Georgia Siougle

Value relevance of price, earnings and book values in the Athens Stock Exchange

Purpose - This paper seeks to deal with the problem of the anomalous negative price-earnings relation for firms listed in the Athens Stock Exchange (ASE). Design/methodology/approach - The simple earnings capitalization model is employed to investigate the association between price and earnings across profit and loss firms listed in the ASE. Findings - This study verifies a negative price-earnings relation for those firms that report losses (loss firms) and a positive price-earnings relation for those firms that report profits (profit firms). Practical implications - Regarding the usefulness of financial information to investors, the security price-earnings relation is proved not to be homogeneous across firms that report losses and firms that report profits. Originality value - The paper provides evidence on the value relevance of publicly available information in a developing stock exchange which finally achieved its entrance to the worlds developed markets.

Seos in a 'Hot Market': Evidence of Timing

This study analyses the financing decision of raising equity through a rights issue in a developing market, the Athens Stock Exchange (ASE), during a particular emerging period. Specifically, this study examines the information content of accounting items derived from published financial statements the year prior to a ‘hot’ period in explaining post-issue stock price performance. We are using data from listed companies in the ASE during the ‘hot period’ of year 1999 when stock prices burst and an unusual large number of seasoned equity offerings (SEOs) took place. Our empirical results do not verify a statistically significant relationship between discretionary accruals in the year preceding the issue and post-issue stock returns. Moreover, historical accounting items do not provide value relevant information and cannot be used to explain post-issue stock returns. Market trend prior to the issuing is proved to be the only significant variable in explaining post SEO returns. The overall findings are in line with the market timing theory which claims that managers just time their equity issues in an upward moving market in order to increase the offering proceeds.

The differential information content of loss components under a conservative accounting regime

Purpose - This study aims to test empirically the validity of the accounting valuation model that is based on earnings and book values for loss-reporting firms under a conservative accounting regime. Design/methodology/approach - The empirical tests are performed by employing returns models on data derived from non-financial firms listed on the Athens Stock Exchange for the period 1992-2000. Findings - The empirical results suggest that there is no unique concept of income, which is applicable, for valuation purposes, in all circumstances. Total income may be the appropriate income concept to use for the valuation of profit reporting firms but not for loss-reporting ones; for loss-reporting firms, ordinary income appears to be a more useful concept for valuation purposes. Extraordinary income was also found to be value relevant. Further, different versions of the accounting valuation model appear to be more relevant for different groups of firms (groups defined in terms of various firm characteristics, such as: size, growth opportunities and riskiness. Practical implications - The study examines the informational content of the various earnings and loss items in the income statement and provides conclusions that are useful for standard setters, accounting policy makers and market participants. Originality/value - It provides further evidence on the value relevance of losses, as opposed to that of earnings. It coincides with the development of a new project initiated by the International Accounting Standards Board, i.e. “Reporting Comprehensive Income”, concerning the content of the income statement. The analysis is carried in an accounting environment that adopts only historic cost accounting for the recording and measurement of assets and liabilities, revenues and expenses.

Mergers and acquisitions of non-financial firms in Europe: the case of the Athens Stock Exchange

This study examines whether mergers and acquisitions create value for shareholders in the Athens Stock Exchange, during an extremely volatile period. The results indicate, on average, statistically insignificant investor reaction around merger announcements. However, further analysis suggests that investors react negatively to announcements by bidder firms in the food and fish farm sectors, and positively to announcements in the commercial/advertising and technology sectors. There is also evidence that information arrives at the market a few days before the official announcement. Contrary to earlier empirical evidence, insignificant returns are reported for target firms.

The information content of management sales forecasts

Abstract We investigate the information content of management sales forecasts by developing an incremental accruals measure. We examine whether market efficiently prices this incremental accrual component. We further relate the incremental accrual measure with management earnings forecast errors testing its effect on manager’s forecast accuracy. Our findings indicate sales forecasts to contain valuable information. We find a significant association between our incremental accruals measure and future stock returns, implying that market participants can benefit by utilizing information released through sales forecasts. Finally, we find a significant negative association between the incremental accrual component and management forecast errors, above historical accruals.

