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IJLMA
65,4
354
Received 16 November 2022
Revised 25 March 2023
Accepted 25 March 2023
International Journal of Law and
Management
Vol. 65 No. 4, 2023
pp. 354-367
© Emerald Publishing Limited
1754-243X
DOI 10.1108/IJLMA-11-2022-0247
The value relevance of accounting
information: empirical evidence
from Jordan
Osama Abdelrahim Ahmad Khader and
Hosni Shareif Hussein Shanak
Faculty of Business and Economics, Palestine Technical University – Kadoorie,
Tulkarm, Palestine
Abstract
Purpose – This empirical study’s primary goal is to examine the connection between accounting
information and share price for financial companies listed on Jordan’s expanding Amman Stock Exchange
(ASE) between 2014 and 2018.
Design/methodology/approach – The correlation between accounting data and share price was
investigated using multiple regression analysis. In this vein, “pooled ordinary least squares (OLS), fixed effect
and random effect” static panel data estimators were used. The OLS model was chosen as the best model after
a series of diagnostic tests.
Findings – The multiple proxies of accounting information value relevance have a positive and considerable
impact on the market value per share, according to panel data research. Comparatively, the authors find proof
that among the other accounting data – earnings, dividends and cash flow from operations – book value is
statistically the most value-relevant.
Research limitations/implications – This empirical investigation was only conducted in Jordan.
Because it is very likely to obtain different results in other nations, the findings cannot be applied to other
business environments.
Practical implications – The findings of this paper may highlight the amazing relationship between
accounting information and share price for policymakers, regulators and other stakeholders in developing
nations, notably in Jordan. This could pave the way for effective accounting disclosures.
Originality/value – Seldom does empirical research on the relationship between accounting data and
share prices from publicly traded companies on ASE exist. So, by demonstrating empirical findings from
Jordanian companies, this study fills the gap in the existing literature and knowledge.
Keywords Value relevance, Share price, Dividend per share, Earnings per share,
Book value of a share, Cash flow from operations per share
Paper type Research paper
1. Introduction
Companies that publish financial reports give information to stakeholders, particularly
investors, to help them make investment decisions. The information must be useful to fulfill
its necessary role in the decision-making process, and useful information must have two key
components: relevance and reliability. Decision-makers may be influenced by relevance
(Badawi and Salam, 2019). The International Accounting Standard Board framework states
that users of accounting information can only analyze past, present, or future events to make
The authors would like to thank Palestine Technical University – Kadoorie (PTUK) for supporting
this research.
economic decisions. Bankole and Ukolobi (2020) consequently state the ability of financial Value
statements to change or confirm potential investors’ and current investors’ expectations relevance of
regarding the course of events portrayed in the financial statements as well as its
repercussions is what is meant by relevance (Akadakpo and Mgbame, 2018)
accounting
A practical application of relevance and reliability criteria is an investigation of the information
information’s relevance as it pertains to determining the value of the company because
accounting information is considered relevant to measure the value if it reflects information
suitable for evaluating the company from the investor’s point of view. When it is reflected in 355
the share price, it is considered reliable (Barth, Beaver, and Landsman, 2001). As a result, the
statistical correlation between accounting figures and equity market value is what gives the
information its value importance (El-Diftar and Elkalla, 2019). If accounting data reveals a
strong correlation between measures and market value, it is very valuable (Perveen, 2019). The
degree of informational value is the relevance of financial statements (Lam et al., 2013).
Considering the foregoing, investigations into value relevance assist various groups of
stakeholders in making decisions, particularly when firms’ financial statements include
valuable and trustworthy accounting information. Research on value relevance is crucial in
this regard, especially in developing nations where investment risk is high and capital is in
short supply (Outa et al., 2017).
Previous studies (Ahmadi and Bouri, 2018; Omokhudu and Ibadin, 2015; Shamki and Rahman,
