Empirical Evidence of the Effect of European Accounting Differences on the Stock Market Valuation of Earnings and Book Value

Posted: 12 Jan 2003

See all articles by Miguel Arce Gisbert

Miguel Arce Gisbert

University of Valencia - Department of Economics

Araceli Mora

University of Valencia - Department of Accounting

Abstract

Recently, a new dimension has been added to research in accounting harmonisation by studying the effects of accounting practices and regulations on share price and return movements. Although there is an agreement of mutual recognition in the European Stock markets of financial statements adapted to the Directives, the differences between the European countries are still great. The objective of this study is to investigate the value relevance of alternative accounting measures (earnings and book value) constructed under different accounting systems in Europe. We investigate the differences in accounting practices through the relationship between earnings and book value, and the stock market value of the firm. The aim of the study is to answer the following three questions: (1) Are there systematic differences in value relevance between earnings and book value across the different European accounting systems? (2) Do book value and earnings convey different information to stock valuation? (3) Are accounting numbers more value relevant in those countries traditionally orientated to market investors? The sample consists of listed firms from eight European countries (Belgium, France, Germany, Italy, the Netherlands, Switzerland, Spain, and the UK). The results obtained could be helpful for the decisions of institutional regulatory bodies since we find evidence of significant differences in the stock market valuation of accounting data not explained by the composition of the sample or macroeconomic factors, but mainly by the differences in reporting philosophies across Europe.

Keywords: accounting diversity, harmonisation, value relevance, capital market

JEL Classification: G12, M41, M44, M47

Suggested Citation

Arce Gisbert, Miguel and Mora, Araceli, Empirical Evidence of the Effect of European Accounting Differences on the Stock Market Valuation of Earnings and Book Value. Available at SSRN: https://ssrn.com/abstract=331604

Miguel Arce Gisbert (Contact Author)

University of Valencia - Department of Economics ( email )

Av. dels Tarongers s/n
46071 Valencia
Spain

Araceli Mora

University of Valencia - Department of Accounting ( email )

Edificio Departamental Oriental
Avda. dels Tarongers, s/n
Valencia 46071
Spain

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