See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/376758137

The influence of accounting measures on market performance

Article in International Journal of Financial Management and Economics · December 2023

DOI: 10.33545/26179210.2023.v6.i2.243

CITATIONS READS

0 221

1 author:

Mukdad Ibrahim
American University of Ras Al Khaimah
21 PUBLICATIONS 104 CITATIONS

SEE PROFILE

All content following this page was uploaded by Mukdad Ibrahim on 23 December 2023.

The user has requested enhancement of the downloaded file.

 International Journal of Financial Management and Economics 2023; 6(2): 154-157

P-ISSN: 2617-9210
E-ISSN: 2617-9229
IJFME 2023; 6(2): 154-157 The influence of accounting measures on market
www.theeconomicsjournal.com
Received: 20-09-2023 performance
Accepted: 25-10-2023

Mukdad Ibrahim Mukdad Ibrahim

American University of Ras Al
Khaimah, United Arab
Emirates
DOI: https://doi.org/10.33545/26179210.2023.v6.i2.243

Abstract
The aim of this research is to analyze standard accounting measures and assess the extent of their
influence on commonly used market performance-based indicators, namely earnings per share and
market price, of the Gulf Pharmaceutical Industries Corporation operating in the UAE. Several
statistical analyses were conducted such as descriptive analysis, coefficient of variation, correlation and
regression analyses. According to coefficient of variation analysis, a moderate level of instability and
variability over the years was witnessed across all three accounting measures. Furthermore, a high level
of instability and variability was seen with regards to the market price. In addition, correlation analysis
reveals that accounting-based profitability measures are strongly & positively linked to performance on
the earnings per share measure. On the other hand, a negative relationship was observed between stock
price and return on revenue. Furthermore, a moderately weak relationship was found between stock
price and the remaining profitability measures. Moreover, regression analyses indicate that profitability
focused accounting measurements similarly influenced the earnings per share and bit yielded no
influence on stock price due to the random changes of the stock price over the eight years, indicating
the susceptibility of stock prices to investor speculation.

Keywords: Accounting measures, market measures, earnings per share, market price, financial
performance

Introduction
Accounting measures, by design, set out to record the performance of the firm’s previous
financial year by relying solely on the information that can be extracted from the company’s
income statement and balance sheet. This information is, for the most part, credible,
accurate, and publicly available and thus can be highly depended upon when making an
informed evaluation of regarding a business’s performance. Indeed, all of these qualities lead
to accounting ratios to enjoy great popularity among analysts and investors. Accountants and
financial analysts commonly use ratio analysis to assess performance by comparing the
present year’s performance with that of previous years in order to evaluate the how a firm’s
financial situation is trending, namely whether they are witnessing a period of growth or
alternately, a period of decline. In short, accounting indicators allow analysts to make a year-
by-year comparative analysis of a company’s financial performance against either its past
performance, or alternatively, how a company’s performance lines up with the performance
of industry peers. This supplementary way of assessing performance compares the indicator
performance with that of the industry benchmark, determined by measuring the average
performance of companies within the same industry. This industry-based comparison has the
added benefit of adding some isolation from macroeconomic factors that all industry players
may be experiencing. For example, a period of significant losses across the industry may
prevent misplaced conclusions from being reached regarding the management of a single
entity when a wider economic contraction, and not company strategy, is to blame. However,
accounting based measures, can also support the profit maximization goals of the firm by
Corresponding Author: highlighting when and where a more efficient use of capital resources needs to take place.
Mukdad Ibrahim Perhaps the most important measures that can be used to evaluate the performance of
American University of Ras Al business organizations are return on assets, return on equity and return on revenue. Market
Khaimah, United Arab derived measures, in contrast, are sometimes seen as a viable answer to the perceived
Emirates
drawbacks of accounting-based performance indicators.

~ 154 ~
International Journal of Financial Management and Economics https://www.theeconomicsjournal.com

