Effect of Accounting Information on Share Prices

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International Journal of Economics and Finance

Vol. 4, No. 2; February 2012

The Impact of Accounting Information on Stock Prices: Evidence from the Athens Stock Exchange Michalis Glezakos University of Piraeus, Department of Insurance and Statistics 80 Karaoli & Dimitriou, 185 34, Piraeus, Greece E-mail: migl@unipi.gr John Mylonakis (Corresponding author) 10, Nikiforou str., Glyfada, 166 75, Athens, Greece E-mail: imylonakis@vodafone.net.gr Charalampos Kafouros M.A. University of Piraeus, Greece E-mail: bkafouros@gmail.com Received: November 23, 2011 doi:10.5539/ijef.v4n2p56 Abstract Past empirical research indicates that, in an increasing number of countries, certain accounting parameters affect the course of stock prices. Moreover, that this effect becomes stronger with time. The present study examines the impact of earnings and book value in the formulation of stock prices on a sample of 38 companies listed in the Athens Stock Market during the 1996-2008 period. The resulting evidence suggests that the joint explanatory power of the above parameters in the formation of στοck prices increases over time. However, the impact of earnings is diminishing, compared to the book value, while investors strive towards analysing the fundamental parameters of businesses. Finally, multicollinearity was traced between the earnings and book value variables. Keywords: Accounting information, Stock prices, Stock returns, Earnings per share, Book value, Multicollinearity JEL Classification Codes: G17, G11 1. Introduction Historically, market data have always prevailed over accounting data when it comes to identifying the factors that affect stock prices. In the latest years, an increasing number of empirical studies indicate that the financial statements of enterprises contain certain parameters that play a critical role in the course of their respective equities in the stock market. This finding was not unexpected since after 2000 the international accounting standards were improved and established across the world. Therefore, the information offered to investors is now more accurate and enlightening than before. The scope of this study is to examine the effect of the accounting information on the Athens Stock Exchange (ASE), by analysing data extracted from the financial statements of a sample of ASE listed companies. 2. Past Literature The use of accounting data to explain changes in stock prices is frequently referred in the relevant literature. Collins, Maydew and Weiss (1997) have discovered that the joint explanatory power of earnings and book values has not declined in the last forty years. To the contrary, they asserted that their explanatory power has increased in the same period. This conclusion is reached by several other authors as Barth, Beaver and Landsman (1998) and Keener (2011, while Burgstahler and Dichev (1997) suggested that the function which describes the relationship between stock prices and earnings and book values is convex. Also, Holthausen and Watts (2001) and Negakis (2005), after reviewing the relevant literature, concluded that earnings and book values do not affect in the same manner stock prices. Other studies (Hirschey et al., 2001; Aaker 56

ISSN 1916-971X E-ISSN 1916-9728

Accepted: December 13, 2011

Published: February 1, 2012

URL: http://dx.doi.org/10.5539/ijef.v4n2p56

www.ccsenet.org/ijef

International Journal of Economics and Finance

Vol. 4, No. 2; February 2012

and Jacobson, 2001; Graham et al., 2002; Al-Harbi, 2003; Liang and Yao, 2005; Junttila et al., 2005; Tan and Lim 2007), have identified a variety of relationships between the above parameters. Finally, a number of researchers have provided evidence that the effect of earnings and book values on stock prices is different for different industries (Hughes, 2000; Boone, 2002; Riley et al., 2003; Zhao, 2010) or different countries (Filip and Raffournier, 2010; Alsaman, 2003; Martinez, 2003; Habib,...
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