Financial Reporting and Value Relevance: Empirical Evidence from Indian and Tanzanian Listed Firms

Abstract

Using data of fifteen firms listed in India (NSE) and Tanzania (DSE) this study examined the impact of applicable reporting standards on value relevance over a period of nine (9) years spanning from 2006 to 2014. Value relevance was measured through explanatory power (R2) of Edward –Bell - Ohlson model (1995). The study found the accounting figures reported by Tanzanian firms and based on IFRS to be more value relevant and exhibitive of stronger explanatory power on firm’s share price compared to figures reported by the Indian counterpart (local GAAP). Further, the book value of equity (BVPS) was found to be more value relevant relative to earnings per share (EPS) for Indian firms but not for Tanzania. The coefficient of BVPS was higher and significant under IFRS compared to its matching value on Indian GAAP, whereas EPS coefficient was higher and strong under Indian GAAP. The findings provide general statistical evidence that the accounting figures presented on fair value and capital oriented standards (IFRS) are more value relevant, capable of strongly envisaging market variables and more useful compared to those reported on rules based, local GAAPs. The study implies that although not automatic the benefit of IFRS is real and appreciable to capital market participants. Non adopters are urged to adopt the IFRS to experience the benefits.