Market based measures, because they reflect dynamic Farooq and Masood (2016) [4] measure the nature of
market expectations, are seen as delivering a more real-time, association between financial leverage and value of cement
up to date appraisal of a company’s financial standing and firms in Pakistan using data of 19 KSE companies listed in
where investors see the company heading in the future. Karachi stock exchange during 2008-2012. They used fixed
While accounting data remains relatively static, news within effect and random effect techniques to measure the degree
the marketplace travels fast, and can quickly change bulls of association. The findings showed that financial leverage
into bears and vice-versa. Furthermore, unlike accounting- has positive and statistically significant relation with firm’s
based measures, market data, by virtue of its generation by value. Moreover, firm value has negative association with
the marketplace, is seen as relatively void of the accounting two control variables, firm size and asset tangibility.
manipulation tactics that various firms have been criticized
Kramaric et al. (2021) [5] tested the determination of
for in the past. Naturally, firms maintain a vested interest in
remaining attractive to investors, thus both accounting and corporate performance of all non-financial companies listed
market-based indicators are not without their respective on the Zagreb Stock Exchange for the years 2015-2019.
risks and must be seen as complementary approaches to firm They consider return on assets as an accounting
evaluation. However, investors, of which profitability is of measurement and Tobin Q as a market measurement. The
primary importance, are thus interested in knowing which potential determent variables used are inventory
firm offers the most shareholder value. This is where the management, productivity, current assets ratio, quick ratio
widely used market-based indicator, earnings per share, and size which have been calculated on the basis of total
truly shines. The earnings per share indicator is one of the assets and sales. Static panel analysis has been employed.
most commonly consulted and relied upon tools for Their result of analysis reveals that size variable is the main
determining the profitability of a company. Consequently, effect on corporate performance.
the earnings per share indicator enjoys widespread Madushan E, Bogamuwa M (2021) [6] analyze the impact of
popularity as a reliable gauge of whether or not an investor return on assets and earnings per share on market price.
should acquire shares in a given company or whether they Data used for 68 financial companies listed in Colombo
should move on to other, more lucrative opportunities Stock Exchange for the period of 2016 to 2020. Correlation
available in the marketplace. A strong pattern of upward and regression analyses were used. The results of their
growth in a firm’s EPS may indicate that the company is correlation analysis showed a negative relationship between
becoming increasingly profitable and presents an attractive return on assets and stock price. Moreover, the analysis of
investment opportunity with considerable returns in the
regression revealed significant negative impact of return on
form of dividends. Stock price is one key indicator of
assets on stock price. The regression analysis also showed
market performance that supplements the earnings per share
indicator. It is a product of the relationship between supply significant impact of earnings per share on stock price.
and demand offers key insight into how the market values a Sihombing et al. (2023) [7] analyze the impact of current
particular investment. A gloomy widespread outlook on a asset ratio, return on equity and capital structure indicators
company’s profitability may cause would be investors to on the price to book value indicator. The authors used
shy away from a given share purchase and cause downward secondary data for 23 firms in Indonesia, using panel data
pressure on the company’s share price. Indeed, these analysis. Their findings showed that current assets ratio and
fluctuations can provide a comprehensive picture on the return on equity do not have a significant impact on price to
markets changing perception of a company’s value over book value indicator. In addition, the debt to total assets
time. ratio and reference coal price (moderating variable)
significantly affects price to book value indicator.
Literature Review
Alashi (2022) [1] studies the effect of accounting Research Methodology
measurement on the stock price for ten manufacturing To analyze the effect of accounting measures on each of
companies listed in Palestine exchange for the period of earnings per share and market price, secondary data for the
2015 to 2020. His methodology was to assess the effect of years 2002 to 2009 was extracted from the National bank of
earnings per share, current ratio, debt to equity ratio, and Abu Dhabi’s annual publication officially titled as the Local
cash flow ratio on stock price. The result of his regression Shares Directory. The research consists of three parts and is
analysis showed that the variables used have no significant structured as follows. Firstly, with the goal of analyzing
effect on stock price. the level of stability and variability within each measure,
Altahtamouni and Alslehat (2014) [2] assess the impact of coefficient of variation will be applied by dividing standard
accounting indicators on market share price, stock return deviation by the mean of each measure. A higher
and market value to book value. Their data is related to coefficient signals a greater level of variability and
Jordanian Banks for the years 2002 to 2011. To test their instability of the measure. This analysis will be followed by
hypotheses, they used Pearson correlation and regression a Pearson correlation coefficient, a method widely used in
analysis. The result of their research analysis reveals that all order to examine the nature of the relationship between each
accounting indicators and current growth have a positive two measures under examination. The value of the
impact on the market share price and market value to book correlation coefficient lies between the -1 and 1 range,
value. Asif et al. (2016) [3] analyze the impact of earnings where -1 indicates the existence of a perfect negative
per share, book value per share, capital employed per share
relationship between any two variables, while a value of 1 is
and net operating cash flow per share on stock price. Their
data sample was taken from KSE 30-Index of Pakistan to be interpreted as the existence of a perfect positive
Stock Exchange for the period of 2006 to 2013. Regression relationship between two variables. Finally, six linear
analysis was used to measure the impact of accounting regression analyses will be undertaken in order to precisely
information on share price. Their finding reveals that measure the predictive ability of each variable on the
accounting information have significant influence on share outcome of secondary dependent variables. This type of
price. analysis possesses a great degree of usefulness as it allows

