Market Valuation of Accounting Earnings; Review of Evidence and Methodological Issues

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Author	Godfrey Akileng
ISSN	2307-2466
On Pages	421-429
Volume No.	2
Issue No.	6
Issue Date	October 01, 2020
Publishing Date	October 01, 2020
Keywords	Accounting valuation, Capital Markets, Earnings

Abstract

Purpose: The purpose of this paper is to review the evidence pertaining to accounting valuation and accounting earnings. The paper presents evidence so far on how capital markets value accounting information with specific reference to accounting earnings numbers. Design/Methodology/Approach: The specific review of the development of models used in valuation of accounting information is beyond the scope of this study. However, the paper makes a general review of literature on how capital markets value accounting information with specific reference to accounting earnings numbers. Findings: It is evident from literature review that accounting information is related to prices and market value; therefore accounting earnings are related to market returns. However, evidence is provided that accounting earnings consists of different components such as cash flows, non discretionary accruals and discretionary accruals; each with different implications on market valuation. Originality/Value: This paper is the first review of its kind that focuses specifically on the market valuation of accounting earnings.

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