Value relevance of financial information: A comparative study of pre- and post- implementation of Indian accounting standards
-
Author(s)K. P. Venugopala RaoLink to ORCID Index: https://orcid.org/0000-0002-5183-4596
,
Farha Ibrahim
,
Mani Sree TadiLink to ORCID Index: https://orcid.org/0000-0001-7195-845X
-
DOIhttp://dx.doi.org/10.21511/imfi.20(1).2023.07
-
Article InfoVolume 20 2023, Issue #1, pp. 68-76
- Cited by
- 716 Views
-
357 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
In 2016, India implemented new accounting standards, Ind AS, aligning with IFRS to increase transparency in the financial reporting of Indian companies. This study examines the value relevance of financial information in India before and after the adoption of Indian accounting standards (Ind AS) by comparing the published financial statements in pre- and post-Ind AS periods and determines the influence of financial information on the market price of shares. The study period is for twelve years, from 2011 to 2022, divided into 2011–2016 (pre-Ind AS period) and 2017–2022 (post-Ind AS period). To evaluate the value relevance of financial information, the Ohlson pricing model is employed on the panel data of the blue-chip companies listed in the Nifty 50 Index. The results from the Least Squares regression reveal that the net cash from investing activities, profit-after-tax, and book-value-per-share were relevant for investment decisions prior to the adoption of the Ind AS. In contrast, the profit-after-tax had no explanatory power during the post-Ind AS period. However, the net cash from investing activities and the book-value-per-share significantly influenced the market price of equity since the implementation of Ind AS. The value relevance of the accounting statements was superior in the pre-Ind AS period compared to the post-Ind AS.
- Keywords
-
JEL Classification (Paper profile tab)G14, G40, M41
-
References39
-
Tables6
-
Figures0
-
- Table 1. Descriptive statistics, pre-Ind AS (2011–2016)
- Table 2. Descriptive statistics, post-Ind AS (2017–2022)
- Table 3. Pearson correlation, pre-Ind AS (2011–2016)
- Table 4. Pearson correlation, post-Ind AS (2017–2022)
- Table 5. Regression, pre-Ind AS (2011–2016)
- Table 6. Regression, post-Ind AS (2017–2022)
-
- Abayadeera, N. (2010). Value Relevance of Information in hi-tech Industries in Australia: Accounting Information and Intangible Asset Disclosures. Global Review of Accounting and Finance, 1(1), 77-99.
- Ahmed, A. S., Neel, M., & Wang, D. (2013). Does mandatory adoption of IFRS improve accounting quality? Preliminary evidence. Contemporary Accounting Research, 30(4), 1344-1372.
- Ball, R. (2006). International Financial Reporting Standards (IFRS): Pros and Cons for investors. Accounting and Business Research, 36(1), 5-27.
- Ball, R., & Brown, P. (1968). An Empirical Evaluation of Accounting Income Numbers. Journal of Accounting Research, 6(2), 159-178.
- Barth, M. E., Landsman, W. R., Lang, M., & Williams, C. (2012). Are IFRS-based and US GAAP-based accounting amounts comparable. Journal of Accounting and Economics, 54(1), 68-93.
- Collins, D. W., Maydew, E. L., & Weiss, I. S. (1997). Changes in the value-relevance of earnings and book values over the past forty years. Journal of Accounting & Economics, 24(1), 39-67.
- Core, J. E., Guay, W. R., & Van Burskirk, A. (2003). Market valuations in the new economy: an investigation of what has changed. Journal of Accounting and Economics, 34(1-3), 43-67.
- Daske, H., & Gebhardt, G. (2006). International Financial Reporting Standards and Experts’ Perceptions of Disclosure Quality. Abacus, 42(3-4), 461-498.
- Elbakry, A. E., Nwachukwu, J. C., Abdou, H. A., & Elshandidy, T. (2017). Comparative evidence on the value relevance of IFRS-based accounting information in Germany and the UK. Journal of International Accounting, Auditing and Taxation, 28, 10-30.
- Ewert, R., & Wagenhofer, A. (2005). Economic effects of tightening accounting standards to restrict earnings management. The Accounting Review, 80(4), 1101-1124.
- Fama, E. F., Fisher, L., Jenson, M., & Roll, R. (1969). The Adjusted of Stock Price to New Information. International Economics Review, 10(1), 1-21.
