Perception of negative earnings persistence and value relevance: Evidence from Zimbabwe

Sixpence, Atanas; Adeyeye, Olufemi Patrick Article Perception of negative earnings persistence and value relevance: Evidence from Zimbabwe Cogent Economics & Finance Provided in Cooperation with: Taylor & Francis Group Suggested Citation: Sixpence, Atanas; Adeyeye, Olufemi Patrick (2018) : Perception of negative earnings persistence and value relevance: Evidence from Zimbabwe, Cogent Economics & Finance, ISSN 2332-2039, Taylor & Francis, Abingdon, Vol. 6, Iss. 1, pp. 1-16, https://doi.org/10.1080/23322039.2018.1559711 This Version is available at: https://hdl.handle.net/10419/245190 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Full Terms & Conditions of access and use can be found at https://www.tandfonline.com/action/journalInformation?journalCode=oaef20 Cogent Economics & Finance ISSN: (Print) 2332-2039 (Online) Journal homepage: https://www.tandfonline.com/loi/oaef20 Perception of negative earnings persistence and value relevance: Evidence from Zimbabwe Atanas Sixpence & Olufemi Patrick Adeyeye | To cite this article: Atanas Sixpence & Olufemi Patrick Adeyeye | (2018) Perception of negative earnings persistence and value relevance: Evidence from Zimbabwe, Cogent Economics & Finance, 6:1, 1559711, DOI: 10.1080/23322039.2018.1559711 To link to this article: https://doi.org/10.1080/23322039.2018.1559711 © 2018 The Author(s). This open access article is distributed under a Creative Commons Attribution (CC-BY) 4.0 license. Published online: 04 Jan 2019. Submit your article to this journal Article views: 900 View related articles View Crossmark data Citing articles: 1 View citing articles FINANCIAL ECONOMICS | RESEARCH ARTICLE Perception of negative earnings persistence and value relevance: Evidence from Zimbabwe Atanas Sixpence 1 *and Olufemi Patrick Adeyeye 2 Abstract: This paper investigates the impact of negative earnings persistence on the value relevance of earnings before interest and taxes (EBIT) and book values for 27 non-financial firms listed on the Zimbabwe Stock Exchange (ZSE). Negative earnings are perceived to be persistent where firms reported losses in at least 25% of the time over the eight-year study period. Two-step System GMM was used, with the average debt-equity ratio and net asset value per share being additional regression instruments. The regressions were primarily done on the ZSE full sample, and then on a profit-reporting firms’sample. The loss-reporting firms’sample was too small for meaningful regressions. It was found that when loss-firms were removed from the sample, value relevance of EBIT and book value declined. This means that investors are very meticulous with firms they perceive to be persistent loss-makers but tend to be complacent with profit-firms. Subjects: Finance; Corporate Finance; Investment & Securities; Business, Management and Accounting; Accounting Keywords: value relevance; negative earnings persistence; book value; EBIT; Zimbabwe Jel classfication: C23; M49. ABOUT THE AUTHORS Atanas Sixpence is a PhD Finance candidate at the University of KwaZulu-Natal, School of Accounting, Economics and Finance, South Africa. He is also a Lecturer in the Department of Finance at the National University of Science and Technology, Zimbabwe. This research fits into his broader research area of capital market research. Other research interests are in financial risk management and international finance. Olufemi Patrick Adeyeye holds B. Sc., M. Sc. and PhD all in Banking and Finance. He is a Research Fellow at the Graduate School of Business and Leadership, University of KwaZulu-Natal, South Africa. As a researcher and writer, he has presented many scholarly papers at conferences and seminars, 42 of which have been published in reputable journals/conference proceedings. He has jointly coauthored many textbooks in the field of Banking and Finance. He equally recently secured an appointment with the Federal University, Oye-Ekiti, Nigeria. PUBLIC INTEREST STATEMENT The objective of this research is to determine how investors’perception of the persistence of negative earnings affect the value relevance of earnings before interest and taxes (EBIT) and book values of non-financial firms listed on the Zimbabwe Stock Exchange. This was accomplished via a dynamic model, where EBIT and book value were regressed on share price using a full sample of 27 firms, and then removing lossfirms from the sample and running the regression again. Loss-firms sample was not analysed on its own due to its