Earnings Quality and Market Values

While some people might think that earnings would be positively correlated with equity market values, a recent study found the opposite, i.e. earnings quality is negatively correlated with the market values of equity of firms. This study was conducted by a group of researchers from Bina Nusantara University and University of Ljubljana, who chose firms listed on the Jakarta Stock Exchange during 1995-2015 time period as the research sample. They found that the role of earnings in valuation is replaced by other attributes, most notably net dividends. The research result also indicates that mere adoption of high‐quality accounting standards (IFRS) and other nominal changes in capital market regulations do not automatically increase the quality of the financial reporting process. Full paper is made available at https://onlinelibrary.wiley.com/doi/epdf/10.1111/auar.12234