2011) have investigated the significance of accounting information in financial statements in
general, such as corporate earnings, book value, dividends distributed and cash flow from
operations, and its effect on the share price. As a result, the market value of those companies has
increased. Accounting information is relevant, according to empirical evidence. However, there
appears to be a scarcity of research in this area in the Middle East and North Africa (MENA).
One of the newly established stock exchanges in the MENA region, Amman is
expanding swiftly and making efforts to draw investors. Investor interest in the accounting
data of publicly traded corporations striving for high levels of transparency and disclosure
as well as accounting harmonization is growing as a result. The research was motivated by
the fact that the examination to confirm the relevance of accounting information in Jordan
did not produce the same results as stock exchanges in industrialized nations.
This study makes two distinct contributions to the academic literature. First, there are
incongruent patterns in the earlier research on value relevance and stock price. Therefore,
this empirical study adds to existing knowledge by offering a valuable perspective from a
developing nation, namely, Jordan. Second, it is the first study to look at how the
relationship between accounting numbers and share price has changed in the Amman
market. Third, the findings are helpful to Jordanian regulators, managers and investors in
the process of deciding on disclosure policies and in assessing the performance of Jordanian
companies. Research on the value relevance of accounting information in the context of the
Amman stock market is particularly lacking. Fourth, from a theoretical perspective, the
results of this empirical research support the underlying logic behind the solid association
between accounting information and stock price.
The rest of this study is divided into the following sections. In Section 2, a review and
explanation of the term value relevance has been provided. In Section 3, an introduction to
value relevance theory has been provided. In Section 4, the literature is provided along with
the forming of assumptions regarding the value relevance of accounting information. The
selection of the sample, data gathering and research techniques are covered in Section 5. The
explanation of the descriptive statistics, the correlation analysis and the regression findings
are covered in Section 6. Finally conclusions and policy recommendations are provided in
Section 7.
IJLMA 2. Value relevance of accounting information
65,4 The term value relevance is often used to evaluate accounting numbers (Perveen, 2019).
Value relevance is the ability of accounting numbers to explain the market price per share
(Balagobei, 2017). Value relevance has to do with the summarization of accounting
information that affects stock values in such a way that the investors can come up with an
informed decision about the company’s share (Bankole and Ukolobi, 2020). Also, according
356 to Abdollahi, Pitenoei, and Gerayli (2020), financial information is defined as providing a
true and fair view of a company’s financial situation and performance, as well as changes to
the stock ownership and cash flows of the company. In this regard, financial information is
an essential part of the disclosure, and therefore it helps investors to seize investment
opportunities (Akadakpo and Mgbame, 2018).
Moreover, it is argued that the key role of financial statements is to recap business
transactions and other events systematically (Shehzad and Ismail (2014). Besides, financial
statements are still the most vital source of externally feasible information on companies
(Akadakpo and Mgbame, 2018). Under this construct, value relevance can be defined as the
ability of information disclosed by financial statements to capture and summarize firm
value (Karg
ın, 2013). To highlight this notion, Abdollahi et al. (2020) indicate that the most
crucial trait of accounting information is its relevance, which plays a significant role in
decision-making processes. It is greatly important to increase the accounting information’s
value relevance, including earnings per share and book value per share, to draw investment
and sell the stocks of existing firms (internal users) as well as boost investors’ decision-
making capabilities (external users). To make financial information value-relevant,
accounting numbers must be related to current company value (Beisland, 2009).
Furthermore, Shehzad and Ismail (2014) indicate that stock price is the most evident and
crucial criterion for deciding the corporation’s value. Therefore, stock price maximization is
the most significant goal for the great majority of firms to keep their economic development
and credibility in investors’ minds.

