Value Relevance of Inflation-adjusted Equity and Income
AbstractThis paper investigates the role incremental information content of inflation-adjusted data plays in explaining the market value of equity and stock returns on the Istanbul Stock Exchange (ISE). We show the effect of inflation accounting application on basic financial ratios, and we test the value relevance of inflation-adjusted and historical cost-based book value and earnings. The findings show that inflation adjustment affects financial ratios significantly, which may create different risk assessments for the selected firms. Furthermore, the results indicate that both inflation-adjusted and historical cost-based earnings and book values are significantly value relevant. The two sets of data are not to be used as substitutes, but, rather, they are complementary. For this reason, inflation-adjusted data should be required as supplementary data to the historical cost information rather than in place of historical cost data.
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Bibliographic InfoArticle provided by Elsevier in its journal The International Journal of Accounting.
Volume (Year): 44 (2009)
Issue (Month): 4 (December)
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Web page: http://www.elsevier.com/locate/inca/620179
Inflation accounting Value relevance Historical cost Istanbul Stock Exchange (ISE);
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Archambault, Jeffrey J. & Archambault, Marie E., 1999. "A cross-national test of determinants of inflation accounting practices," The International Journal of Accounting, Elsevier, vol. 34(2), pages 189-207, 06.
- Sami, Heibatollah & Zhou, Haiyan, 2004. "A comparison of value relevance of accounting information in different segments of the Chinese stock market," The International Journal of Accounting, Elsevier, vol. 39(4), pages 403-427.
- Ro, Byung T., 1980. "The adjustment of security returns to the disclosure of replacement cost accounting information," Journal of Accounting and Economics, Elsevier, vol. 2(2), pages 159-189, August.
- Beaver, William H. & Griffin, Paul A. & Landsman, Wayne R., 1982. "The incremental information content of replacement cost earnings," Journal of Accounting and Economics, Elsevier, vol. 4(1), pages 15-39, July.
- Gulhan SUADIYE, 2012. "Value Relevance of Book Value & Earnings Under the Local GAAP and IFRS: Evidence from Turkey," Ege Academic Review, Ege University Faculty of Economics and Administrative Sciences, vol. 12(3), pages 301-310.
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