IDEAS home Printed from https://ideas.repec.org/a/taf/euract/v7y1998i2p163-183.html
   My bibliography  Save this article

Accounting earnings and firm valuation: the French case

Author

Listed:
  • Pascal Dumontier
  • Real Labelle

Abstract

Considering that the level of the association between stock returns and accounting earnings provides a measure of the extent to which earnings summarize the information which is useful for firm valuation, this paper analyses the contemporaneous association between stock returns and earnings changes or earnings level of individual French stocks and portfolios for periods of one, two and five years between 1981 and 1990. The empirical findings are as follows. (a) Stock returns are more linked to earnings changes than to earnings levels indicating that earnings provide more information about changes in firm value than about firm value. (b) Earnings prepared in accordance with the French accounting principles are not less value-relevant than those prepared in accordance with US or UK GAAP. (c) A cross-sectionally and time-aggregated data procedure provides a large increase in the explanatory power of earnings for returns which is consistent with a noise-in-earnings effect probably induced by accounting measurement and valuation principles and with a recognition lag effect due to the fact that value-relevant events are not integrated into earnings exactly when they occur. These two effects are shown to be the major causes of the low association between earnings and returns generally observed in studies based on short period data for individual stocks.

Suggested Citation

  • Pascal Dumontier & Real Labelle, 1998. "Accounting earnings and firm valuation: the French case," European Accounting Review, Taylor & Francis Journals, vol. 7(2), pages 163-183.
    • Handle: RePEc:taf:euract:v:7:y:1998:i:2:p:163-183
    DOI: 10.1080/096381898336439
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/096381898336439
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/096381898336439?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Kothari, S. P., 1992. "Price-earnings regressions in the presence of prices leading earnings : Earnings level versus change specifications and alternative deflators," Journal of Accounting and Economics, Elsevier, vol. 15(2-3), pages 173-202, August.
    2. A. Frydlender & D. Pham, 1996. "Relationships between accounting and taxation in France," European Accounting Review, Taylor & Francis Journals, vol. 5(1), pages 845-857.
    3. Harris, Ts & Lang, M & Moller, Hp, 1994. "The Value Relevance Of German Accounting Measures - An Empirical-Analysis," Journal of Accounting Research, Wiley Blackwell, vol. 32(2), pages 187-209.
    4. Easton, Peter D. & Harris, Trevor S. & Ohlson, James A., 1992. "Aggregate accounting earnings can explain most of security returns : The case of long return intervals," Journal of Accounting and Economics, Elsevier, vol. 15(2-3), pages 119-142, August.
    5. Ball, R & Brown, P, 1968. "Empirical Evaluation Of Accounting Income Numbers," Journal of Accounting Research, Wiley Blackwell, vol. 6(2), pages 159-178.
    6. Collins, Daniel W. & Kothari, S. P., 1989. "An analysis of intertemporal and cross-sectional determinants of earnings response coefficients," Journal of Accounting and Economics, Elsevier, vol. 11(2-3), pages 143-181, July.
    7. Chan, Kam C. & Seow, Gim S., 1996. "The association between stock returns and foreign GAAP earnings versus earnings adjusted to U.S. GAAP," Journal of Accounting and Economics, Elsevier, vol. 21(1), pages 139-158, February.
    8. Easton, Pd & Harris, Ts, 1991. "Earnings As An Explanatory Variable For Returns," Journal of Accounting Research, Wiley Blackwell, vol. 29(1), pages 19-36.
    9. James A. Ohlson, 1991. "The theory of value and earnings, and an introduction to the Ball†Brown analysis," Contemporary Accounting Research, John Wiley & Sons, vol. 8(1), pages 1-19, September.
    10. Vuong, Quang H, 1989. "Likelihood Ratio Tests for Model Selection and Non-nested Hypotheses," Econometrica, Econometric Society, vol. 57(2), pages 307-333, March.
    11. Dechow, Patricia M., 1994. "Accounting earnings and cash flows as measures of firm performance : The role of accounting accruals," Journal of Accounting and Economics, Elsevier, vol. 18(1), pages 3-42, July.
    12. Kothari, S.P., 1992. "Price-Earnings Regressions in the Presence of prices Leading Earnings: Earnings Level Versus Change Specifications and Alternative Deflators," Papers 92-10, Rochester, Business - Financial Research and Policy Studies.
    13. Lev, B & Thiagarajan, Sr, 1993. "Fundamental Information Analysis," Journal of Accounting Research, Wiley Blackwell, vol. 31(2), pages 190-215.
