Association between Accounting Earnings and Stock Returns as a Measure of Value Relevance of Accounting Standards: Empirical Evidence from the Swiss Market

36 Pages Posted: 27 Feb 2002

See all articles by Levon Babalyan

Levon Babalyan

University of Fribourg, Financial Management Department

Date Written: November 2001

Abstract

This study compares the informational content of accounting earnings reported by Swiss companies under the standards generally accepted in Switzerland and earnings reported under the International Accounting Standards and US GAAP. I examine the relative explanatory power and earnings response coefficients in regressions of reported numbers on market returns of the companies listed on the Swiss Stock Exchange and presenting financial statements under these different accounting frameworks. After controlling for firm size, foreign market listing, audit quality and sensitivity to some variable specifications, the obtained results suggest that a claim of compliance to IAS by a listed Swiss company does not necessarily imply that its earnings numbers are more value-relevant than if reported under Swiss standards. The company size and audit quality proved to be significant factors for the quality of reported numbers. The empirical results also confirm the hypothesis that firms reporting under US GAAP provide more informative earnings numbers. This confirmation, however, must be interpreted with caution because of the small sample size and high presence of these US GAAP firms on foreign stock markets.

Keywords: accounting standards, earnings, stock returns

JEL Classification: M41, M44, M47, G12

Suggested Citation

Babalyan, Levon, Association between Accounting Earnings and Stock Returns as a Measure of Value Relevance of Accounting Standards: Empirical Evidence from the Swiss Market (November 2001). EFA 2002 Berlin Meetings Discussion Paper. Available at SSRN: https://ssrn.com/abstract=301923 or http://dx.doi.org/10.2139/ssrn.301923

Levon Babalyan (Contact Author)

University of Fribourg, Financial Management Department ( email )

Avenue de l'Europe 20
CH-1700 Fribourg
Switzerland
41 26 300 83 02 (Phone)
41 26 300 97 92 (Fax)

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