3. Value relevance theory

From the very beginning, empirical considerations dominated value relevance research.
(Ball and Brown, 1968), who were pioneers to attempt a value relevance test, have no
reference to theory. Because they disagreed with a common opinion at the time, they
conducted this study. This opinion went that accounting “income numbers cannot be
defined substantively, that they lack meaning and are therefore of doubtful utility” (Ball and
Brown, 1968). In their paper, the authors compare abnormal stock returns of firms with
positive and negative unexpected incomes. The findings demonstrate that stock returns are
kinked with earnings. Research that followed took an empirical perspective on the issue of
value relevance.
A variety of econometric methods were used. Despite this, no comprehensive theory was
found to explain the tests. The lack of theory significantly impacts value relevance tests of
emerging markets; researchers cannot draw negative conclusions from it. The absence of a
theory that explains the link between accounting numbers and stock returns makes us
unable to determine if market inefficiency leads to low-value relevance, low quality of
accounting practice, or some other factors. (Klimczak, 1999)
Early studies of value relevance were based on capital market theories prevalent at the
time. For example, Ball and Brown prove the level of market efficiency that demonstrates
financial markets reacting to new information (Brown, 1989). Accordingly, we can calculate
the information value of accounting earnings (an approach that was not followed). They
were probably aware of the Modigliani–Miller propositions, which explicitly connect firm Value
value with its expected income (Modigliani and Miller, 1958). relevance of
accounting
4. Review of literature and development of hypotheses
Since Ball and Brown (1968) published their initial work arguing for the usefulness of
information
accounting earnings, value relevance research has advanced significantly. This article was
first inspired by a desire to challenge the perception that accounting is essentially a ritual. 357
Historically, accounting numbers were meaningless and of little value to investors
(Klimczak, 1999). Book value and earnings (Ohlson, 1995) have a considerable impact on
equity values, according to Ohlson (1995) and Feltham and Ohlson (1995). Several empirical
research studies have examined the value relevance of accounting information using the
pricing model in established markets based on Ohlson’s theoretical framework for valuation.
These studies model market value as a function of book value and reported earnings in
addition to evaluating the value relevance of earnings and book value (Bettman et al., 2006;
Brief and Zarowin, 1999; Collins et al., 1997; Cupic et al., 2022; Barth et al., 1996; Bernard,
1995; Stark and Thomas, 1998).
The majority of studies that examine the value relevance of dividends in developed
markets have discovered that dividends have a positive impact on firm value (Hand and
Landsman, 2005; Rees, 1997). Rees (1997) indicates that dividends have a bigger influence on
value than earnings held inside the company, based on an analysis of dividends, capital
structure and capital expenditure over 1987–1999. In his opinion, adding dividends will
improve the model’s capacity to explain valuation.
In recent years, researchers have examined the value relevance of accounting
information in emerging markets; they have argued that because markets are likely to be
imperfect and because there is less reliable information available in emerging markets than
in developed markets, stock prices may not always reflect all of the information that is
currently known about the company. As a result, in mature markets, the usefulness of
accounting numbers for decision-making is increased (Broedel Lopes, 2002). Chen et al.
(2001) have reported that book value and earnings are value-relevant in various segments of
the Chinese stock market based on empirical evidence from 1991 to 1998. Other researchers
(Ragab and Omran, 2006; Bae and Jeong, 2007; Pourheydari, Aflatooni, and Nikbakhat, 2008;
Al-Hares, AbuGhazaleh, and Haddad, 2012; Bilgic and Ibis, _ 2013; Omokhudu and Ibadin,
2015; Ahmadi and Bouri, 2018; Rahman and Liu, 2021; Srivastava and Muharam, 2021;
Cupic et al., 2022) have found similar results in different global markets.
Ragab and Omran (2006) have conducted research to examine the relevance of earnings
value and book value in the Egyptian Stock Market from 1998 to 2002. These findings
suggest that Egyptian financial accounting data may be more valuable than data from more
developed financial markets. Earnings based on book value also appear to have worth. Bae
and Jeong (2007) looked into the relationships between the earnings and book value of
Korean business conglomerates known as Chaebols from 1987 to 1998. Chaebols, in contrast
to other organizations, heavily concentrate their authority within one family or person. The
study found that companies’ levels of value relevance within a nation varied greatly;
businesses linked with business groupings had significantly lower levels of earnings and
book value relevance, and governance structure was a key factor in determining value
relevance. Pourheydari et al. (2008) did a study to look into the relationship between
