Value Relevance of Earnings and Book Value: Evidence from Jordan

Abstract

This paper examines the value relevance of earnings and book value of equity (individually and in aggregate),relative to price and return models, for Jordanian industrial companies for the period 1992 to 2002. The mainfindings of this paper are twofold. First, relative to price model, the value relevance of both earnings and bookvalue (individually) have increased, whilst the value relevance of earnings increased and book value becameirrelevant in their combination. Secondly, relative to return model, the value relevance of earnings eitherindividually or in aggregate has increased while that of book value has declined. Overall, it is found that earningsare more important in explaining the variance in share price and return than book value. Furthermore, the resultsindicate that earnings and book value individually are more value relevant in price model. In contrast, thesevariables in aggregate are more value relevant in return model. The study shows that earnings help more inexplaining market values in Jordanian industrial companies. This paper is the first in using price and return modelsin one study in Jordan.

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