~ 155 ~
International Journal of Financial Management and Economics https://www.theeconomicsjournal.com

for a precise measurement of the strength of the relationship 3. Return on Equity: This measurement shows the rate
between response and explanatory variables. In a broad return realized by the shareholders on their investments.
sense, if additional variables fail to yield any influence on A higher rate means that a business firm is efficient in
the response variables, a complete predictive model can then using owners’ equity. It is calculated by dividing net
be created that wholly explains, and thus perfectly fits, the income over shareholder’s equity. The mean of this
outcome of the response variables. measure is 11.04% and the standard deviation is 3.35%.
The coefficient of variation is 30.34%. The minimum
Descriptive Analysis value is 7.63% which is related to 2006, while the
Table one shows the analysis of the five variables of the maximum value is 16.87% is related to the year of
eight years 2007.
1. Return on Revenue: This measurement indicates a 4. Earnings per Share: This measures the profitability of
percentage of the revenue generated by sales. It is outstanding share over the year. A high EPS indicate a
calculated by dividing net income on sales revenue. The profitability and the possibility of paying dividends to
higher the ratio means a more revenue is generated by the shareholders. The mean of this measure is AED
sales. The mean of the data is 17.40% while the 0.21 and the standard deviation is AED 0.07. The
standard deviation is 6.68%. The coefficient of coefficient of variation is 33.33%. The minimum value
variation is 38.39%. The minimum value of this is AED 0.13 which is related to the year 2006, while the
measure is 11.54% which related to 2002, while the maximum value is AED 0.34 which is related to the
maximum value is 30.67% which is related to the year year of 2007.
of 2007. 5. Market price: This indicator shows the market price of
2. Return on Assets: This measurement shows the the share over the eight years. A high market price
efficiency of using the business assets to generate indicates the willingness of investors in buying the
income. A higher ratio indicates more efficient in using stock. The mean of this measure is AED 2.72. The
the assets of business organization. It is calculated by standard deviation is AED 1.25. The coefficient of
dividing net income by total assets. The mean of this variation is 46% which the highest coefficient among
measure is 8.46% and the standard deviation is 2.58%. the variables used in this study. The minimum value is
The coefficient of variation is 30.50%. The minimum AED 1.23 which is related to the year 2008, while the
value is 5.90% which is related to 2006, while the maximum value is AED 4.67 which is related to the
maximum value is 13.33% related to the year of 2007. year 2005.

Table 1: Descriptive Analysis

Accounting Indicators Market Indicator
Year
Return on Revenue % Return on Assets % Return on Equity % Earnings per Share Market Price
2002 11.54 6.55 8.42 0.14 1.95
2003 12.75 7.67 10.48 0.19 3.92
2004 13.29 8.15 10.14 0.19 3.87
2005 21.46 11.39 15.51 0.30 4.67
2006 12.03 5.90 7.63 0.13 1.89
2007 30.67 13.33 16.87 0.34 2.37
2008 21.41 8.01 10.44 0.21 1.23
2009 16.08 6.71 8.85 0.18 1.83
Mean 17.40 8.46 11.04 0.21 2.72
Standard Deviation 6.68 2.58 3.35 0.07 1.25
Coefficient of Variation 38.39% 30.50% 30.34% 33.33% 46%
Minimum 11.54 5.90 7.63 0.13 1.23
Maximum 30.67 13.33 16.87 0.34 4.67

Correlation Analysis and earnings per share coefficient 0.985, while return on
Table 2 shows the relationship analysis of the three equity relation with earnings per is highest among other two
accounting indicators and earnings per share. Return on indicators with coefficient 0.989. The market price has a
revenue has strong relationship with return on assets with negative relation with return on revenue -0.049 and
coefficient 0.888, return on equity 0.867 and earnings per moderately week relation with return on assets 0.337, return
share 0.913. In addition, return on assets found to have on equity 0.431, and earnings per share 0.356.
strong relation with return on equity with coefficient 0.992