dividends and book value and their significance to share market value for the companies
listed on the Tehran Stock Exchange from 1996 to 2004. Dividends, book values and profits,
as well as book values and dividends, all have almost comparable informative value,
IJLMA according to the study’s findings. However, it has been found that the value relevance of
65,4 these variables declines over time.
For a sample of all non-financial firms listed on the Kuwait Stock Exchange between
2003 and 2009, the value relevance of book value, earnings and dividends has been
investigated (Al-Hares et al., 2012). Dividends are not value-relevant when earnings are
included in the valuation model, but they become meaningful when profits are substituted
358 with dividends, the researchers have noted. The value importance of each variable is found
_ (2013) examined the value relevance of
to diminish over time, nevertheless. Bilgic and Ibis
financial statement information in Turkish stock markets between 1997 and 2011 using the
Ohlson (1995) technique. The results of the study have demonstrated that book values and
earnings together have a considerable impact on stock prices. Also, while both book values
and earnings have a significant impact on stock prices, book values have a greater
explanatory power than earnings.
Omokhudu and Ibadin (2015) used the basic Ohlson (1995) model and a variation of the
model that integrates cash flow from operations and dividends to perform a study to ascertain
the value relevance of accounting information in Nigeria. The researchers discovered that while
cash flow, earnings and dividends have statistical relevance when associated with company
value, book value is connected but not statistically significant. Ahmadi and Bouri (2018)
conducted a study to assess the accounting value relevance of book value and earnings in share
prices of banks and financial institutions listed on the Tunisian Stock Exchange from 2010 to
2015 using the panel regression technique on 24 banks and financial institutions during the
study period. They discover that there is a statistically significant correlation between
earnings, book value and company value. Also, there is a favorable correlation between the
employment of all of these criteria combined and the share price of the company. Rahman and
Liu (2021) examine whether the change in stock prices of 1,272 listed companies in the A-share
market of the Shanghai and Shenzhen Stock Exchange from 2008 to 2018 is related to the
release of financial accounting information. They discover a strong correlation between the
stock price response and the value relevance of accounting numbers, profitability, liquidity and
operational efficiency. Additionally, additional accounting factors with a greater impact on
market share price include earnings per share, current ratio, quick ratio and debt-to-equity
ratio. Using a price valuation model (Ohlson’s model), Srivastava and Muharam (2021)
investigated the relationship between profits, book values and stock prices in India over the
international financial reporting standards (IFRS) convergence period (2015–2019). Yet, the
substantial explanatory power of profits suggests that market participants give earnings more
weight than book values. They discovered that accounting information, such as earnings and
book value, had value relevance throughout the IFRS enforcement period. Cupic et al. (2022)
investigate the relationship between earnings and cash flows and stock prices and returns in a
sample of non-financial companies listed on the Belgrade Stock Exchange between 2005 and
2018. According to the authors, accounting earnings are clearly more valuable than cash flows.
The authors discover that after carrying out reforms in capital market regulation, the value
relevance of accounting information in Serbia increases.
There are not many studies in Jordan that provide information on the usefulness of
accounting data for companies listed on the Amman Stock Exchange. The value
significance of earnings and book value in relation to price and return for Jordanian
industrial firms and companies from 1992 to 2002, for instance, was examined in a
research study by Shamki and Abdul Rahman (2012). According to the study’s
findings, which were supported by the pricing model, the value significance of earnings
and book value (each separately) has increased; however, book value has decreased in
relevance when earnings are added together. Yet, when the return model is applied, it is
seen that profits’ relevance has increased, individually or collectively, but book value’s Value
importance has declined. The researchers came to the conclusion that when it comes to relevance of
explaining the fluctuation in share price and return, profits are shown to be more accounting
important than book value. Also, the outcomes demonstrate that earnings and book
value are more crucial to the pricing strategy.
information
This study is the first, to the best of the authors’ knowledge, to examine the value
relevance of dividends and cash flow from operations in financial companies listed on the 359
Amman stock market for the period 2014–2018 using a basic Ohlson (1995) model and a
modified version of the model that includes dividends and cash flow from operations. It also
examines the value relevance of earnings and book values.
In light of the literature review, the following hypotheses are proposed:

H1. For financial enterprises listed on the Amman exchange market, earnings and stock
prices are positively correlated.
H2. For financial enterprises listed on the Amman exchange market, book value and
stock prices have a positive correlation.
H3. Stock prices and dividends for financial corporations listed on the Amman
exchange market are positively correlated.
H4. The stock prices of financial organizations listed on the Amman exchange market
have a favorable correlation with operating cash flow.

5. Research methodology
5.1 Sample and data collection
This study makes use of secondary data from the Amman Stock Exchange (ASE) database,
which spans five time periods from 2014 to 2018 and contains 92 financial enterprises. In
addition, we cover this time period because panel data is available, increasing the possibility
of gathering comprehensive data on value relevance-stock price variables. Listed non-
financial corporations were not included because of the distinctive characteristics of their
accounting systems. The sample size for this empirical study is comprised of 92 financial
organizations that are listed on ASE, as was previously indicated. A total of 460 firm-year
observations were acquired as a result.

5.2 Variables measurements

5.2.1 Dependent variable. The share price, which is referred to as the dependent variable in
this study, is SP. For the years covered by this study, this variable was determined as the
share price six months after the fiscal year ended.
5.2.2 Independent variables. In the current study, we have used four ratios to measure
the accounting information. In more detail, first, book value per share was determined as a
ratio of each company’s equity to its most recent outstanding common share at fiscal year-
end. Second, dividends per share (DPS) were calculated as the total dividends attributable to
each outstanding share at fiscal year-end. Third, earnings per share were calculated as the
company’s profit divided by the number of common shares outstanding at fiscal year-end.
Fourth, operating cash flow from operations per share represents the company’s operating
cash flow divided by the number of common shares outstanding at fiscal year-end. All of
these ratios were taken from the company’s annual reports.
IJLMA 5.3 Research model
65,4 The calculated regression coefficients of accounting variables contained in the model as well
as in the study’s price valuation model are used to determine value relevance (R-squared).
According to Ohlson (1995), the relationship between equity book value, earnings and net
shareholder cash flows determines the value of a corporation (net dividends). Several
empirical studies demonstrate the significance of current profits and book value at time t in
360 explaining business value. The key justification for the value significance of current profits
and book value, according to Barth et al. (1996), is that earnings represent the firm’s current
worth. However, its liquidation value is represented by its book value. The resources that a
corporation can devote to generating future profits are represented by book value.
The model estimated in this research paper, referred to as Model (1), is:

SPit ¼ a0 þ a1 BVSit þ a2 EPSit þ «it (1)

The basic (Ohlson, 1995) model is also modified so that it can accommodate dividends
following the Beattie’s (2000) suggestion. Ohlson (1995) suggests that dividends may be
relevant in determining stock prices. The modified model in this paper, which is referred to
as Model (2), is:

SPit ¼ a0 þ a1 BVSit þ a2 EPSit þ a3 DPSit þ «it (2)

Motivated by Dechow (1994), this study includes cash flow as it may provide additional
information about a firm’s financial situation, whereas earnings and book value do not. The
other modified model in this study referred to as Model (3), is:

SPit ¼ a0 þ a1 BVSit þ a2 EPSit þ a3 CFFOit þ «it (3)

The variables used in this study are defined as follows: SPit is the market value of the
common stock six months after the fiscal year of firm i in year t end; BVSit is the book
value of the common stock of the firm i in year t end; EPSit is the earnings per share of the
firm i in year t end; «it is the error term; DPSit is the dividend per share for firm i in year t
end; CFFOit is the cash flow from operations per share for firm i in year t end.
The models’ coefficients are calculated using ordinary least squares (OLS) methods.
Heteroscedasticity-corrected variances and standard errors are used (White, 1980) to reduce
the effects of any residual heteroscedasticity. The yearly financial reports of Amman
companies from 2014 to 2018 provided the information for this inquiry.

