| Summary: | This study aims to evaluate the usefulness of accounting earnings disclosures as
determinants of share price changes both in sign and magnitude for an emerging
market. This thesis attempts to answer the contentious question as to whether the
accepted findings in several institutionally more developed capital markets about the
value relevance of accounting earnings is applicable to firms traded in more
speculative emerging markets. Many studies have identified the different
characteristic of these two types of markets. Amongst the more important
distinguishing characteristics of emerging and developed capital markets are (a)
economic and institutional differences, (b) size-related features, (c) liquidity
differences, (d) information availability and (e) the nature of the market's integration
within the financial system.
The returns-to-earnings relation is based on three postulated links. These are
links between the (1) present price and the future dividends, (2) future dividends and
the future earnings, and (3) future earnings and the current earnings. These links
have been evidenced in many empirical findings reported by researchers on share
price valuation, on earnings and dividends relation, on random walk theory of
earnings, and many others studies. A pioneer study on the directional sign effect of unexpected earnings on stock returns appeared in 1968, the magnitude effect was
first studied in 1979.
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