    14. Beaver, William & Lambert, Richard & Morse, Dale, 1980. "The information content of security prices," Journal of Accounting and Economics, Elsevier, vol. 2(1), pages 3-28, March.
    15. Christie, Andrew A., 1987. "On cross-sectional analysis in accounting research," Journal of Accounting and Economics, Elsevier, vol. 9(3), pages 231-258, December.
    16. Emmanuel Tchemeni & Huu Minh Mai, 1997. "Prévision de résultats par les dirigeants. Impact informationnel sur les cours et les volumes," Revue Économique, Programme National Persée, vol. 48(1), pages 123-145.
    17. Kothari, S. P. & Zimmerman, Jerold L., 1995. "Price and return models," Journal of Accounting and Economics, Elsevier, vol. 20(2), pages 155-192, September.
    18. repec:dau:papers:123456789/9191 is not listed on IDEAS
    19. Ou, Jane A. & Penman, Stephen H., 1989. "Financial statement analysis and the prediction of stock returns," Journal of Accounting and Economics, Elsevier, vol. 11(4), pages 295-329, November.
    20. Collins, Daniel W. & Kothari, S. P. & Shanken, Jay & Sloan, Richard G., 1994. "Lack of timeliness and noise as explanations for the low contemporaneuos return-earnings association," Journal of Accounting and Economics, Elsevier, vol. 18(3), pages 289-324, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Fatma Ben Slama & Hamadi Matoussi & Benoit Pigé, 2007. "GOUVERNANCE D'ENTREPRISE ET POUVOIR INFORMATIONNEL DES BENEFICES COMPTABLES EN FRANCE ET AUX Etats-Unis," Post-Print halshs-00543062, HAL.
    2. Tayeb Saadi, 2010. "Contenus Informationnels Du Resultat Net Et Des Capitaux Propres : Quelle Pertinence Apres L'Introduction Des Normes Ifrs : Le Cas De La France," Post-Print hal-00481550, HAL.
    3. repec:dau:papers:123456789/1151 is not listed on IDEAS
    4. Pascal Dumontier & Bernard Raffournier, 2002. "Accounting and capital markets: a survey of the European evidence," European Accounting Review, Taylor & Francis Journals, vol. 11(1), pages 119-151.
    5. Mohamed Sellami, 2006. "Typologie des déterminants comptables de la valeur : Apports de l'approche économique de l'information dans la mesure de la valeur," Post-Print halshs-00558252, HAL.
    6. Jean-Francois Gajewski & Bertrand Quere, 2001. "The information content of earnings and turnover announcements in France," European Accounting Review, Taylor & Francis Journals, vol. 10(4), pages 679-704.
    7. Hamadi Matoussi & Ben Hamadi Samia & Oussama Baklouti Mohamed, 2006. "Desagregation Des Accruals Discretionnaires Et Pertinence Du Benefice Comptable," Post-Print halshs-00558044, HAL.
    8. Simon Pariente, 2000. "Rendement boursier, création de valeur et données comptables:une étude sur le marché français," Revue Finance Contrôle Stratégie, revues.org, vol. 3(3), pages 125-153, September.
    9. Gaëlle Lenormand & Lionel Touchais, 2009. "Do IFRS improve the quality of financial information? A value relevance approach [Les IFRS améliorent-elles la qualité des informations financières ? Approche par la value relevance]," Post-Print hal-03125421, HAL.
    10. Inès Bouden, 2005. "L'Identification Des Incorporels Lors Des Regroupements D'Entreprises : Une Etude Exploratoire Du Marche Financier Français," Post-Print halshs-00581132, HAL.
    11. Melita CHARITOU & Petros LOIS & Adamos VLITTIS, 2010. "Do Capital Markets Value Earnings And Cash Flows Alike? International Empirical Evidence," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 5(3(13)/Fal), pages 173-183.
    12. Serge Agbodjo & Isabelle Martinez, 2012. "La création de valeur actionnariale est-elle pertinente pour la prise de décision d'investissement ? Une étude empirique du SBF250 par secteurs d'activité," Post-Print hal-00935809, HAL.
    13. Dimitrios I. Maditinos & Željko Šević & Jelena Stankevičienė & Nikolaos Karakoltsidis, 2013. "Earnings response coefficients in the Greek market," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 14(2), pages 414-431, April.
    14. Ahsina, Khalifa & Taouab, Omar, 2017. "Y’a-t-il vraiment un besoin pour changer de referentiel comptable au Maroc? la prétendue value relevance des normes comptables IFRS [Is there really a need to change accounting references in Morocc," MPRA Paper 81397, University Library of Munich, Germany.
    15. repec:dau:papers:123456789/4142 is not listed on IDEAS
    16. Jean-François Casta & Alioune Badara Mbengue, 2016. "De la pertinence informationnelle des chiffres comptables publiés par les sociétés cotées sur les Bourses d'Afrique de l'Ouest (B.R.V.M et Ghana Stock Exchange)," Post-Print hal-01902539, HAL.
    17. Fatma Ben Slama & Hamadi Matoussi & Adel Karaa, 2005. "Gouvernance D'Entreprise Et Pertinence Des Benefices Comptables: Une Etude D'Association," Post-Print halshs-00581124, HAL.
    18. Tayeb Saadi, 2007. "EVA Vs. résultat net : Quel contenu informationnel dans le contexte français ?," Post-Print halshs-00544950, HAL.