small size. Two-step System GMM was used, with average debt-equity ratio and net asset value per share being additional regression instruments. It was found that when loss-firms were removed from the sample, value relevance of EBIT and book value declined. This means that investors are very meticulous with firms they perceive to be persistent loss-makers but tend to be complacent with profit-firms. Sixpence & Adeyeye, Cogent Economics & Finance (2018), 6: 1559711 https://doi.org/10.1080/23322039.2018.1559711 © 2019 The Author(s). This open access article is distributed under a Creative Commons Attribution (CC-BY) 4.0 license. Received: 01 October 2018 Accepted: 12 December 2018 First Published: 23 December 2018 *Corresponding author: Atanas Sixpence, Faculty of Commerce, Department of Finance, National University of Science and Technology, Bulawayo, Zimbabwe E-mail: [email protected] Reviewing editor: Vassilios Papavassiliou, University College Dublin, Ireland Additional information is available at the end of the article Page 1 of 16 1. Introduction Value relevance of financial statements measures the extent to which published financial statements explain the movement of share prices. Francis and Schipper (1999) proffered four interpretations of value relevance, two of which are based on statistical links between accounting numbers and market values of equities. The other interpretation says that financial statements affect share prices by capturing the intrinsic value of shares. Share prices are then deemed to drift towards their intrinsic values. Francis and Schipper (1999) also stated that financial statement information is deemed value relevant if it contains variables used in a valuation model or helps in forecasting those variables. Whatever interpretation one chooses, the underlying question is in determining the existence of a link between share prices and financial statement information: are share prices related to financial statement variables? Given two firms, a loss-maker and a profitable one, a rational investor is most likely going to buy shares of the profitable company, ceteris paribus. As more investors flock to the profitable firm, the price discovery process becomes competitive, causing share prices to be a correct reflection of the value of that company. This is not a guarantee of value relevance of financial statement information, but it certainly increases that probability as compared to the shunned loss-makers. This, coupled with previous research (Collins, Maydew, & Weiss, 1997; Filip & Raffournier, 2010; Venter, Emanuel, & Cahan, 2014; Zulu, De Klerk, & Oberholster, 2017), motivated the researchers to investigate the impact of profit or loss on value relevance of EBIT and book value on the Zimbabwe Stock Exchange (ZSE). The ZSE was chosen because it is one of the alternatives to equity investors in Southern Africa who would want to diversify their equity portfolios across territorial boundaries. The largest and most liquid bourse is the Johannesburg Stock Exchange (JSE), so investors will invest on the JSE plus other markets, and the ZSE is one of such markets. The fact that inflation in Zimbabwe has been tamed, plus the use of the stable US dollar as the currency of trading on the ZSE, makes the ZSE a worthwhile addition to the diversified equity portfolio. A lot of value relevance research has been done using models adapted from the Ohlson valuation model (Khanna, 2014; Olugbenga & Atanda, 2014; Omokhudu & Ibadin, 2015; Silvestri & Veltri, 2012; Wang, Fu, & Luo, 2013). The major attraction of this model is that it puts together the balance sheet and income statement items into one valuation model. This research uses dynamic models adapted from the Ohlson model. 2. Literature review The research is based on the Ohlson share valuation model. Kwon (2017) says the model, unlike conventional models, has a clear theoretical rationale and it offers a framework within which firms can be valued. According to Bernard (1995) and Penman and Sougiannis (1998), the Ohlson model is a better model in predicting the market value of equity than the dividend discount model. Equation 1 below gives the Ohlson model. Pt¼btþα1xa tþα2vt(1) Where: α1¼ω Rωand α2¼R RωðÞRγðÞ Pt= share price at time t; bt= book value of equity for period t:xa t= abnormal earnings for period t;vt= other information in period tthat affects future profitability. The discount rate Ris specified as 1+r.The parameters of persistence, ωand γ, are non-negative and less than one. The stochastic process that defines the behaviour of xa tis known as the dynamics of linear information (DIL) and it is given by the following equations: ~ xa tþ1¼ωxa tþvtþ~ ε1;tþ1(2) Sixpence & Adeyeye, Cogent Economics & Finance (2018), 6: 1559711 https://doi.org/10.1080/23322039.2018.1559711 Page 2 of 16 ~ vtþ1¼γvtþ~ ε2;tþ1(3) The disturbance terms ~ ε1and ~ ε2are unpredictable, zero-mean variables. 