The Effect of IFRS on Investment Decisions: European Evidence during Crisis and Non Crisis Economic Conditions

This study investigates the effect of a change in financial reporting regulation, the adoption of International Financial Reporting Standards (IFRS), on investment decisions in Europe. It further investigates whether capital investment decisions were influenced by the adverse macroeconomic conditions that took place during the crisis period in the Eurozone in years 2008-2010. Moreover, we control for the fact that the impact of the IFRS adoption may differ depending on a) the timing of the adoption i.e. voluntary versus mandatory adopters and b) the legal enforcement and corruption levels. We provide evidence that financial reporting practices of mandatory versus voluntary adopters cause significant differences in (a) the cost of equity capital, (b) the level of capital investments and (c) the return on invested capital. Our evidence suggest that mandatory adopters improved the level of capital investments and the return on invested capital in the post IFRS period and that the cost of equity capital was reduced. These evidence are more pronounced under the strong legal enforcement environment. For the group of voluntary adopters, we verify also a significant reduction in the cost of equity capital in the post IFRS adoption period. Regarding their investment practices, we document higher level of capital investment relative to mandatory adopters in both the pre and post IFRS period and even after controlling for the legal enforcement environment. We provide evidence that during the crisis period the cost of equity capital was increased for both groups. Nevertheless, our results suggest that both groups keep their investment policy unchanged by not reducing the level of capital investments.

Managerial Ability and Forecast Accuracy

We examine the relation between managerial ability and management forecast accuracy. We find that forecast accuracy is positively associated with managerial ability in the case of sales forecasts. Specifically, more able managers are associated with lower magnitude’s forecast errors in the case of sales forecasts. Additional analysis finds that managerial ability is immaterial to EPS figures’ forecast accuracy; i.e. EPS forecasts appear not to be affected by manager’s superiority. Regarding sales forecasts, the results are consistent with the assertion that managers impact the quality of the delivered management forecasts. Regarding EPS forecasts, the results are in alignment with Demerjian et al. (2013) who highlight that managerial ability is an ability score related to the entire management team.

Financial Reporting Practices and Investment Decisions: A Review of the Literature

This study presents an effort to summarize evidence on literature about the effect of financial reporting practices on investment decisions. Regulatory interventions/changes impact financial reporting and thus play a significant role on the international comparability/usage of financial statements and as a result on investment decisions. We discuss existing literature regarding the effects of financial reporting practices firstly on the cost of equity capital. We then summarize literature concerning the effect of financial reporting practices on investment decisions as documented in the literature in the areas of earnings management; information asymmetry effects; accounting quality; the effects of the information environment; investment efficiency; over investment –under investment and cash flow sensitivity; stock market efficiency.

The Informativeness of Micro and Macro Information During Economic Crisis and Non-Crisis Periods: Evidence from Europe

We investigate whether and how the information content of reported profitability and macroeconomic expectations changes when the state of the economy changes from non-crisis to crisis conditions. For this, we analyze data from sixteen European countries over the period 2005-2015. We find macroeconomic expectations to be useful in predicting future profitability only during non-crisis periods and mainly for firms facing elastic demand for their products and services and firms without sequential losses. Current profitability as well as its cash flow and accruals components are much more informative predictors of future profitability than macroeconomic expectations in both non-crisis and crisis periods. Market pricing tests suggest that macroeconomic expectations are not informative and thus not priced by market participants during crisis periods and support efficient pricing of current profitability under both non-crisis and crisis periods. However, it is the cash flow component of profitability that is efficiently priced under both economic conditions, while the accrual component of profitability is mispriced during crisis periods. Overall, we provide evidence that reported accounting information is much more useful to stock market investors than macroeconomic expectations in both non-crisis and crisis economic periods.

Management Sales Forecasts and Incremental Accruals

We investigate the importance of sales forecasts, voluntarily disclosed by management, on the understanding of the accrual component of earnings. The challenging global economic environment, with unanticipated changes, emphasizes the importance of accrual- based reporting on investment decisions. On that ground we develop an incremental accrual measure, derived by management sales forecasts, and relate it with management earnings forecast errors intending to capture additional information valuable to capital market participants. We find a negative and significant association between the incremental accrual component of earnings and management forecast errors, over and above historical current accruals. These findings are supportive to the argument that voluntary disclosures mitigate information asymmetry and are useful in improving investors’ perception on future business performance. In terms of returns prediction, we find a significant association between the incremental accruals measure and future stock returns, implying that market participants can benefit by utilizing valuable information released through voluntary disclosed management sales forecasts.