6. Results and discussion

6.1 Descriptive statistics
Data descriptive statistics can give a general description of how chosen data behaves as well as
basic information on sample data (Wang and Chang, 2008). Descriptive statistics for stock
prices and accounting information indexes from financial enterprises listed on the Amman
stock exchange are shown in Table 1. Table 1 lists the minimal, maximal, average, mean and
standard deviation of the variables. The stock prices of financial businesses listed on the
Amman Stock Exchange range between 0.0 and 9.98, with an average of 1.19 and a standard
deviation of 1.30, according to descriptive statistics. Moreover, the range of earnings per share
is between 0.66 and 0.9, with an average of 0.0408 and a standard deviation of 0.1443. With a
mean value of 1.27 and a standard deviation of 0.85, the book value per share runs from 0.01 to
7.41. The mean dividend per share is 0.032 and the standard deviation is 0.0642. The DPS range
from 0.0 to 0.45. Last but not least, the operating cash flow per share has a range of 940.64 to Value
812.2, an average of 10.64 and a standard deviation of 214.72. relevance of
6.1.1 Bivariate analysis. Using the correlation matrix “Pearson’s correlation,” it was accounting
determined whether there was a problem with multicollinearity among independent information
variables, as shown in Table 2. Collinearity between tiers of independent variables must not
exist (cash flow from operations per share, earnings per share and DPS, book value per
share). Multicollinearity is more likely to be severe when the correlation coefficient between 361
two input variables exceeds 0.8 (Gujarati, 2011). Table 2 shows that multicollinearity among
the input variables is not a problem. Investigating the multicollinearity problem can also be
done using the variance inflation factor (VIF). If the VIF number is less than 10, there is no
multicollinearity, claims Hair Jr (2006). The findings are shown in Table 3. Because neither
independent variable has a VIF value larger than 10, there is no multicollinearity.

6.2 Diagnostic tests

In addition, serial correlation and heteroscedasticity are two severe problems that might result
in inaccurate regression coefficient standard errors (Gujarati, 2011). To ensure the results were

Variables Mean Median Min Max SD

SP 1.193514 0.83 0.00 9.98 1.307096

EPS 0.0408378 0.01 0.66 0.9 0.1443818
BVS 1.271432 1.06 0.01 7.41 0.850985
DPS 0.032973 0.00 0.00 0.45 0.0644962
CFFO 10.64 1.32 940.6 812.2 214.72
Table 1.
Source: Table by the authors Descriptive statistics

SP CFFO EPS DPS BVS

SP 1.0000
OCF 0.3360 1.0000
EPS 0.5779 0.3434 1.0000
DPS 0.5964 0.3719 0.7211 1.0000
BVS 0.6578 0.3061 0.6897 0.6865 1.0000
Table 2.
Source: Table by the authors Correlation matrix

Variables VIF 1/VIF

DPS 2.75 0.36

EPS 2.67 0.37
BVS 2.55 0.39
CFFO 1.24 0.81
Mean VIF 2.34 Table 3.
Multicollinearity
Source: Table by the authors tests
IJLMA accurate, Breusch–Pagan/Cook–Weisberg tests for heteroscedasticity were used. In this
65,4 example, the null hypothesis is that error variances will not change (homoscedasticity). The
findings indicate that the p-value for the Chi-square statistics is greater than the significance
level of 0.2840. As a result, the alternative hypothesis is firmly rejected, whereas the null
hypothesis is supported. The residuals lack heteroscedasticity as a result.
A straightforward test was proposed by Wooldridge (2002) and Drukker (2003) to identify
362 the autocorrelation in linear panel data (Wooldridge test). The econometric model’s null
hypothesis demonstrates that there is no serial association. The p-value for the Wooldridge test
is 0.3846. The null hypothesis was accepted because the test statistics are not significant at the
0.05 level. This suggests that our study model does not include autocorrelation. The regression
residuals were also subjected to Jarque–Bera statistics.

