Title: Value relevance of book values and earnings of listed non-financial firms in South Africa: a dynamic panel analysis

Authors: Atanas Sixpence; Olufemi Patrick Adeyeye

Addresses: School of Accounting, Economics and Finance, University of KwaZulu-Natal, Westville, Durban, South Africa ' Faculty of Management Sciences, Department of Banking & Finance, Federal University, PMB 373, Oye-Ekiti, 371010, Nigeria

Abstract: We analyse value relevance of book values and earnings before interest and taxes (EBIT) using a dynamic panel of non-financial firms listed on the Johannesburg Stock Exchange (JSE). In the aftermath of the global financial crisis, we seek to find out if share prices are linked to financial statement variables. A random sample of twenty-seven high- and low-capitalised firms was used. Using two-step System GMM with net asset value per share and average debt/equity ratio as additional regression instruments, we found EBIT to be value relevant but book value lacks value relevance. Analysts and investors on the JSE should thus focus more on EBIT when analysing companies they intend to invest in and should pay less attention to book value. Accounting standard setters can also put more measures that protect the integrity of reported EBIT as a way of helping investors and ensuring that accounting statements remain useful to investors.

Keywords: value relevance; EBIT; earnings before interest and taxes; book value; South Africa; Ohlson model; dynamic panel analysis; non-financial firms.

DOI: 10.1504/IJMEF.2019.101941

International Journal of Monetary Economics and Finance, 2019 Vol.12 No.4, pp.290 - 308

Received: 22 Dec 2018
Accepted: 30 Apr 2019
Published online: 30 Aug 2019 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article