2.1. Value relevance of negative earnings Franzen and Radhakrishnan (2009) investigated the value relevance of earnings and book value across loss and profit firms. The study used the Ohlson model, incorporating research and development expenditure (R&D) as a proxy for “other information”in the model. R&D was found to be positively related to share prices for loss firms while for profit firms, it was found to be negatively related to share prices. These findings are in line with what Xu and Cai (2016) found out. They investigated the value relevance of earnings, book value, revenue, and R&D for loss-making high-tech firms in the USA. They found what they termed “an anomalous negative price-earnings relation”for the loss-making hightech firms. R&D was found to be more value relevant for loss-making firms. It was argued that the main reason for this is that R&D represents the major contributor to accounting losses for the hightech firms (because R&D is expensed). While they show the effect of accounting losses on value relevance, they do not delve into the effect of loss persistence on value relevance. Similar findings were put forward by Hayn (1995); Jan and Ou (1995); Collins, Pincus, and Xie (1999).. The decline in value relevance of earnings over the years was attributed to the presence of more loss firms (Collins et al., 1997). Barth, Li, and McClure (2018), citing Lev and Zarowin (1999); Brunnermeier and Nagel (2004); Dontoh, Radhakrishnan, and Ronen (2004), proffer three possible reasons for the decline in value relevance of earnings. The presence of more loss firms as given by Collins et al. (1999) is one of the factors. Another factor put forward is the growing influence of investments in intangible assets on future earnings. These investments are expensed, thus leading to losses. Barth et al. (2018) also argued that the increased noise in share prices is another contributing factor to the decline in value relevance of earnings. Of the three reasons suggested, what is clear on the ZSE is the increase in loss of firms due to the challenging economic environment in Zimbabwe and the effect of this has not been documented yet. Beisland (2011) posits that value relevance of earnings is linked to earnings persistence, arguing that losses are not expected to persist. This purported lack of persistence then causes losses not to be value relevant. However, Beisland (2011) goes further to hypothesise and prove that disaggregated negative earnings’level of value relevance is not in any way different from that of positive earnings. Similar results were found by Jahmani, Choi, Park, and Wu (2017) who studied the value relevance of components of other comprehensive income, concluding that losses, among other components, were value relevant. This runs contrary to other researchers who found that losses have very low levels of value relevance. Losses were viewed to be persistent by Joos and Plesko (2005), arguing that larger persistent losses in some cases are linked to higher stock returns. Darrough and Ye (2007) ventilate this argument by saying that firms suffer from “chronic losses”but remain in business. All this points to the fact that losses can persist, and analysts have to find out the causes of the losses in their valuations. There is no consensus with regards to the value relevance of losses and this presents an opportunity for further research in this area. If losses can persist but the firms still remain in business, it means that the losses can provide relevant information for firm valuation. The proposition by Collins et al. (1999) that simple earnings capitalisation models are mis-specified due to the omission of book value of equity, a correlated omitted variable in the models, and informs this study to include book value of equity in all the models. Kwon (2017) investigated the value relevance of accounting information to profit and loss firms in South Korea. Using a residual income valuation model based on Ohlson’s model, Kwon (2017) found that book value and cash flows are positively related to market value of firms while net income, operating income and operating cash flows have a negative relationship with enterprise value for loss firms. For-profit