence from UK, Australian, and Canadian firms”, Contemporary Accounting Research,
Vol. 13 No. 1, pp. 135-170.
Barth, M., Beaver, W. and Landsman, W. (1998), “Relative valuation roles of equity book value and net
income as a function of financial health”, Journal of Accounting and Economics, Vol. 25 No. 1,
pp. 1-34.
Ely, K. and Waymire, G. (1999), Special Section on the Relevance of Financial Statements Accounting
Standard-Setting Organizations and Earnings Relevance: Longitudinal Evidence from NYSE,
Vol. 37 No. 2, pp. 293-317.
Hellstrom, K. (2006), “The value relevance of financial accounting information in a transition economy:
the case of the Czech Republic”, European Accounting Review, Vol. 15 No. 3, pp. 325-344.
Kothari, S.P.P. (2001), “Capital markets research in accounting”, Journal of Accounting and Economics,
Downloaded by INSEAD At 22:36 09 November 2018 (PT)

Vol. 31 Nos 1/3, pp. 105-231.

Lev, B. and Zarowin, P. (1999), “The boundaries of financial reporting and how to extend them”, Journal
of Accounting Research, Vol. 37 No. 2, pp. 353-385.
Pan, Y. and Jackson, R.T. (2008), “Ethnic difference in the relationship between acute inflammation and
serum ferritin in US adult males”, Epidemiology and Infection, Vol. 136 No. 3, pp. 421-431.

Corresponding author
Kingsley Opoku Appiah can be contacted at: koappiah.ksb@knust.edu.gh

For instructions on how to order reprints of this article, please visit our website:
www.emeraldgrouppublishing.com/licensing/reprints.htm
Or contact us for further details: permissions@emeraldinsight.com