The Association Between Stock Prices and Accounting Information: An Empirical Study in the Indian Context

Abstract

This study empirically investigates the association between stock prices and accounting information in the Indian context. This enquiry is motivated by the findings of research studies on various markets that conventional financial statements have become less value-relevant over time. Contrary to the assertions in the professional literature, the findings provide evidence that the combined value-relevance of earnings and book values has not declined during the period 1990 to 2010, and in fact, has increased significantly. Between the incremental value relevance of earnings and book value, the results find no change in the incremental value relevance of earnings, while, there is significant increase in the incremental value relevance of book value over time. The study tries to explain the temporal increase of combined value relevance as well as incremental value relevance of book value by some controlling factors such as intangible intensity, negative earnings, and firm size. The evidence shows that the increasing value relevance still remains even after these factors are controlled for. This is probably because of some other factors which have not been taken into account here.