firms, all the named variables are positively related to market value of equity. Ahmadi (2017) studied value relevance of earnings per share and book value on a sample of firms listed on the Tunisian Stock Exchange. The sample was drawn from nonfinancial firms (28) covering the period 2010 to 2015. The models used were based on the Ohlson model as well as the Feltham and Ohlson model. Book value was found to be more value Sixpence & Adeyeye, Cogent Economics & Finance (2018), 6: 1559711 https://doi.org/10.1080/23322039.2018.1559711 Page 3 of 16 relevant than earnings per share. The combined value relevance declined when firms had negative earnings. The challenge with negative earnings according to Jenkins (2003)“is the diminished relationship between current earnings and future earnings and the resulting negative implications for earnings prediction and equity valuation”. This is the reason this research does not exclusively focus on the value relevance of losses alone but, rather, extend attention to the perception of loss persistence measured by having losses in at least 25% of the period under study. 3. Research sample profile The study sample comprises of 27 non-financial firms listed on the Zimbabwe Stock Exchange. There were around 63 counters listed on the ZSE as at 30 April 2018 and from this list, financial firms were discarded. Financial firms were discarded because their balance sheets are structurally different from non-financial firms, thus combining them in one model is not ideal. Next to be discarded were firms with annual reports missing from the firms’websites and their transfer secretaries for the period 2010 to 2017. Ultimately, only 27 firms were left. Considering that this is almost half of the listed firms on the ZSE, the sample is representative for the results to be generalised. 4. Research subgroups The study sample was broken down into the following subgroups for analysis: (1) A full sample of ZSE-listed firms. (2) A sub-sample of ZSE-listed firms that reported profits in at least seven of the eight periods. 5. Hypothesis development The rationale for separating firms based on whether they reported losses in two or more periods is to test the researchers’proposition that investors may punish firms that report losses quite often (at least 25% of the time) by under-pricing such stocks. This will manifest itself as a lack of value relevance of financial statement information. The implicit assumption made is that by reporting losses at least 25% of the time, investors will perceive a firm as a persistent loss-maker. This is the definition of “persistence”adopted in this study, contrary to other scholars who defined loss persistence as those losses that will lead to firm liquidation (Hayn, 1995; Joos & Plesko, 2005). Firms have been observed to make chronic losses but continue in business (Darrough & Ye, 2007). These chronic losses are what is termed persistent losses in this study. Literature documents that value relevance is heavily linked to the persistence of earnings, i.e. persistent earnings provide information for future firm performance (Beisland, 2011). This research focuses on the perception of loss persistence by dividing the sample into profit firms and firms that report losses “quite often”. Regardless of good performance in other years, if investors perceive a company as a loss-maker, this may affect their objectivity in analysing its true value, hence lack of value relevance. We, therefore, test the hypothesis that the perception of loss persistence affects the value relevance of accounting information. 6. Data issues Financial statements for the firms studied were downloaded from the firms’websites. Where the websites had some missing financial statements, these were sought from transfer secretaries. EBIT, book values, total liabilities, and a number of shares outstanding were taken from firms’financial statements. All financial statements for companies in Zimbabwe are prepared based on IFRS. Share prices and market capitalisation figures were collected from the Zimbabwe Stock Exchange reports. To avoid look-ahead bias, the study uses share prices recorded three months after each firm’s financial year-end. Variables used in this study were calculated as stated in Table 1. EBIT and book values were taken as they were in the firms’financial statements. Equity reported in the financial statements was overlooked in favour of market capitalisation. This was done in order to get a measure of equity that is as close as possible to market consensus. This is also justified considering that debt was measured as total liabilities, and not just long-term debt. This is Sixpence & Adeyeye, Cogent Economics & Finance (2018), 6: 1559711 https://doi.org/10.1080/23322039.2018.1559711 Page 4 of 16 because some companies deliberately avoid long-term debt in favour of short-term borrowing to keep a fictitiously low debt ratio. Considering all liabilities ensures that this motive is defeated. The research sought to measure the influence of any form of firm indebtedness, and that is given by total liabilities. 