Value relevance of non-recurring earnings items on prices : a study of Hong Kong listed firms

Pao Yue-kong Library Electronic Theses Database

Value relevance of non-recurring earnings items on prices : a study of Hong Kong listed firms

 

Author: Wong, Yuk-sim
Title: Value relevance of non-recurring earnings items on prices : a study of Hong Kong listed firms
Year: 2001
Subject: Corporations -- China -- Hong Kong -- Finance
Stocks -- Prices -- China -- Hong Kong
Hong Kong Polytechnic University -- Dissertations
Department: Multi-disciplinary Studies
Dept. of Accountancy
Pages: x, 170 leaves : ill. ; 30 cm
Language: English
InnoPac Record: http://library.polyu.edu.hk/record=b1555517
URI: http://theses.lib.polyu.edu.hk/handle/200/1712
Abstract: This study examines the value relevance of non-recurring earnings items on prices. Disaggregated accounting line items are selected as proxies to differentiate their explanatory powers. Besides, the value relevance of earnings and book values is also accounted for. Finally, issues of relative and incremental information content of earnings and book values are identified and examined. My study is motivated by the high incidence rate of Hong Kong listed firms reporting non-recurring earnings items in their financial statements. However, the findings are similar to the results of past researches that nonrecurring earnings items in Hong Kong context is insignificant to explain security prices. Evidences from the previous empirical studies highlight that disaggregated accounting data has different information content in explaining prices. In this study, earnings components (operating earnings, recurring earnings, nonrecurring earnings items and net earnings) are regressed with prices. The outcomes illustrate that recurring earnings exhibit a relatively higher explanatory power on prices than other variables. In addition, the combined value relevance of earnings and book values is examined. Consistent with past studies by other researchers, the results demonstrate that combined explanatory power of earnings and book values are more significant than measuring alone. However, the yearly regression results seem to be volatile during the study period as stock market in Hong Kong is subject to the influence of political change on handing over of the sovereignty in 1997. In addition to the yearly regression analysis, association of industry effect and impact of positive and negative non-recurring earnings items on prices are also accounted for in the study. The results of this study reveal that properties industry exhibits more significant association with prices. On the other hand, positive non-recurring earnings items exhibit higher explanatory power on prices than negative one. Finally, the results of measurement of relative and incremental information content on earnings components and book values have provided an insight to identify which variable is a better proxy in explaining prices.

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