Value Relevance of Book Value and Earnings: Evidence from Two Different Financial Reporting Regimes

Mohd Halim Kadri (Faculty of Accountancy, Universiti Teknologi MARA, Johore Campus, Malaysia)
Rozainun Abdul Aziz (Accounting Research Institute & Faculty of Accountancy, Universiti Teknologi MARA, Malaysia)
Muhd Kamil Ibrahim (Accounting Research Institute & Faculty of Accountancy, Universiti Teknologi MARA, Johore Campus, Malaysia)

Journal of Financial Reporting and Accounting

ISSN: 1985-2517

Publication date: 4 December 2009

Abstract

This study aimed at investigating the value relevance of book value and earnings and the relationship between earnings and operating cash flow of two different financial reporting regimes in Malaysia. A market and nonmarket valuation approaches were utilised for that purpose. The result of market valuation approach of pool sample shows that book values and earnings are value relevant. We also observed that the change in financial reporting regime affects significantly the value relevance of book value and but not earnings. While book value and earnings are value relevant during the MASB period, only book value is value relevance during the FRS period. The result of non‐market valuation approach on the other hand, shows that the change in financial reporting regime has no significant effect on the relationship between earnings and operating cash flow. The result of market valuation approach implicates that the introduction of new or improved standards under FRS regime strengthen the position of book value thus leaving earnings behind in equity valuation. The result of non‐market valuation model implicates that the level of relationship between earnings and operating cash flow persists as long as operating cash flow comprise of cash and cash equivalent components whereas earnings comprise of cash and accruals components. The study contributes to the existing literature in the area of the effect of adoption of FRS on value relevance of accounting numbers in Malaysia.

Keywords

Citation

Halim Kadri, M., Abdul Aziz, R. and Kamil Ibrahim, M. (2009), "Value Relevance of Book Value and Earnings: Evidence from Two Different Financial Reporting Regimes", Journal of Financial Reporting and Accounting, Vol. 7 No. 1, pp. 1-16. https://doi.org/10.1108/19852510980000638

Publisher

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Emerald Group Publishing Limited

Copyright © 2009, Emerald Group Publishing Limited

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