7. Scope of the study The study covers the period 2010 to 2017. This period was chosen because of its relative stability after demonetising the Zimbabwean dollar and adopting a basket of multi-currencies dominated by the United States dollar as legal tender in March 2009. The period prior to 2009 was marked by hyperinflation. Furthermore, a different currency was in use, meaning that financial statements for the two periods cannot be combined. A lot of financial statements for this period are also missing. For this reason, this research focused on the 2010–2017 period. 8. The model This research uses modified Ohlson valuation models. The Ohlson share valuation model was chosen based on its theoretical appeal (Kothari, 2001; Kwon, 2017) as well as empirical evidence by several scholars that have tested its validity (Bernard, 1995; Silvestri & Veltri, 2012; Lee, Chen, & Tsa, 2014). The modifications were done in order to capture the autoregressive nature of stock prices as argued by Onali and Ginesti (2015). The variable “other information”is undefined in the Ohlson model, hence it was left out. The resultant modified models are as follows: lnPit ¼β0þφlnPit1þβ1lnbit þβ2lnbit1þβ3lnEBITit þβ4lnEBITit1þεit (4) lnPit ¼γ0þφlnPit1þγ1lnbit þγ2lnbit1þεit (5) lnPit ¼γ0þφlnPit1þγ1lnEBITit þγ2lnEBITit1þεit (6) Where: lnPit = natural logarithm of share price for firm iin period t. lnPi;t1= natural logarithm of the first lag of share price for firm i lnbit = natural logarithm of firm i’s book value in period t. lnbit1= natural logarithm of the first lag of firm i’s book value. lnEBITit = natural logarithm of firm i’s earnings before interest and taxes in period t lnEBITit1= natural logarithm of the first lag of firm i’s earnings before interest and taxes. A dynamic panel was used in this study because: Table 1. Formulae for variables calculated Variable Formula Debt/equity ratio total liabilities market capitalisation Average debt/equity ratio debt=equity ratio number of years Net asset value per share market capitalisationtotal liabilities total shares in issue Sixpence & Adeyeye, Cogent Economics & Finance (2018), 6: 1559711 https://doi.org/10.1080/23322039.2018.1559711 Page 5 of 16 (1) Being time series cross-sectional, panel data provides a large number of data points. This increases the degrees of freedom and reduces the collinearity among explanatory variables, thus improving the efficiency of the estimates. (2) The presence of omitted variables that are correlated with explanatory variables is the reason why researchers find (or do not find) certain effects. Panel data allows for control over variables that cannot be observed or measured in this study, e.g. differences in business practices among the different companies. 9. Descriptive statistics Table 2below shows the descriptive statistics for the ZSE full sample. Table 2above shows that there is normal variation as indicated by the low standard deviations and a relatively acceptable distance between the minimum and maximum values. There are a lot of loss reporting firms on the ZSE as evidenced by the loss of observations on the EBIT variable. Table 3below shows descriptive statistics for a sub-sample of ZSE firms that reported profits for at least seven of the eight years under study. This sample includes a very small number of negative earnings, hence the small number of lost observations on EBIT. The variation as measured by standard deviation and the distance between the minimum and maximum values is not too big. The statistics in Table 3do not indicate potential scale effects on the models used. Loss-reporting companies sample statistics are left out for the reasons explained earlier in Section 4. Table 2. ZSE full sample descriptive statistics Variables (1) N (2) Sum (3) Mean (4) SD (5) Min (6) Max Average debt/equity 216 713.6 3.304 5.586 0.170 23.82 NAVPS 216 78.91 0.365 2.691 −15.62 27.04 Log Share price 216 −471.7 −2.184 2.069 −9.210 3.584 Log Book value 213 3,725 17.49 1.513 13.61 22.73 Log EBIT 161 2,550 15.84 1.914 11.44 21.47 Table 