Table 2: Correlation Analysis

Accounting Indicators Market Indicator
Indicator Return on Revenue Return on Assets Return on Equity Earnings per Share Market Price
Return on Revenue 1.000 0.888 0.867 0.913 -0.049
Return on Assets 0.888 1.000 0.992 0.985 0.337
Return on Equity 0.867 0.992 1.000 0.989 0.431
Earnings per Share 0.913 0.985 0.989 1.000 0.356
Market Price -0.049 0.377 0.431 0.356 1.000

~ 156 ~
International Journal of Financial Management and Economics https://www.theeconomicsjournal.com

Regression Analysis significant 0.002 for the return on revenue model, and
Table 3 shows the result of six analyses. The first analysis 201.87 with significant 0.000 for the return on assets model,
shows the influence of return on revenue on earnings per and 276.08 and its significant 0.000 for the return on equity
share. The R-squared is 0.83 showing that 83% of the model. Moreover, based on regression coefficient, return on
change in earning per share can be explained by return on revenue positively affects the earning per share by 0.91 and
revenue. For the second model, the changes in earning per both return on assets and return on equity have same affects
share is affected by 97% by return on assets, while the effect by 0.99. Furthermore, the results of the three linear
percentage of return on equity on earnings per share is 98%. regression analyses related to study the effect of accounting
The three types of regression analyses are statistically measures on stock price indicate insignificant F-Test at 5%
significant at 5% level with F-test value 30.16 and its level.

Table 3: Regression Analysis

Model Coefficient R-Squared F-Test Significant
Influence of return on revenue on earnings per share Return on revenue beta is 0.91 0.83 30.16 0.002
Influence of return on assets on earnings per share Return on assets beta is 0.99 0.97 201.87 0.000
Influence of return on equity on earnings per share Return on equity beta is 0.99 0.98 276.08 0.000
Influence of Return on revenue on market price Return on revenue beta is -0.05 0.00 0.01 0.908
Influence of Return on assets on market price Return on assets beta is 0.38 0.14 1.00 0.357
Influence of return on equity on market price Return on equity beta is 0.43 0.19 1.37 0.287

Conclusion 2016;7(9):73-77.
The aim of this research paper has been to assess the 5. Kramaric T, Miletic M, Piplica D. Determinants of
influence of accounting measures on each of earnings per accounting and market based performance measures-
share and market price per share of Gulf Pharmaceutical case of Croatian non-financial listed companies. Paper
Industries Corporation. The coefficient of variation analysis submitted to the 20th International Scientific
indicates a medium level of variability and instability for all Conference: Globalization and its Sico-Economic in
profitability measures over the eight years, particularly 2020 and Published. 2021;92:1-9.
spanning the height of the financial crisis 2008-2009 which 6. Madushan E, Bogamuwa M. The impact of financial
affected both types of indicators. Based on the correlation performance on share price: Evidence from financial
coefficient analysis, the three accounting measures all companies listed in Colombo stock exchange, paper
commonly showed elevated levels of connectivity. In presented at the 4th annual research symposium in
addition, analyses of the relationship between the three management, Sri Lanka, October 2021.
accounting measures supported the existence of a strong 7. Sihombing P, Hutajulu CBB, Suparyani A. Financial
link between each of the three variables and the earnings per performance and capital structure on firm value with
share measure. Finally, the results of the first three commodity prices as a moderating variable. Research of
regression analyses indicate that profitability measures are Business and Management. 2023;1(2):11-20.
influenced the earnings per share measure. Moreover, the
coefficient of variation for market price has the highest
variability and instability among the measures used in this
study. The correlation analysis indicates either negative or
moderately weak relation between stock price and the four
profitability measures. The final three regression analyses
reveal an absence of significance regarding the final three
models. These three data models all exhibit random and
unpredictable movement in the stock price over the eight
years studied, pointing to industry exposure to the profound
effects of external macroeconomically factors taking place
at the time.

References
1. Alashi M. The influence of accounting measurement on
the stock price: Emerging Market Evidence. Research
Journal of Finance and Accounting. 2022;13(4):38-42.
2. Altahtamouni F, Alslehat Z. The impact of accounting
indicators and growth on the market value. International
Journal of Academic Research in Accounting, Finance,
and Management Science. 2014;4(2):9-18.
3. Asif M, Arif K, Akbar W. Impact of accounting
information on share price: Empirical Evidence from
Pakistan Stock Exchange. International Finance and
Banking. 2016;3(1):124-135
4. Farooq M, Masood A. Impact of financial leverage on
value of firms: Evidence from Cement Sector of
Pakistan. Research Journal of Finance and Accounting.

~ 157 ~

View publication stats