The Influence of Economic Factors on the Value Relevance of Accounting Information in Jordan

The paper examines the influence of economic factors namely foreign ownership and trading volume on the value relevance of earnings, book value and cash flows relative to three share price proxies namely average annual share price, annual closing share price and share price after a three-month period following the financial year-end (hereafter ATM-share price), after controlling company’s size and leverage for Jordanian services and industrial companies within the period 2004-2009. Since the paper is the first, as the researcher believes, that examines the influence of foreign ownership and trading volume on the value relevance of earnings, book value and cash flows in an emerging exchange, it aims to provide evidence regarding the influence of these factors on the value relevance of accounting information. The paper found that the value relevance of earnings and book value is greater for companies having foreign ownership and larger trading volume. With the effect of these factors, closing share price shows more response than the other share price proxies. The findings suggest that market participants might be able to extract the firm value via these economic factors. The paper extends the valuation model by including cash flows together with earnings and book value. The findings demonstrate that there is a shift away from earnings towards book value as the basis of firm valuation.