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RELATIONSHIP OF SHARE PRICE WITH EARNINGS AND BOOK VALUE OF EQUITY: PARAMOUNT IMPACT OF IFRS ADOPTION IN PAKISTAN

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Author(s): Dr. Rehana Kouser | Muhammad Azeem

Journal: Economics and Finance Review
ISSN 2047-0401

Volume: 1;
Issue: 8;
Start page: 84;
Date: 2011;
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Keywords: Share Price | IAS | IFRS | Stock valuation | Earnings per share | Book value of Equity | Market Capitalization

ABSTRACT
International Financial Reporting Standards (IFRS) is the most conversant term in the financial reporting sincethe beginning of 21stcentury. Impacts of this adoption include the improved quality of financial reporting, less earnings management, more comparability, and high relevance for stock price determination of financial information. The statistical power to explain changes in share price and intervening impact of IFRS adoption isthe focus of this research. We used two independent variables, which are book value of equity and earnings. A year by year OLS regression is used for data analysis. Study period is comprised of eight years i.e. period of2002 to 2009. Sample of fifty two largest companies on the basis of market capitalization are drawn from the population of non-financial public limited companies listed on Karachi Stock Exchange. Study shows almost similar results in Pakistan as earlier studies of different countries empirically proved. It is proven by high values of R2(64.33%) and Adj. R2(62.88) in 2005. Notification of multiple IFRSs can be regarded the reason of these improved figures. Similarly in 2009 higher figures (72.94% and 71.84%) show the high relevance of accounting numbers which is the result of high quality investor oriented financial quality.
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