    19. Mariarosaria Agostino & Danilo Drago & Damiano Silipo, 2011. "The value relevance of IFRS in the European banking industry," Review of Quantitative Finance and Accounting, Springer, vol. 36(3), pages 437-457, April.
    20. Katerina Hellstrom, 2006. "The Value Relevance of Financial Accounting Information in a Transition Economy: The Case of the Czech Republic," European Accounting Review, Taylor & Francis Journals, vol. 15(3), pages 325-349.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mohamed Sellami, 2006. "Typologie des déterminants comptables de la valeur : Apports de l'approche économique de l'information dans la mesure de la valeur," Post-Print halshs-00558252, HAL.
    2. Kothari, S. P., 2001. "Capital markets research in accounting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 105-231, September.
    3. Kothari, S. P. & Zimmerman, Jerold L., 1995. "Price and return models," Journal of Accounting and Economics, Elsevier, vol. 20(2), pages 155-192, September.
    4. S. P. Kothari & Charles Wasley, 2019. "Commemorating the 50‐Year Anniversary of Ball and Brown (1968): The Evolution of Capital Market Research over the Past 50 Years," Journal of Accounting Research, Wiley Blackwell, vol. 57(5), pages 1117-1159, December.
    5. Eccher, Elizabeth A. & Ramesh, K. & Thiagarajan, S. Ramu, 1996. "Fair value disclosures by bank holding companies," Journal of Accounting and Economics, Elsevier, vol. 22(1-3), pages 79-117, October.
    6. Basu, Sudipta, 1997. "The conservatism principle and the asymmetric timeliness of earnings," Journal of Accounting and Economics, Elsevier, vol. 24(1), pages 3-37, December.
    7. Tayeb Saadi, 2007. "EVA Vs. résultat net : Quel contenu informationnel dans le contexte français ?," Post-Print halshs-00544950, HAL.
    8. repec:mth:ijafr8:v:8:y:2018:i:2:p:126-151 is not listed on IDEAS
    9. Pascal Dumontier & Bernard Raffournier, 2002. "Accounting and capital markets: a survey of the European evidence," European Accounting Review, Taylor & Francis Journals, vol. 11(1), pages 119-151.
    10. Cheung, Joseph K. & Kim, Jeong-Bon & Lee, Jason, 1999. "The Impact of Institutional Characteristics on Return-Earnings Associations in Japan," The International Journal of Accounting, Elsevier, vol. 34(4), pages 571-596, 010.
    11. Irena Jindrichovska, 2001. "The relationship between accounting numbers and returns: some empirical evidence from the emerging market of the Czech Republic," European Accounting Review, Taylor & Francis Journals, vol. 10(1), pages 107-131.
    12. Rashid Al-Qenae & Carmen Li & Bob Wearing, 2002. "The Information Content of Earnings on Stock Prices: The Kuwait Stock Exchange," Multinational Finance Journal, Multinational Finance Journal, vol. 6(3-4), pages 197-221, September.
    13. Dimitrios I. Maditinos & Željko Šević & Jelena Stankevičienė & Nikolaos Karakoltsidis, 2013. "Earnings response coefficients in the Greek market," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 14(2), pages 414-431, April.
    14. Brown, Lawrence D., 1996. "Influential accounting articles, individuals, Ph.D. granting institutions and faculties: A citational analysis," Accounting, Organizations and Society, Elsevier, vol. 21(7-8), pages 723-754.
    15. Dechow, Patricia M. & Hutton, Amy P. & Sloan, Richard G., 1999. "An empirical assessment of the residual income valuation model1," Journal of Accounting and Economics, Elsevier, vol. 26(1-3), pages 1-34, January.
    16. Hannu, Schadewitz, 1997. "Financial and nonfinancial information in interim reports: Determinants and implications," MPRA Paper 44292, University Library of Munich, Germany.
    17. Tayeb Saadi, 2010. "Contenus Informationnels Du Resultat Net Et Des Capitaux Propres : Quelle Pertinence Apres L'Introduction Des Normes Ifrs : Le Cas De La France," Post-Print hal-00481550, HAL.
    18. Kanto, Antti J. & Schadewitz, Hannu J., 2000. "Market use of disclosure components in interim reports," Omega, Elsevier, vol. 28(4), pages 417-431, August.
    19. Gary C. Biddle & Gim S. Seow & Andrew F. Siegel, 1995. "Relative versus Incremental Information Content," Contemporary Accounting Research, John Wiley & Sons, vol. 12(1), pages 1-23, September.
    20. Gil Sadka, 2007. "Understanding Stock Price Volatility: The Role of Earnings," Journal of Accounting Research, Wiley Blackwell, vol. 45(1), pages 199-228, March.
    21. Barth, Mary E. & Beaver, William H. & Landsman, Wayne R., 1998. "Relative valuation roles of equity book value and net income as a function of financial health," Journal of Accounting and Economics, Elsevier, vol. 25(1), pages 1-34, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:euract:v:7:y:1998:i:2:p:163-183. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/REAR20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.