- Francis, J., & Schipper, K. (1999). Have financial statements lost their relevance. Journal of Accounting Research, 37(2),319-352.
- Gerhard Mueller, G., & Kelly, L. (1991). Introductory Financial Accounting. Prentice-Hall; Englewood Cliffs, New Jersey.
- Hossain, D. M., Khan, A., & Yasmin, I. (2004). The Nature of Voluntary Disclosures on Human Resource in the Annual Reports of Bangladeshi Companies. Journal of Business Studies, 25(1), 221-231.
- Hung, M. (2000). Accounting Standards and Value Relevance of Financial Statements - An International Analysis. Journal of Accounting and Economics, 30(3), 401-420.
- ICAI. (2018). Indian Accounting Standards (IFRS converged): Successful Implementation Impact Analysis and Industry Experience. ICAI.
- Khanagha, J. B. (2011). Value relevance of accounting information in the United Arab Emirates. International Journal of Economics and Financial Issues, 1(2), 33-45.
- Kothari, S. P. (2001). Capital markets research in accounting. Journal of Accounting and Economics, 31(1-3), 105-231.
- Latridis, G., & Rouvolis, S. (2010). The post-adoption effects of the implementation of International Financial Reporting Standards in Greece. Journal of International Accounting, Auditing and Taxation, 19(1), 55-65.
- Lev, B., & Thiagarajan, S. R. (1993). Fundamental Information Analysis. Journal of Accounting Research, 31(2), 190-215.
- Lev, B., & Zarowin, P. (1999). The boundaries of financial reporting and how to extend them. Journal of Accounting Research, 37(2), 353-385.
- Liu, J., & Liu, C. (2007). Value relevance of accounting information in different stock market segments: Case of Chinese A-, B-, and H- shares. Journal of International Accounting Research, 6(2), 55-81.
- Mirza A., Malek, M., & Abdul-Hamid, M. A. (2019). Value relevance of financial reporting: Evidence from Malaysia. Cogent Economics & Finance, 7(1).
- Mulenga, M. J. (2015). Value relevance of accounting information of listed public sector banks in Bombay Stock Exchange. Research Journal of Finance and Accounting, 6(8), 222-231.
- Naceur, S. B., & Nachi, W. (2006). Does the Tunisian accounting reform improve the value relevance of financial information.
- Negash, M. (2008). Liberalisation and the value relevance of accrual accounting information: Evidence from the Johannesburg securities exchange. Afro Asian Journal of Finance and Accounting, 1(1), 81-104.
- Ohlson, J. A. (1995). Earnings, book values, and dividends in equity valuation. Contemporary Accounting Research, 11(2), 661-687.
- Omokhudu, O. O., & Ibadin, P. O. (2015). The Value Relevance of Accounting Information: Evidence from Nigeria. Accounting and Finance Research, 4(3), 20-30.
- Ou, J. A., & Penman, S. H. (1989). Financial statement analysis and the prediction of stock returns. Journal of Accounting and Economics, 11(4), 295-329.
- Oyerinde, D. T. (2009). Value Relevance of Accounting Information in Emerging Stock Market in Nigeria. In Proceedings of the 10th Annual International Conference (pp. 19-23). International Academy of African Business and Development (IAABD), Uganda.
- Paananen, M., & Lin, C. (2007). The development of accounting quality of IAS and IFRS over time: The case of Germany. Journal of International Accounting Research, 8(1).
- Penman, S. H., Richardson, S. H., & Tuna, I. (2007). The book-to-price effect in stock returns: Accounting for leverage. Journal of Accounting Research, 45(2), 427-467.
- Sharma, A., Kumar, S., & Singh, R. (2012). Value relevance of financial reporting and its impact on stock prices: Evidence from India. South Asian Journal of Management, 19(2), 60-77.
- Srivastava, A., & Muharam, H. (2021). Value relevance of earnings and book values during IFRS convergence period in India. Journal of Financial Reporting and Accounting, 19(5), 885-900.
- Srivastava, A., & Muharam, H. (2022). Value relevance of accounting information during IFRS convergence period: comparative evidence between India and Indonesia. Accounting Research Journal, 35(2), 276-291.
