Abstract:
In recent times, the relation between accounting information and stock market value has been an
internationally popular subject of research. Value relevance is a measure of investor perception of the
reliability of corporate financial accounting information.
This study investigates the value relevance of accounting information and stock market prices on
listed companies in Colombo Stock Exchange (CSE) Sri Lanka. The study has identified 24
companies listed in the CSE for the period from year 2006/2007 to 2010/2011.The changes in Earning
Per Share ( EPS ) and changes in Net Asset Value Per Share ( NAVPS ) are the independent variables
and changes in Share Price as dependent variable for this study. The present study used the correlation
coefficient and linear regression to measure the value relevance between share prices and two core
accounting variables.
The study found that only 9.3% of changes in share price can be explained by changes in defined
accounting variables On the other hand, considered individually there is a negative correlation
between share price and NAVPS of the sample company. The researchers also found that there is 30%
relationship between share price and EPS and found that there is a negative relationship between EPS
and NAVPS. According to the present study, investors tend to focus on information other than the
corporate financial accounting information, such as short term capital gains and tend to be speculative
or irrational for unusual events.