3. Descriptive statistics for profit reporting firms Variables (1) N (2) Sum (3) Mean (4) SD (5) Min (6) Max Average debt/equity 136 144.5 1.062 1.900 0.170 8.410 NAVPS 136 99.42 0.731 3.323 −15.62 27.04 Log Share price 136 −227.2 −1.671 2.127 −6.215 3.584 Log Book value 136 2,429 17.86 1.502 15.16 22.73 Log EBIT 127 2,041 16.07 2.034 12.35 21.47 Sixpence & Adeyeye, Cogent Economics & Finance (2018), 6: 1559711 https://doi.org/10.1080/23322039.2018.1559711 Page 6 of 16 10. Correlation analysis Table 4below shows the correlation matrix for the ZSE full sample. EBIT has a high positive correlation with share price (0.7759). Average debt/equity ratio has a negative correlation with share price and all the other variables. This means that as the debt/equity ratio increases, share prices decrease as investors perceive higher risk levels. The negative correlation is however very weak, with a coefficient of −0.1402 with share price. The two independent variables (book value and EBIT) have reasonably high correlations (above 0.5) with the dependent variable share price. EBIT and book value, however, have a very high correlation between themselves (0.8329), which is above the often-cited cut-off point (0.8) to avoid collinearity. In normal circumstances, one of them could have been dropped. These are the two variables in the Ohlson model (plus an undefined variable termed other information) and the Ohlson model forms the foundation of this study. Resultantly, it is not possible to drop either variable. A model that is robust to collinearity was thus chosen for the analysis. The ZSE sample was further divided into profitand loss-reporting firms and Table 5below shows the correlation matrix for the ZSE profit reporting sample. There is a positive correlation between share price and all the variables except average debt/ equity ratio. The correlation coefficient for EBIT is now higher while that for book value is lower than that in the ZSE full sample. This may imply that for profit-reporting firms, investors consider EBIT much more than with loss-reporting firms. The coefficient between share price and average debt/equity ratio has dramatically increased to −0.4095. Worth noting again is the correlation between book value and EBIT which is now higher at 0.8686. Table 4. ZSE full sample correlation matrix Share price EBIT Book value NAVPS Average debt/equity Share price 1 EBIT 0.7759 1 Book value 0.6088 0.8329 1 NAVPS 0.3862 0.387 0.2502 1 Average debt/ equity −0.1402 −0.147 −0.1884 −0.1158 1 Table 5. Correlation matrix for-profit reporting firms Share price EBIT Book value NAVPS Average debt/equity Share price 1 EBIT 0.7885 1 Book value 0.5935 0.8686 1 NAVPS 0.3978 0.3844 0.2488 1 Average debt/ equity −0.4096 −0.206 −0.3038 −0.0389 1 Sixpence & Adeyeye, Cogent Economics & Finance (2018), 6: 1559711 https://doi.org/10.1080/23322039.2018.1559711 Page 7 of 16 shares. The mispricing of these firms’shares may be an indicator that the market views the losses as a sign that such firms may actually end up in liquidation, causing a loss to stockholders. A lack of interest in these shares may also help to explain why such shares remain mispriced, leading to lack of value relevance. It is very difficult to find an equity buyer for a loss maker at a fair market value, so if there is going to be any trade, sales are done at fire-sale prices. All this helps explain why financial statement information for loss-making entities is expected to have little, if any, value relevance. This, however, runs contrary to the ZSE scenario as well as to other researchers’findings outlined in this study. The observed phenomenon on the ZSE is all the same tractable. The limitation to this study is that it did not analyse the loss-making firms on their own due to a very small sample size. However, other studies have also analysed value relevance of loss-firms by removing loss-firms from the sample and running regressions, the same way we did it here. Further studies can thus be done with two samples, the profit-firms and the loss-firms. Results from the two samples will then be compared and conclusions drawn. Policy makers and accounting standard setters are advised to ensure that firms fully report the nature and sources of their losses and the expected turnaround times. This helps investors in determining whether or not the losses will affect the infinity life assumption made in firm valuation. This is critical when investors decide whether or not to exercise their liquidation option on the firm. Funding No direct funding was received by the authors for this research. Author details Atanas Sixpence 1 E-mail: [email protected] Olufemi Patrick Adeyeye 2 E-mail: [email protected] ORCID ID: http://orcid.org/0000-0001-6211-1564 1 Faculty of Commerce, Department of Finance, National University of Science and Technology, Bulawayo, Zimbabwe. 