THE VALUE RELEVANCE OF THE FINANCIAL STATEMENTS’ BOTTOM LINES IN THE EMERGING EGYPTIAN CAPITAL MARKET

Abstract

This study aims to examine the value relevance of the bottom lines of the financial statements in the Egyptian context after the inception of the new version of Egyptian Accounting Standards of 2006. Considering the tradition accounting value of conservatism and the firm size, the price and return models are operationalized using a sample of the most actively traded companies on the Egyptian Stock Market in the period from 2007-2009. Three important conclusions captured from the results; first, the bottom lines of the financial statements are value relevant and the accrual components are upper handed over the cash flow in estimating the market value of those firms. Second, conservatism practices is still alive in the Egyptian context; however, it does not prevent the accounting information from being value relevant. Third, the promulgation of the new version of EASs shifts the value relevance towards book value over the other accounting information. These results should be interpreted in the light of the rapid shift towards capitalism and the deregulation program followed by the Egyptian government in the recent years. Also, these results might possibly be attributed to a significant improvement in the familiarity of the preparers of accounting information with the new accounting practices and the needs of financial reporting users in Egypt. As such, this study contributes to the existing literature by investigating and operationalizing the value relevance of accounting information in an emerging market such as Egypt after the introduction of the new version of EASs of 2006.