The relation of the market ratios to the financial ratios in the Romanian companies
Supp/2007 , p 748..759
Author(s):
Camelia VASILESCU
Keywords:
Financial statement analysis, financial ratios, market ratios, value-relevance of fundamentals, accounting system reform
Abstract:
Financial statement ratios analysis is considered to be a very powerful analytical technique in assessing the performance of the business enterprise. In literature it has been demonstrated that fundamentals determine the multiples, as well as the changes in these fundamentals translate into changes in the multiples. The results of our empirical study conducted over a 200 listed Romanian firm-sample, reveal that there is only a weak relation between financial ratios and market-based ratios and it can be regressed by nonlinear regression models. The low value-relevance of financial-accounting information over the market performance of the Romanian companies was mainly due to the high volatility of financial data in the context of an unfriendly business environment. The accounting reform in Romania has made a relative progress, but the investors on the capital market prefer to use especially non-financial statements information for making their portfolio investment decisions, being concerned with the accuracy and readability of the companies’ accounting reports, transparency of information regarding capital flows and the application of familiar (standard) accounting principles based on recognised and applied IFRS framework
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