6.3 Empirical results

The results are discussed in terms of estimating Models 1–3. Market inefficiency is taken
into consideration via regression analysis, with the dependent variable being examined six
months after the year’s conclusion (three months from the date of issuance of the financial
statements). To more fully integrate the accounting data at year-end, it is advantageous to
use prices from some time following year-end. Time must pass to rectify the issue of the
market’s incapacity to accept accounting information released after the year’s end.
Model 1 is used to examine the value relevance of earnings and book values by
regressing stock prices on earnings and book values. The coefficients, t-statistics and p-
values for the results of the Model 1 two-tailed regression are shown in Table 4. The value
relevance of earnings and book values was assessed by examining the statistical
significance of the slope coefficients on earnings and book values. The coefficients of
earning per share (EPS) is (b = 1.77; p < 0.01). According to this finding, there is a strong
correlation between earnings per share and stock prices. (t = 9.29) The coefficient of book
values is 0.6741. The p-value is also (0.000). This finding implies that book values are
likewise significantly and positively correlated with stock prices. The importance of EPS
and BVS in determining the levels of price share of Jordanian financial institutions was thus
supported by these findings. Regarding customary diagnostic procedures, the results are
judged satisfactory. The independent factors jointly account for around 50.37% of the total
variation in the dependent variables, as shown by the first model’s outcome, according to the
relatively high R2 value. F-statistics (F = 204 and p = 0.0000) show that Model 1’s overall
performance is deemed adequate. As would be predicted, these findings confirm earlier
research findings that were reported in established and emerging markets (Stark and
Thomas, 1998; Collins et al., 1997; Ahmadi and Bouri, 2018) and provide evidence to support
the hypotheses H1 and H2. The fact that book value per share has a higher t-value than

Variables Coef. Std. error t p-Value

EPS 1.771424*** 0.4063128 5.07 0.000

BVS 0.674169*** 0.0835525 9.29 0.000
Constant 0.1315844* 0.090974 1.68 0.093
R-squared 0.5062
Adj. R-squared 0.5037
Table 4.
F-statistics 204.48***
Multiple regression
analysis using the Note: SPit ¼ a0þ a1 EPSit þ a2 BVSit þ «it – Model (1)
OLS model Source: Table by the authors
earnings per share further supports the idea that book value is more important than Value
earnings in the stock price valuation of Jordanian financial firms. These findings typically relevance of
indicate that earnings and book values are significant accounting factors in the valuation
process. Yet, book values are more important than EPS for valuation purposes. It might be
accounting
argued that as a result, Jordanian investors value the balance sheet higher than the income information
statement for valuation purposes.
Model 2 is used to investigate the value relevance of dividends by regressing stock prices on
earnings book values and DPS. Results from Model 2 estimation in Table 5 show a strong, 363
significant and positive relationship between DPS and share price (p-value = 0.000, t-value =
4.82). The results confirm earlier studies and give evidence to support H3 as expected
(Omokhudu and Ibadin, 2015). Moreover, the adjusted R2 for Model 2 is 53%, compared with
Model 1’s (50%). This indicates that Model 2’s explanatory power is greater than Model 1’s
with just book value, earnings and dividends. The usefulness of dividends as a proxy for a
company’s permanent component of earnings can be explained by the positive and large
impact dividends have on market share prices (Al-Hares et al., 2012). Also, the regression
analysis of Model 2 demonstrates that DPS are more significant than earnings in affecting
share price (p-value = 0.000, t-value = 4.82 for DPS vs EPS, p-value = 0.016, t-value = 2.41).
This result, that dividends have more explanatory power than wages, is in line with earlier
studies (Brief and Zarowin, 1999). Also, according to Model 2’s data (p-value = 0.000 and
t-value = 6.52), book value is the most important factor in explaining share price change.
Last but not least, the cash flow outcomes from operations show that they are favorable
and significantly affect share values. The data in Table 6 for Model 3 reveal that cash flow
from operations and share price are positively and substantially correlated, with a t-statistic
of 2.4 and a p-value of 0.013. As a result, it is clear that cash flow is an important resource for