2 Graduate School of Business and Leadership, University of KwaZulu-Natal, Durban, South Africa. Citation information Cite this article as: Perception of negative earnings persistence and value relevance: Evidence from Zimbabwe, Atanas Sixpence & Olufemi Patrick Adeyeye, Cogent Economics & Finance (2018), 6: 1559711. References Ahmadi, A. (2017). The stock price valuation of earnings per share and book value: Evidence from Tunisian firms. Journal of Internet Banking and Commerce,22(1), 1–11. Barth, M. E., Beaver, W. H., Hand, J. R. M., & Landsman, W. R. (2005). Accruals, accounting-based valuation models, and the prediction of equity values. Journal of Accounting, Auditing & Finance,20 (4), 311–345. doi:10.1177/0148558X0502000401 Barth, M. E., Li, K., & McClure, C. G. (2018 August 20). Evolution in value relevance of accounting information. Stanford University Graduate School of Business Research Paper No. 17-24. Retrieved from https://ssrn.com/abstract=2933197 Beisland, L. A. (2011). The value relevance of losses revisited: The importance of earnings aggregation. Global Business and Economics Review,13(2), 126–146. doi:10.1504/GBER.2011.040728 Bernard, V. L. (1995). The Feltham-Ohlson framework: implications for empiricists. Contemporary Accounting Research,11, 733–747. doi:10.1111/ care.1995.11.issue-2 Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics,87, 115–143. doi:10.1016/ S0304-4076(98)00009-8 Brunnermeier, K., & Nagel, S. (2004). Hedge funds and the technology bubble. Journal of Finance,59(5), 2013–2040. doi:10.1111/j.1540-6261.2004.00690.x Carnes, T. A. (2006). Unexpected changes in quarterly financial-statement line items and their relationship to stock prices. Academy of Accounting and Financial Studies Journal,10(3), 99–116. Cheng, C. S. A., & Liu, C. Z. (2016). The unique effect of depreciation on earnings properties: Persistence and value relevance of earnings. Journal of Accounting and Finance,16(2), 31–57. Collins, D., Maydew, E., & Weiss, I. (1997). Changes in the value-relevance of earnings and book values over the past forty years. Journal of Accounting and Economics,1,39–67. doi:10.1016/S0165-4101(97) 00015-3 Collins, D. W., Pincus, M., & Xie, H. (1999). Equity valuation and negative earnings: The role of book value of equity. The Accounting Review,74(1), 29–61. doi:10.2308/accr.1999.74.1.29 Damodaran, A. (2012). Chapter 22: Valuing firms with negative or abnormal earnings. In Investment valuation: Tools and techniques for determining the value of any asset (3rd ed., pp. 611–642). Hoboken, NJ: John Wiley & Sons, Inc. Darrough, M., & Ye, J. (2007). Valuation of loss firms in a knowledge-based economy. Review of Accounting Studies,12(1), 61–93. doi:10.1007/s11142-006-9022-z Dontoh, A., Radhakrishnan, S., & Ronen, J. (2004). The declining value-relevance of accounting information and non-information-based trading: An empirical analysis. Contemporary Accounting Research,21(4), 795–812. doi:10.1506/J6P4-2UYP-HFXY-RBT1 Filip, A., & Raffournier, B. (2010). The value relevance of earnings in a transition economy: The case of Romania. The International Journal of Accounting,45, 77–103. doi:10.1016/j.intacc.2010.01.004 Francis, J., & Schipper, K. (1999). Have financial statements lost their relevance? Journal of Accounting Research,37, 319–352. doi:10.2307/2491412 Sixpence & Adeyeye, Cogent Economics & Finance (2018), 6: 1559711 https://doi.org/10.1080/23322039.2018.1559711 Page 14 of 16 Franzen, L., & Radhakrishnan, S. (2009). The value relevance of R&D across profit and loss firms. Journal of Accounting and Public Policy,28(1), 16–32. doi:10.1016/j.jaccpubpol.2008.11.006 Hayn, C. (1995). The information content of losses. Journal of Accounting & Economics,20(2), 125–153. doi:10.1016/0165-4101(95)00397-2 Jahmani, Y., Choi, H. Y., Park, Y., & Wu, G. J. (2017). The value relevance of other comprehensive income and its components. Accounting and Taxation,9(1), 1–11. Jan,C.L.,&Ou,J.