AN EMPIRICAL STUDY OF THE RELEVANCE OF ACCOUNTING INFORMATION ON INVESTOR?S DECISIONS

Abstract

Recent empirical work has suggested that Accounting Information (AI) have lost their relevance to investors significantly over the past few decades. AI contained in financial statements to be accurate and transparent enough to provide an indication of a business performance and financial condition to decision makers including investors. According to the present empirical evidence, investors tend to focus on information other than the published accounting information such as non financial information, short term capital gains and tend to be speculative or irrational for unusual events. Therefore, this study attempts to addresses the relevance of AI on investor?s stock market decisions in Commercial Banks registered under Colombo Stock Exchange (CSE) in Sri Lanka. The relevance of accounting data was measured by correlation coefficient between Market Price per Share (MPS) and selected accounting information such as Earning per Share (EPS), Return on Equity (ROE) and Earning Yield (EY). The data analysis was based on the AI in the published financial statements of Commercial banks registered under CSE. It covers a period of 5 years from 2006 to 2009. According to the findings there is a relationship between Accounting Information and Market Price per Share. Further it revealed that investors still consider Accounting Information which contain in the published financial statements of Commercial Banks registered under CSE for the stock market decisions in Sri Lanka.