VALUE RELEVANCE OF INFLATION-ADJUSTED EQUITY AND INCOME

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Date
August, 2015
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Abstract
The study investigates the value relevance of inflation adjusted and historical cost based data in predicting accounting information reported by listed firms in Ghana. Despite the renewed interest in finding optimal reporting method that conveys essential information to accounting information users, empirical research on this issue remains scant in the economic context of Ghana. Precisely, the study shows how inflation adjusted accounting information plays a role in explaining the market value of listed firms in Ghana. Using panel data from 2004 to 2013, the findings from the study reveal that both historical cost and inflation accounting influence financial ratios. On the value relevance of the two valuation methods, the study reveals that inflation adjusted information content is more value relevant than the traditional cost accounting in predicting the book value of the firms. Further evidence shows that both inflation and historical cost based earnings are value relevant. Therefore, it is recommended that the two valuation methods should not be substituted but should be concurrently used in the preparation and reporting of financial statements.
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A Thesis submitted to the Department of Accounting and Finance, Kwame Nkrumah University of Science and Technology in partial fulfilment of the requirements for the degree of Master of Business Administration (Accounting Option)
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