(1995).Theroleofnegativeearnings in the valuation of equity stocks. Working paper. New York University and Santa Clara University. Jenkins, D. S. (2003). The transitory nature of negative earnings and the implications for earnings prediction and stock valuation. Review of Quantitative Finance & Accounting,21(4), 379–404. doi:10.1023/B: REQU.0000004784.30694.0c Joos, P., & Plesko, G. A. (2005). Valuing loss firms. The Accounting Review,80(3), 847–870. doi:10.2308/ accr.2005.80.3.847 Khanna, M. (2014). Value relevance of accounting information: An empirical study of selected of selected indian firms. International Journal of Scientific and Research Publications,4(10), 364–369. Kothari, S. P. (2001). Capital markets research in accounting. Journal of Accounting and Economics,31, 105–231. doi:10.1016/S0165-4101(01)00030-1 Kwon, G. J. (2017). Valuation role of accounting information in profit and loss firms. International Business and Management,14(1), 15–24. L ee,S.,Chen,J.,&Tsa,M.(2014). An empirical investigation of the ohlson model–Apanelcointegration approach. Australasian Accounting, Business and Finance Journal,8(2), 35–51. doi:10.14453/ aabfj Lev, B., & Zarowin, P. (1999). The boundaries of financial reporting and how to extend them. Journal of Accounting Research,37(2), 353–385. doi:10.2307/ 2491413 Olugbenga, A. A., & Atanda, O. A. (2014). The relationship between financial accounting information and market values of quoted firms in Nigeria. Global Journal of Contemporary Research in Accounting, Auditing and Business Ethics,1(1), 22–39. Omokhudu, O. O., & Ibadin, P. O. (2015). The value relevance of accounting information: Evidence from Nigeria. Accounting and Finance Research,4(3), 20–30. doi:10.5430/afr.v4n3p20 Onali, E., & Ginesti, G. (2015). Sins of omission in value relevance empirical studies. Munich Personal RePEc Archive. MPRA Paper No. 64265. Retrieved April 30, 2018, from https://mpra.ub.uni-muenchen.de/64265/ 1/MPRA_paper_64265.pdf. Penman, S., & Sougiannis, T. (1998). A comparison of dividend, cash flow, and earnings approaches to equity valuation. Contemporary Accounting Research, 15(3), 343–383. doi:10.1111/care.1998.15.issue-3 Roodman, D. (2009). How to do xtabond2: An introduction to “Difference”and “System”GMM in Stata. Stata Journal,9(1), 86–136. doi:10.1177/ 1536867X0900900106 Silvestri, A., & Veltri, S. (2012). A test of the Ohlson model on the Italian stock exchange. Accounting and Taxation,4(1), 83–94. Venter, E. R., Emanuel, D., & Cahan, S. F. (2014). The value relevance of mandatory non–GAAP earnings. A Journal of Accounting, Finance and Business Studies,50(1), 1–24. Wang, J., Fu, G., & Luo, C. (2013). Accounting information and stock price reaction of listed companies – Empirical evidence from 60 listed companies in shanghai stock exchange. Journal of Business and Management,2(2), 11–21. Xu, L., & Cai, F. (2016). Value relevance of earnings, book value, revenue, and R&D. Business Review, Cambridge, 24(1), 91–97. Zulu, M., De Klerk, M., & Oberholster, J. G. I. (2017). A comparison of the value relevance of interim and annual financial statements. South African Journal of Economic and Management Sciences,20(1), 1–11. doi:10.4102/sajems.v20i1.1498 Sixpence & Adeyeye, Cogent Economics & Finance (2018), 6: 1559711 https://doi.org/10.1080/23322039.2018.1559711 Page 15 of 16 © 2019 The Author(s). Thisopen access article is distributed under a Creative Commons Attribution (CC-BY) 4.0 license. You are free to: Share —copy and redistribute the material in any medium or format. Adapt —remix, transform, and build upon the material for any purpose, even commercially. The licensor cannot revoke these freedoms as long as you follow the license terms. Under the following terms: Attribution —You must give appropriate credit, provide a link to the license, and indicate if changes were made. You may do so in any reasonable manner, but not in any way that suggests the licensor endorses you or your use. No additional restrictions You may not apply legal terms or technological measures that legally restrict others from doing anything the license permits. Cogent Economics & Finance (ISSN: 2332-2039) is published by Cogent OA, part of Taylor & Francis Group. Publishing with Cogent OA ensures: •Immediate, universal access to your article on publication •High visibility and discoverability via the Cogent OA website as well as Taylor & Francis Online •Download and citation statistics for your article •Rapid online publication •Input from, and dialog with, expert editors and editorial boards •Retention of full copyright of your article •Guaranteed legacy preservation of your article •Discounts and waivers for authors in developing regions Submit your manuscript to a Cogent OA journal at www.CogentOA.com Sixpence & Adeyeye, Cogent Economics & Finance (2018), 6: 1559711 https://doi.org/10.1080/23322039.2018.1559711 Page 16 of 16