Variables Coef. Std. error t p-Value

EPS 0.9233011** 0.4063128 2.41 0.016

BVS 0.5111019*** 0.0835525 6.52 0.000
DPS 0.036798*** 0.090974 4.82 0.000
R-squared 0.5332
Adj. R-squared 0.5297
Table 5.
F-statistics 212.55***
Multiple regression
Note: SPit ¼ a0 þ a1 EPSit þ a2 BVSit þ a3 DPSit þ «it – Model (2) analysis using the
Source: Table by the authors OLS model

Variables Coef. Std. error t p-Value

EPS 1.644704*** 0.3595318 4.59 0.000

BVS 0.6753515*** 0.0733975 9.29 0.000
CFFO 0.0052674** 0.0019538 2.4 0.013
R-squared 0.5197
Adj. R-squared 0.5132
Table 6.
F-statistics 201.42***
Multiple regression
Note: SPit ¼ a0 þ a1 EPSit þ a2 BVSit þ a3 CFFOit þ «it – Model (3) analysis using the
Source: Table by the authors OLS model
IJLMA financial institutions that are listed on the Amman stock exchange. This result contradicts
65,4 some theories while supporting H4 and earlier research (Omokhudu and Ibadin, 2015;
Mostafa, 2016). Earnings per share have a stronger explanatory power than cash flow,
according to the results of Model 2 statistics, we can see that the t-value and p-value of EPS
are 4.59 and 0.00, respectively, where they are 2.4 and 0.013 for CFFO. This finding suggests
that CFFO is less relevant than earnings in interpreting stock price variations. Finally,
364 Model 2 results confirm that book value is the most relevant among other accounting
information. As t = 9.29, the R2 in Model 3 is 51% rather than Model 2’s (53%), which is
lower. This suggests that among Jordanian financial institutions, DPS are more significant
than cash flow from operations per share.
The results show the value relevance of book value, profits, dividends and cash flow
from operations in Amman stock market financial companies, which is a positive indicator
that investors in Jordan are taking the accounting data into consideration when evaluating
the firm’s value. Yet, it was discovered that book value was the most effective factor in
explaining variations in stock price. As a result, in terms of valuing a company, the balance
sheet statement is more significant than the income statement and cash flow statement.
Also, it is discovered that DPS are more significant than earnings per share and cash flow
from operations, with cash flow from operations having the lowest value relevance when
compared with other factors.

7. Conclusion and policy recommendations

The goal of this article is to examine the extent to which accounting information, in particular
EPS, book value of equity (BVE), DPS and CFFO, may explain share price fluctuation given the
dearth of research on the value relevance of accounting information in Jordan. Overall, there is
evidence that the Amman stock market’s accounting information is value relevant because all
of the correlations predicted by the analysis have very high levels of significance. This shows
that, generally speaking, financial reporting is valuable and practical for Jordanian investors.
These findings have significant ramifications for academic research and practice by increasing
the value relevance of accounting information literature in the context of emerging economies
in general and the MENA region in particular. The investigation’s findings also have policy
ramifications for regulators, investors and listed company management. Investors should place
more attention on book values while concentrating on earnings, dividends and cash flows. To
avoid investors making poor investment decisions that have an impact on the economy,
regulators must communicate accounting information to the investing public in a high-quality
manner. The level of earnings stated in a listed company’s financial statements must be known
to the management. Because of the relationship between earnings and asset prices, it follows
that businesses make investments and innovate to increase earnings. Because of this,
businesses are obligated to consider business expenses. To generate higher earnings, they must
look for creative ways to cut costs.
The “buy–hold” mentality may also have an impact on the value relevance of dividends
and cash flow. So, management is required to guarantee the regular payment of dividends
under the condition that there is a substantial and sustainable cash flow from activities. As a
result, Jordan’s listed companies need to improve corporate governance, especially as it
affects investor returns. In addition, the public’s confidence in financial institutions is
essential for the system to function correctly and survive (Bankole and Ukolobi, 2020). To
reduce management opportunism toward distributions to shareholders, the code of
corporate governance and applicable laws must include rules, regulations and processes.
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Corresponding author
Osama Abdelrahim Ahmad Khader can be contacted at: o.khader@ptuk.edu.ps

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