- Venugopala Rao, K. P., Farha Ibrahim, & Nidhi Phutela. (2022). The relevance of accounting information in the era of Ind AS: Evidence from a Nifty Energy Index. Investment Management and Financial Innovations, 19(2), 201-210.
- Vishnani, S., & Shah, B. K. (2008). Value relevance of published financial statements with special emphasis on impact of cash flow reporting. International Research Journal of Finance and Economics, 17(1), 84-90.
- Whelan, C., & McNamara, R. (2004). The Impact of Earnings Management on the Value-relevance of Earnings and Book Value: A Comparison of Short-term and Long-term Discretionary Accruals.
- Zarah Puspitaningtyas. (2017). Is Financial performance reflected in stock prices. Advances in Economics, Business and Management Research, 40. The 2nd International Conference on Accounting, Management, and Economics (ICAME 2017).
-
IFRS convergence: opportunities and challenges in India
Accounting and Financial Control Volume 1, 2017 Issue #2 pp. 13-18 Views: 3834 Downloads: 1738 TO CITEPast decade has witnessed several changes in the process of conduct of business activities across the world especially due to the wave of globalization. It has also made drastic changes in the process of financial reporting, in particular the continuing adoption of IFRS (International Financial Reporting Standards) worldwide. IFRS are high quality, understandable, enforceable and globally acceptable accounting standards issued by IASB (International Accounting Standard Board). Thus these are a set of international accounting standards stating how a particular type of transaction and other events should be reported in the financial statements. Thus IFRS are designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries. IFRS is becoming the global language of business with over 40% of the world adopting this as their standard for reporting. India also decided to converge to IFRS from 1st April 2016 in a phased manner, which in turn improves the financial statement comparability and transparency that helps to attract greater cross border investments. This paper focuses on the convergence of IFRS with Indian Accounting Standards, its utility, issues and challenges faced by the stakeholders. It also throws light to the ways through which problems can be addressed.
-
Effects of financial statements information on firms’ value: evidence from Vietnamese listed firms
Dang Ngoc Hung ,
Pham Duc Cuong ,
Vu Thi Bich Ha
doi: http://dx.doi.org/10.21511/imfi.15(4).2018.17
Investment Management and Financial Innovations Volume 15, 2018 Issue #4 pp. 210-218 Views: 2444 Downloads: 389 TO CITE АНОТАЦІЯThe paper studies the effects of information reporting in financial statements on values of Vietnamese firms. The study uses panel data with 1,070 observations from 214 firms, which are listed in the stock market of Vietnam in the period from 2012 to 2016. Multiple regression results show that the growth, firm size, profitability, auditing quality and timelineness are positively related to firm values, whereas the capital structure, auditing explanation negatively affect that indicator. The paper also indicates the inconsistency in measuring firms’ value by different measures including EV, Tobin’s Q or share price. Moreover, the research results reflect that measuring firms’ value by EV is more appropriate. The results of empirical research are instructive for enterprises to improve the usefulness of information in financial statements, thereby enhancing enterprises’ values.
-
The effect of IFRS adoption on the value relevance of accounting information: evidence from South Korea
Investment Management and Financial Innovations Volume 16, 2019 Issue #2 pp. 78-88 Views: 1869 Downloads: 302 TO CITE АНОТАЦІЯThis study investigates whether the value relevance of accounting information was changed after IFRS adoption in South Korea. Related prior studies have found mixed empirical evidence depending on research methodologies or research periods. Moreover, the effect of IFRS adoption on value relevance can be different between Korean stock markets (KSE and KOSDAQ) because they have different characteristics. Also, the main financial statements reported by Korean firms had changed from individual financial statements to consolidated financial statements after IFRS adoption. Thus, this study analyzes the effect of IFRS adoption on the value relevance of individual and consolidated accounting numbers expanding research periods (5 years before and after IFRS adoption) and comparing changes in explanatory powers of Ohlson (1995) model on each listing market. The empirical results indicate that the value relevance of Korean listed firms generally decreased after IFRS adoption. However, the value relevance of KSE listed firms decreased, while the value relevance of KOSDAQ listed firms increased after IFRS adoption. In addition, it was found that the effects of IFRS adoption on value relevance of individual and consolidated financial information were different depending on listed markets. This implies that different level of demand for information environment may induce differential effects of IFRS adoption on value relevance.
